NEW YORK — Middle East crude shipments have recovered substantially as the war with Iran drags into its eighth month, far longer than the one month many had expected. The main reason is the so-called shuttle operation, a workaround oil producers are using to evade attacks by Iran's Islamic Revolutionary Guard Corps. Saudi Arabia, the world's largest crude exporter, has also partially restarted its East-West pipeline, which was hit on Sept. 11 by a drone strike believed to have been carried out by pro-Iran militias in Iraq. On top of that, Saudi Arabia and Yemeni government forces have launched a sweeping campaign to drive the pro-Iran Houthi rebels out of the Red Sea area, including the Bab el-Mandeb strait. The problem is that shuttle operations carry enormous costs, starting with insurance. Under the current setup, even if Middle East crude shipments return to prewar levels, oil prices are unlikely to follow. Iran also continues to use force in the Strait of Hormuz. Yemeni forces may be able to retake the Red Sea area temporarily, but the odds that they fully subdue the Houthis are relatively low. With the Trump administration having put off its response to the Iran war until after the November midterm elections, oil prices look set to stay somewhat elevated at least through the end of the year.
Saudi, Yemeni Forces Move to Retake Red Sea Trade Route as U.S. Refuses Direct Strikes
Yemeni government forces began an operation on the 4th to retake the Red Sea trade route held by Houthi rebels, with backing from the United States and Saudi Arabia, Reuters reported. Rashad al-Alimi, chairman of Yemen's Presidential Leadership Council, said in a televised address the same day that he was declaring the start of a military operation to extend the authority of state institutions across the entire national territory. Reuters also reported on the 2nd that Yemeni government forces were preparing a ground and air offensive against the Houthis together with Saudi Arabia, and that more than 100,000 government troops and pro-government armed groups could be mobilized.
The Houthis declared an end to a four-year truce on July 20, blaming Saudi Arabia for the bombing of the airport in Sanaa, the Yemeni capital, and launched a large-scale air campaign. On Sept. 10, the rebels seized Mocha, a major port on the Red Sea coast, and the following day took Perim Island, also known as Mayyun, a strategic point inside the Bab el-Mandeb strait that divides the shipping channel at its center. The Houthis also captured Greater Hanish and Lesser Hanish, the last two islands in the strait. Reuters reported that the rebels acted under direct command of the Islamic Revolutionary Guard Corps as they advanced on Mocha on the 10th. The Houthis now effectively control about 30% of Yemen's territory and more than 70% of its population, making them a quasi-state force.
The New York Times reported that most of President Donald Trump's advisers oppose intervening in the Yemen war as well, given the strain on U.S. forces. Trump twice rejected requests from Saudi Crown Prince Mohammed bin Salman Al Saud for airstrikes on the Houthis on Sept. 10. On the 17th of the same month, he accepted the crown prince's repeated requests but ran into opposition from most of his staff.
Instead of direct military strikes, the United States is supporting the Yemen war indirectly, including by providing intelligence. More than 200 U.S. military intelligence and analysis officers have been deployed to Saudi Arabia to help the Yemeni government with target analysis. The United States is also known to supply jet fuel when Saudi fighter aircraft fly defensive air patrols.
A Saudi-led coalition retook Dhubab, Bab and Hadid, key points north of the Bab el-Mandeb strait in the Red Sea, on the 5th, according to Britain's Guardian and other outlets. Maj. Gen. Turki al-Malki, the Saudi coalition spokesman, said 100 fighter jets were supporting the coalition, which he said had secured air defense rights over the Bab el-Mandeb strait and destroyed hundreds of Houthi targets. Maj. Gen. Majid al-Nuzaili, spokesman for Yemeni government forces, said the same day that they had cut the road linking Dhubab, which overlooks the strait, and Mocha, and had secured fire control over the route.
The Houthis seized Turbah, a key government stronghold, as they advanced on Taiz, Yemen's third-largest city and a strategic point. The rebels also fired ballistic missiles and drones the same day at Riyadh airport and refining facilities of state-run Aramco, stepping up pressure on Saudi Arabia.
The New York Times said the Yemeni government's operation could further complicate the Iran war. With neither the United States nor Iran formally at war, instability over control of the Red Sea could change the weight of negotiations between the two countries over the Strait of Hormuz. More than 800 people have been killed in Yemen alone since August and more than 150,000 have been displaced, according to the World Health Organization and the World Food Programme.
Reuters reported on the 4th that Saudi Arabia had indefinitely suspended plans to build Neom Stadium for the 2034 FIFA World Cup. The venue is considered the most futuristic of the 15 stadiums Saudi Arabia is preparing for the tournament.
Hormuz Crude Flows Recover to 80% of Prewar Levels on Shuttle Runs, While Iranian Loadings Hit Zero
With the prospect emerging that Saudi Arabia and the Yemeni government could regain control of the Red Sea, crude volumes passing through the Strait of Hormuz have abruptly returned toward prewar levels. JPMorgan's global commodities research team estimated in a recent report that Middle East crude exports through the Persian Gulf and the Red Sea were averaging 17.5 million barrels a day, CNN reported on Sept. 29. That is 98% of prewar volumes. Maritime intelligence firm Kpler calculated that crude and petroleum product shipments through the Strait of Hormuz averaged 13.1 million barrels a day from Sept. 21 to 27. Given prewar daily volumes of 17.1 million barrels, that amounts to a recovery to 77%.
Al Jazeera, citing Kpler, reported on Sept. 30 that Middle East countries exported an average of 16.32 million barrels a day in September, the highest monthly figure since March. That was 16% below the daily average of 19.51 million barrels in February, just before the Iran war broke out. Actual exports may have been higher, since vessels sailing without position data to evade Iranian tracking are excluded from the statistics.
The recovery is due to shuttle operations by Gulf oil producers, which are absorbing enormous costs to push through repeated Iranian attacks on merchant ships. Shuttle operations are a ship-to-ship transfer technique that Iran and Russia had used covertly to evade sanctions. Gulf producers including Saudi Arabia are sustaining exports by sending very large crude carriers inside the Strait of Hormuz to load crude at port, then transferring the cargo to other vessels waiting outside the strait, The Wall Street Journal reported on the 5th. The receiving vessels sail through the Strait of Hormuz at night with windows closed and all lights switched off. They also cut GPS signals for several hours while transiting the strait, using radar instead to calculate angles and distances to islands and headlands to fix their positions. Reliance on shuttle operations has grown since Saudi Arabia's partially restored East-West pipeline was exposed to the drone attack. Abu Dhabi National Oil Co. of the United Arab Emirates has run such a shuttle service since April, and Saudi Arabia recently expanded its use of the method.
Shuttle operations cost $30 million to $40 million, or about 40 billion to 54 billion won. Excluding insurance, they add roughly $15 to $20 a barrel, or about 20,000 to 27,000 won. Charter rates for very large crude carriers shipping oil from the Gulf to China surged from $231,400 a day just before the war to more than $1.2 million late last month. As risks mounted, wages for crews from India, the Philippines, China and elsewhere also doubled or tripled.
Beyond shuttle operations, U.S. Navy escort missions have helped lift Middle East crude shipments. U.S. forces also neutralized Iranian data and communications facilities along the Strait of Hormuz in a series of strikes.
Liquefied natural gas carrier traffic through the Strait of Hormuz also hit its highest level since the war began last month, Reuters reported on the 1st. S&P Global Energy counted 19 LNG carriers transiting the strait in September, the report said, more than the 15 recorded in June, when the United States and Iran signed a memorandum of understanding on ending the war. Of those, 13 sailed from Qatar and six from the UAE. Kpler put the figure at 21.
That stood in stark contrast with Iran, which loaded no crude at all over the same period. Bloomberg reported on the 1st that Iran failed to load any crude onto tankers last month in the aftermath of the U.S. naval blockade. It was the first month with zero loadings since the United States and Israel began airstrikes on Feb. 28. As recently as August, Iran was shipping about 250,000 barrels a day.
Cease-Fire Talks Still at an Impasse, With High Prices Likely Until U.S. Midterms
Signs of change are emerging around the Strait of Hormuz and the Red Sea, but the prospect of a cease-fire between the United States and Iran remains distant. Mohammad Bagher Ghalibaf, the Iranian parliament speaker who leads Tehran's negotiating team, said the U.S. side, which says something different in the media, had recently put forward a proposal through mediators, Reuters reported on the 4th. "But they must understand that the era of dragging out the process and imposing unilateral demands is over," he said. Ghalibaf stressed that Iran's position was entirely firm and that the Strait of Hormuz would not be opened until the country's seven conditions, based on the existing memorandum of understanding, were met. Iranian Foreign Minister Abbas Araghchi said the same day in a meeting with foreign ambassadors and diplomats in Tehran that Iran had clearly explained to the United States its conditions for reopening the strait.
Iran presented a new cease-fire proposal to the United States in New York last month on the sidelines of the U.N. General Assembly. At the time, Tehran conveyed through mediators that it could reopen the Strait of Hormuz within seven days if Washington eased military pressure. The conditions it said the United States must meet included halting hostile acts such as the naval blockade and economic terrorism, ending the war on all fronts, returning frozen Iranian assets and guaranteeing safe passage through Hormuz. The package broadly resembled the cease-fire memorandum the two countries signed in June, in that it omitted dismantling the nuclear program or removing highly enriched uranium.
Araghchi then met mediators in Doha, Qatar, on Sept. 29 and received the U.S. response to the proposal. Foreign Ministry spokesman Esmail Baghaei said he had conveyed Tehran's position on the U.S. answer to the mediators, saying the United States was focused on the nuclear issue as before while Iran wanted the focus on the Strait of Hormuz.
The Trump administration's top foreign policy and security officials — Vice President JD Vance, Secretary of State Marco Rubio, Defense Secretary Pete Hegseth, Middle East envoy Steve Witkoff, CIA Director John Ratcliffe and Gen. Dan Caine, chairman of the Joint Chiefs of Staff — held a highly classified meeting at Camp David, the presidential retreat, on the 2nd to discuss responses to the situation in the Middle East, according to U.S. online outlet Axios. A similar meeting was last held in June of last year, just before the United States struck three Iranian nuclear facilities.
In an interview with Time magazine conducted on Sept. 28 and published on the 1st, Trump said he could escalate the bombing of Iran after the midterm elections. Asked about his remark at the U.N. General Assembly on Sept. 22 that he could "annihilate" Iran, he said it was possible. Trump said he had plenty of weapons after stockpiling them over the past six months and dismissed talk of an ammunition shortage as mostly fake news.
Energy Secretary Chris Wright said on CBS on the 4th that U.S. diesel prices would fall below $6 a gallon, or about 3.79 liters, as European countries release strategic reserves. The average U.S. diesel price had climbed to $6.52 a gallon as of Sept. 22, up 76.7% from a year earlier. Rising diesel prices are seen as a serious liability for the Trump administration in the midterms. The Group of Seven — the United States, Britain, France, Germany, Italy, Canada and Japan — agreed on the 2nd to release 100 million barrels of stored diesel and crude through the International Energy Agency over four months. The decision came after the Trump administration threatened to ban U.S. diesel exports unless the countries tapped their reserves, prompting the G7, most of whose members are energy-vulnerable, to make the concession.
Crude supply is easing bit by bit, but international oil prices have yet to fall much. On the 6th, December Brent crude futures closed at $100.58 a barrel on London's ICE Futures exchange, up 0.26% from the previous session, while November West Texas Intermediate futures ended at $89.44 a barrel on the New York Mercantile Exchange, up 0.01%. Beyond uncertainty over the Saudi-Yemeni conflict, a renewed rise in attacks on merchant ships near the Strait of Hormuz also weighed on the market. The United Kingdom Maritime Trade Operations has reported seven attacks on vessels near the strait since Sept. 28. Oman's Defense Ministry said on X, formerly Twitter, on the 6th that 10 crew members of the Panama-flagged Onfis had been evacuated with injuries. India's Foreign Ministry added that 17 of the vessel's 19 crew members were Indian and that 12 people, including 11 Indians, were hurt in the attack. Oil market jitters look unlikely to subside before the end of the year.
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