Gulf oil exports are recovering after months of disruption caused by the US-Israeli war with Iran, but supplies are still far below the levels seen before the conflict.
Crude exports from the Middle East‘s main oil producers are expected to reach 12.8 million barrels per day (bpd) in September, the highest level since the war began in February, according to preliminary data from oil tracking firm Kpler.
Saudi Arabia and the United Arab Emirates have driven most of the increase. But the recovery is still far from complete. Regional exports remain around 6 million bpd below the 18.8 million bpd shipped in February before the war began.
With Brent crude trading above $100 a barrel, India and other Asian oil importers are closely watching the Strait of Hormuz and the stalled US-Iran talks.
Saudi Arabia leads the recovery
Saudi Arabia, the Gulf’s biggest oil exporter, is on course to ship around 5.4 million bpd in September. That is more than twice the 2.446 million bpd it shipped in August.
Loadings at Ras Tanura, Saudi Arabia’s main Gulf oil terminal, have also increased sharply. They are expected to reach around 3.6 million bpd this month, compared with just 929,000 bpd in August.
The figure is still below the 6.411 million bpd handled by the port in February. Oil exports through the Strait of Hormuz are expected to reach around 7.4 million bpd this month.
Saudi Arabia has been sending more oil through Hormuz after attacks damaged its East-West pipeline, which had been carrying crude to the Red Sea port of Yanbu.
With that route damaged, more Saudi cargoes have been moved through the Gulf and the Strait of Hormuz.
Kpler counted 19 very large crude carriers, or VLCCs, leaving the strait last week. Each tanker can carry around 2 million barrels of Saudi crude. The figure does not include ships that crossed the strait with their tracking transponders switched off.
Why Saudi production fell even as exports rose
Saudi Arabia told OPEC that its crude production fell by 1.9 million bpd in August to 6.238 million bpd. That was the country’s lowest production level since 1990. The fall came as renewed fighting between the US and Iran made it harder to move Saudi oil through export routes. August production was even lower than the previous wartime low recorded in April.
When oil cannot be shipped, producers have to store it. Once storage tanks start filling up, they may have to cut production. When shipping routes become available again, the stored oil can be sent out quickly. This means exports can rise even though production has not yet recovered.
That is partly what is happening in September. Some of the oil being shipped now had already been produced and was sitting in storage or was stuck in the supply chain. Exports can recover within weeks. Restoring oil wells, pipelines, and confidence in shipping routes can take much longer.
How the oil crisis unfolded
Before the war began on February 28, the Strait of Hormuz normally handled around 125 large commercial vessels every day. These included oil tankers, gas carriers, bulk carriers and container ships.
The waterway carries roughly 20% of the world’s daily crude oil and liquefied natural gas supply. The International Energy Agency has described the disruption as the biggest shock in the history of the oil market.
By May, the IEA said more than 14 million bpd of Gulf oil supply had been shut in. Cumulative losses had crossed 1 billion barrels. OPEC’s figures showed how badly production was hit. Output from the group fell to 33.19 million bpd in April from 42.77 million bpd in February.
The United Arab Emirates also left OPEC after almost 60 years. A partial recovery was then reversed in July.
The IEA said the Strait of Hormuz was effectively closed again in early July. Regional oil loadings fell from a peak of around 20 million bpd at the beginning of the month to about 12 million bpd later in July.
The agency now expects global oil supply to fall by 4.3 million bpd in 2026 to around 102 million bpd.
US-Iran talks remain a key factor
Brent crude was trading at around $106 a barrel on Friday. Negotiators have discussed a phased agreement under which Iran would restore access through the Strait of Hormuz while the United States would lift its blockade of Iranian ports.
But no agreement has been reached. US President Donald Trump has rejected Tehran’s latest proposal, while Iran says it is waiting for a clear response from Washington to its plan.
Oil prices have risen sharply from August levels. Brent averaged $91 a barrel in August, according to the US Energy Information Administration.
OPEC+ also has limited room to respond to the crisis. Seven producers agreed on September 6 to keep their October production quotas unchanged. The reason is that the war is preventing some of the planned oil output from reaching customers.
The group is scheduled to meet again on October 4. Increasing production quotas would have limited impact if producers still cannot safely move the oil to buyers.
What the crisis means for India
India imports most of the crude oil used by its refineries and also depends heavily on imports for cooking gas. The disruption has therefore pushed up the country’s oil import costs and created concerns over fuel and LPG supplies. India paid 60% more for crude oil in April-June than it did a year earlier. The country’s crude import bill was also 41% higher in July.
A higher oil import bill can widen India’s trade and current account deficits and put pressure on the rupee. Shipping costs have also jumped. War-risk insurance for a ship travelling through Hormuz has increased from around $250,000 before the war to as much as $10 million.
The VLCC freight rate from Ras Tanura to India rose 411% in August to $4.34 a barrel. Indian refiners are also paying more for Gulf crude. Industry estimates put the effective cost at around $10 a barrel above Brent.
Refiners are buying more oil on the spot market, while the discounts that were earlier available on Russian and Venezuelan crude have narrowed.
Saudi Aramco’s official selling prices have offered some relief. India is also trying to spread its crude purchases across more countries. A petroleum ministry official has said India buys crude from more than 40 countries and that no major fuel shortage is expected.
The bigger concern is the cost of that oil.
India faced LPG shortages earlier this year, leading to long queues and protests.State-owned refiners have since increased domestic LPG production. In September, LPG output rose by nearly 20% from August to around 44,000 tonnes a day.
Imports from the US, Africa and the UAE have also increased as demand rises during the festive season. The increase in Saudi exports should help Indian refiners because they rely heavily on Saudi crude grades.
Other Asian countries face similar pressure
Most Gulf crude is sent to Asia, making the region particularly exposed to any disruption in Hormuz.
China, Japan and South Korea are among the biggest buyers of Gulf crude. Their strategic reserves and long-term supply contracts have helped cushion the impact so far.
But the risk will increase if the disruption continues for longer. Countries such as Pakistan, Bangladesh and Sri Lanka have less financial room to absorb higher oil prices.
More expensive crude can increase their import bills, put pressure on their currencies and increase the risk of fuel rationing.
There is also pressure on refined fuel supplies. Lower refinery operations in the Gulf have tightened supplies of diesel and other middle distillates. At the same time, speculation over possible US restrictions on diesel exports has added to uncertainty in the market.
What to watch next
The October 4 OPEC+ meeting will be closely watched for any change in production policy.
The US-Iran talks will also remain important. Any agreement that fully reopens the Strait of Hormuz and ends the blockade of Iranian ports could bring oil prices down quickly. A breakdown in talks could have the opposite effect.
Repairs to Saudi Arabia’s East-West pipeline will be another key factor. Restoring the pipeline would give Saudi Arabia another route for exporting crude and reduce its dependence on Hormuz.
Security in the Red Sea will also matter. Attacks affecting Yanbu and the Bab el-Mandeb mean another important oil shipping chokepoint remains under threat.
Finally, Saudi Arabia’s September production data will show whether oil output is starting to recover along with exports. The main point for the market is that higher exports do not yet mean a full return to normal.
Saudi Arabia and other Gulf producers can release oil that was already stored and quickly increase shipments once routes reopen. But restoring production, pipelines and reliable shipping will take more time.
Source: Financial Express
