Gulf oil producers are pressing ahead with high-risk "shuttle runs" to keep crude flowing despite Iranian military threats, absorbing costs that can top 50 billion won per voyage. They have concluded that paying the premium beats leaving the oil in the ground.
Saudi Arabia and other Gulf producers are sending very large crude carriers into the Strait of Hormuz to load at port, then transferring the cargo to other vessels waiting outside the strait, The Wall Street Journal reported on the 5th.
The practice emerged after the outbreak of the U.S.-Iran war, when buyers in Asia and elsewhere grew reluctant to send their own ships inside the Gulf. Producers appear to have judged that shouldering the heavy transport costs and risks is still better economics than letting the crude sit.
Each shuttle run costs $30 million to $40 million, or 40.3 billion to 53.7 billion won. Excluding insurance, that adds roughly $15 to $20 per barrel, or 20,000 to 27,000 won. The largest single component is the tanker charter rate. The share of shuttle costs accounted for by freight is not precisely known, but daily charter rates for very large crude carriers hauling Gulf crude to China jumped from about $231,400 just before the war to more than $1.2 million by late September.
Crews willing to take the risk are being paid accordingly. Seafarers from India, the Philippines and China are typically earning two to three times their normal wages. One crewing agency has offered a round-voyage bonus of up to $25,000, or about 34 million won, more than a year's pay for an engine-room rating. "Compared with the millions shipowners are making right now, it's nothing," said Richard Matthews, a director at shipbroker E.A. Gibson.
The shuttle shipping market is dominated by a handful of owners, including South Korea's Sinokor and Dynacom Tankers Management, controlled by Greek billionaire George Prokopiou, according to the Journal. Smaller owners have joined more recently, among them operators of aging vessels that had been carrying Venezuelan and Russian crude.
Running the Hormuz Gauntlet as Crude Exports Return to Prewar Levels
Vessels transit the strait at night with windows shuttered and all lights switched off. Global Positioning System signals cut out for hours at a time during the passage, forcing crews to fix their position by radar, calculating bearings and distances to islands and headlands.
The danger remains high. Seven vessels have been attacked near the Strait of Hormuz since the 28th of last month, according to the United Kingdom Maritime Trade Operations and other sources. Some of the ships hit were confirmed to be tankers on shuttle runs. Nine merchant vessels have been attacked near the strait over the past two weeks, leaving two crew members injured and one dead.
Even as the military threat to the strait grows, the volume of crude escaping through it has surged. Preliminary data from vessel-tracking firm Kpler put the seven-day average of crude exports through the Strait of Hormuz at 18.3 million barrels a day as of the 30th of last month, above the prewar average of 18 million barrels a day. Exports exceeded prewar levels on 14 days during September. Shipping data provider Vortexa also reported that Gulf export volumes have recovered to pre-conflict levels. Liquefied natural gas cargoes passing through the strait hit their highest level since February in September.
The export surge is attributed in part to the attack on Saudi Arabia's East-West pipeline on the 10th of last month. The pipeline has been partially restored but is running below pre-attack capacity, leaving producers with little choice but to route crude through Hormuz.
"Most of the increase in Middle East crude exports in September came from Saudi Arabia," one analyst said. "Higher Middle East supply should help ease the market's supply shortfall, particularly for Asian refiners."
