Middle East disruptions drive oil prices higher as alternatives to Hormuz routes prove insufficient

Meanwhile, analysts have pointed out that alternative routes do not appear sufficient to replace the volumes normally shipped through the Strait, despite the growing rerouteing of flows.

Kpler reported that early on 9 March, benchmark crude prices opened more than 20% higher and held above US$105/bbl during Asian trading hours – a level last seen in mid-2022.

US President Donald Trump commented that this was “a small price to pay for global security.”

Kpler added that reports of G7 nations discussing a potential release of strategic oil reserves helped cool prices, but warned that “the move appears insufficient to ease concerns over immediate supply tightness.”

As of 10 March, WTI and Brent crude benchmarks held steady at approximately US$90/bbl.

Bunker market sources told Riviera that the market opened in a ’panic mode’, although prices later stabilised, pointing to what they described as “wider market resistance.”

However, prolonged disruptions could push prices significantly higher. Kpler estimates that if Hormuz remains constrained for another one to two weeks, global crude benchmarks could climb above US$130/bbl, even if strategic oil reserves are released.

Escalating tensions

The widening disruptions across the Middle East appear to be the main driver behind the price surge.

Over the weekend, Kuwait Petroleum Corp announced it had implemented a “precautionary reduction in crude oil production and refining throughput” as part of its risk management and business continuity strategy.

According to Kpler, Kuwait is the latest regional supplier to curb production, joining Iraqi and Qatari producers.

Kpler estimates Kuwait’s storage facilities have around 12 days of capacity remaining if production continues while no ballast vessels arrive to lift crude.

Meanwhile, Abu Dhabi National Oil Co has also said it is carefully managing offshore production levels to address storage constraints, suggesting output adjustments could follow if traffic through the Strait remains restricted.

Bunker prices have also surged across most global hubs.

MarineTraffic reported an attack near the Fujairah oil storage area on 9 March, while Riviera last week detailed another fire incident in the same area.

Alternative routes insufficient

Assessing possible scenarios related to a prolonged disruption in the Strait of Hormuz, Signal Ocean said producers could increasingly rely on a combination of pipeline exports and selective maritime shipments.

“Pipeline infrastructure that bypasses the Strait gains strategic importance, particularly in Saudi Arabia and the United Arab Emirates, where crude can reach ports outside the narrow passage,” Signal Ocean said.

According to MB Shipbrokers, Saudi Arabia is already attempting to reroute part of its crude exports to the Red Sea via its East-West pipeline, which has around 2.7M barrels per day (b/d) of spare capacity, roughly half of its normal Gulf export volumes.

Kpler also reported that loadings at Saudi Arabia’s Red Sea terminal of Yanbu have reached a record 2.2M barrels b/d so far this month, after Saudi Aramco redirected part of its oil flows to bypass the Strait of Hormuz.

Kpler data shows that at least 11 tankers have been fully fixed to load from Yanbu between now and the end of March, chartered by companies including Aramco, GS Caltex, Unipec, Reliance, BPCL and Petco.

However, even if Yanbu approaches its maximum loading capacity of 4.3M barrels b/d, effective Middle East exports would still amount to only around one-third of previous levels.

The UAE could also reroute roughly half of its usual 2M barrels b/d of exports via its pipeline to the Gulf of Oman, while Iraq could divert some shipments through Mediterranean routes.

“However, these reroutes could add only around 4M barrels b/d in total, barely 20% of Hormuz’s normal exports of roughly 15M barrels b/d of crude and 4M barrels b/d of refined products,” MB Shipbrokers added.

Kpler added that even if traffic through the Strait resumes, it could take one to two weeks to reposition tankers to the Middle East Gulf, load crude from storage and restart oilfield operations.

Asia prepares for tighter supply

Amid the disruption, several Asian countries are already taking steps to secure domestic fuel supplies.

MB Shipbrokers reported that China has ordered its largest refiners to suspend diesel and gasoline exports, while at least one refiner in both India and Japan has already cancelled deliveries of diesel, jet fuel and gasoline.

In India’s case – where around half of oil imports pass through the Strait of Hormuz – the US has issued a temporary 30-day waiver allowing refiners to purchase Russian crude.

“China stockpiled intensively last year and, while it does not officially disclose its reserves, they are estimated at 1.3Bn barrels, equivalent to more than four months of imports,” MB Shipbrokers said.