Strait of Hormuz Oil Volumes Return: Why Prices Stay High

Crude oil shipments through the Strait of Hormuz have returned to near pre-war levels, yet global oil prices remain high, creating an abnormal normal market condition. The primary driver of this price floor is not a lack of supply, but rather the exorbitant cost of transporting oil safely.

Logistical Bottlenecks and Surging Freight Costs

Security risks in the region have forced a complex shuttle system where smaller vessels transport oil to safer points for transfer to larger tankers. This time-consuming, fuel-intensive process requiring expensive insurance has caused shipping costs to surge significantly across global trading routes.

• Shipping costs have surged from 3% to approximately 27% of the final oil price.
• Logistical complexities involve ship-to-ship transfers that require expensive insurance and extensive fuel consumption.
• Alternative relief is expected through Saudi Arabia’s price adjustments and Russia’s new Arctic export routes.

Approximately 40% of the region’s crude now bypasses the strait via alternative pipelines, up from 17% before the war. Saudi Arabia resumed operations on its east-west pipeline following repairs, restoring exports from the Red Sea port of Yanbu.

Outlook and Near-Term Price Pressures

While some relief is expected through Saudi Arabia’s price adjustments and Russia’s new Arctic export routes, significant price drops remain unlikely in the near term. Analysts note that simple volume recovery is no longer enough to lower prices while freight rates and geopolitical risk premiums stay elevated.