Key facts
- Gulf oil producers are rerouting millions of barrels per day around the Strait of Hormuz using a network of shuttle tankers and ship-to-ship transfers.
- This 'shadow export network' involves over 150 vessels off Oman, with Saudi Arabia positioning 16 VLCCs for significant capacity.
- The operation aims to circumvent rising geopolitical risks and freight costs associated with the Strait of Hormuz and the Red Sea.
- The U.S. military is overseeing ship-to-ship transfers off Fujairah, UAE, and Sohar, Oman, as part of the workaround.
- Alternative routes, including the East-West Pipeline and voyages around the Cape of Good Hope, are being utilized but face their own challenges.
Gulf oil producers are increasingly rerouting millions of barrels of crude oil around the Strait of Hormuz, creating a significant 'shadow export network' to mitigate risks and rising freight costs associated with geopolitical tensions. This workaround involves extensive use of shuttle tankers and ship-to-ship transfers outside the Persian Gulf, particularly off the coasts of Oman and the UAE.
The operation has grown substantially since the start of the ongoing conflict, with the number of vessels involved off Oman increasing from approximately 40 in January to around 150. Tankers are making runs through Hormuz with their transponders switched off before transferring their cargoes to larger vessels waiting in international waters. This strategy has helped maintain supply flows despite fears of a complete shutdown of the vital waterway.
Saudi Arabia, a major player in this workaround, has positioned a substantial fleet of Very Large Crude Carriers (VLCCs) off Oman, capable of carrying tens of millions of barrels. The kingdom is also utilizing its East-West Pipeline to export from the Red Sea, though Houthi attacks in that region present their own set of challenges. Saudi Aramco is also facilitating ship-to-ship transfers to directly supply Asian refiners, bypassing the need for their tankers to transit Hormuz.
While these workarounds have prevented a catastrophic oil shortage and triple-digit prices, they come with increased costs and risks. The longer routes around the Cape of Good Hope are being utilized more frequently, adding thousands of miles to voyages and potentially reviving Somali piracy. Furthermore, the diversion of naval resources to the Gulf leaves other shipping lanes less protected. The UAE's pipeline to Fujairah offers some alternative capacity, but most Iraqi, Kuwaiti, and Qatari exports remain dependent on Hormuz. The long-term viability of these bypasses hinges on continued investment in infrastructure and the evolving geopolitical landscape.