Goldman Says Hormuz Oil Flows May Recover to Only 70% After War

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(Bloomberg) — Oil flows going through the Strait of Hormuz may recover to only about 70% of their pre-war level, according to Goldman Sachs Group Inc., which highlighted regional producers leaning on alternative routes.

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“This normalization in gulf exports to pre-war levels might be achieved with a 13-million-barrel-a-day increase in Hormuz flows from current levels,” analysts including Yulia Zhestkova Grigsby wrote in a June 17 note entitled “70% of Pre-War Hormuz Flows Might Become the New 100%.”

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The expected pickup in shipments may be completed by the end of next month, with gulf production likely to recover by October, they said. Before the war, about 20 million barrels of oil and products used to flow through the strait every day, according to the International Energy Agency.

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The global oil market is zeroed in on activity in the critical waterway — which links the Persian Gulf to global markets — after the US and Iran inked an interim deal to end their war and reopen Hormuz. During the conflict, crude shipments through the trade artery collapsed to a trickle as Tehran and Washington imposed a dual blockade, choking off almost all commercial traffic. That initially supercharged crude prices, although they have since retreated.

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During the hostilities regional producers including Saudi Arabia, the United Arab Emirates and Iraq have made increased use of infrastructure that avoided the chokepoint, keeping up vital energy flows to global customers. Saudi Aramco boosted usage of a cross-country pipeline that routed crude to its Red Sea coast; the UAE tapped a pipeline to the port of Fujairah, which sits outside Hormuz; and Iraq sent oil to the Turkish port of Ceyhan.

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At present, visible flows going through Hormuz were estimated at about 1.3 million barrels a day, with an additional 1.6 million from the Gulf of Oman, which could linked to so-called dark crossings, according to the Goldman analysts. At the same time, a total of 7.5 million barrels a day were going through the Red Sea port of Yanbu, as well as Fujairah and Ceyhan, they said.

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The availability of ships is unlikely to be a constraint on the recovery in flows, with around 860 million barrels of empty tanker capacity positioned in the strait or within five days’ of navigation, the analysts said. However, some shipowners may still be averse to sending vessels through the strait, they added.

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This month, the UAE said it was working on an ambitious plan to try to end its dependence on the chokepoint entirely, expanding its eastern ports of Dibba, Fujairah and Khor Fakkan — which sit outside the strait on the Gulf of Oman coast — and by building at least one new harbor on the same coastline.

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“We’re moving toward having zero Hormuz dependency and that’s regardless of whether it’s open or not,” the UAE’s Minister of Foreign Trade Thani Al Zeyoudi said in an interview. “It’s going to open and we hope that will happen quickly, but we will not stop the new plan.”

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Kuwait, meanwhile, has said it was seeking pipeline alternatives to export its crude. State producer Kuwait Petroleum Corp. is in talks with Saudi Arabia and UAE about expanding their pipeline systems to handle Kuwaiti barrels, Chief Executive Officer Sheikh Nawaf Al-Sabah told a conference.

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