Disruption of Oil Exports Amid Strait of Hormuz Crisis

The Strait of Hormuz, a critical waterway for global oil supply, has effectively been closed due to escalating military tensions, particularly between Iran and its adversaries. This closure has severely impacted oil exports from the Arabian Peninsula, which typically accounts for about 20% of global oil consumption. The U.S. Energy Information Administration reported that in 2024, approximately 20 million barrels per day passed through this strait. However, following Iranian attacks on oil tankers, nearly all shipping traffic has halted, leading to significant disruptions in global oil markets.

With the Strait of Hormuz effectively closed, alternative routes pose little helpIraq halts oil exports due to situation in Strait of HormuzYnetNewsTensions rise as zombie ships bypass sanctions in Hormuz

In response to the crisis, Saudi Arabia has increased its crude oil exports through the Yanbu port on the Red Sea, which is connected to the East-West pipeline. This pipeline spans roughly 750 miles across the kingdom, allowing for a surge in exports from Yanbu, which have reportedly increased from an average of 750,000 barrels per day to 2.5 million barrels per day in recent weeks. This strategy aims to mitigate the impact of the Strait of Hormuz closure, although analysts caution that if both Yanbu and the United Arab Emirates' Fujairah terminal were compromised, moving oil out of the Arabian Peninsula would become "virtually impossible."

With the Strait of Hormuz effectively closed, alternative routes pose little helpMarketWatchYnetNewsIraq halts oil exports due to situation in Strait of Hormuz

The situation is further complicated by Iraq's declaration of force majeure on oil fields developed by foreign companies due to the disruptions in the Strait of Hormuz. The Iraqi Ministry of Oil reported that exports have effectively stopped, with production from Basra Oil Company plummeting from approximately 3.3 million barrels per day to about 900,000 barrels per day. This halt is expected to have severe economic repercussions for Iraq, which heavily relies on oil revenues.

Iraq halts oil exports due to situation in Strait of HormuzWith the Strait of Hormuz effectively closed, alternative routes pose little helpYnetNewsTensions rise as zombie ships bypass sanctions in Hormuz

While Saudi Arabia and the UAE have attempted to bolster their export capabilities, the overall system remains vulnerable. The only significant alternatives to the Strait of Hormuz are the East-West pipeline and the ADCOP pipeline from the UAE to Fujairah. However, any disruption to these routes could exacerbate the crisis. Additionally, liquefied natural gas exports face even greater vulnerabilities, as there are effectively no alternative routes outside of the Strait of Hormuz.

With the Strait of Hormuz effectively closed, alternative routes pose little help

Israeli Prime Minister Benjamin Netanyahu has proposed a regional oil pipeline linking Gulf states to Israel, which could bypass the Strait of Hormuz. However, Saudi Arabia has shown reluctance to advance this proposal, likely due to political tensions with Israel. This pipeline, envisioned to connect Yanbu to Eilat and then to European markets, was discussed during previous U.S. administrations but has not gained traction.

YnetNewsWith the Strait of Hormuz effectively closed, alternative routes pose little helpIraq halts oil exports due to situation in Strait of HormuzMarketWatch

The situation remains fluid, with approximately 20,000 sailors stranded in the Strait of Hormuz and the U.S. considering naval escorts for commercial vessels. However, the risk of Iranian attacks remains high, and reopening the route could take weeks. The emergence of "zombie ships," vessels disguised to evade sanctions, further complicates maritime safety and security in the region. As tensions escalate, the potential for increased military engagement and further disruptions to global oil supply looms large.

YnetNewsTensions rise as zombie ships bypass sanctions in HormuzWith the Strait of Hormuz effectively closed, alternative routes pose little help

• “If both Yanbu and Fujairah were compromised, moving oil out of the Arabian Peninsula would become "virtually impossible," according to Smith.” — Matt Smith, Kpler Oil Analyst

With the Strait of Hormuz effectively closed, alternative routes pose little help

• “The plan was discussed during Trump’s first term. If it had been accepted, Iran would have no ability today to harm the global energy market,” — Source familiar with the discussions.

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