Experts predicted oil prices of up to $200 per barrel because of the Iran war. The IEA and EU warned of bottlenecks. Handelsblatt explains why these forecasts did not come true.
Brussels, Frankfurt, Paris. When the United States and Israel attacked Iran in late February and Tehran sealed the Strait of Hormuz, traders and experts warned the world of an oil crisis bigger than any before. The price of a barrel of Brent oil shot up from $72 to more than $119 within a few days.
As a result, the warnings exploded: the head of the International Energy Agency (IEA), Fatih Birol, declared the crisis to be “more serious than those of 1973, 1979 and 2022 combined”. Renowned energy historian Daniel Yergin called it “the greatest energy crisis, energy disruption and energy disruption in history.” Economists warned of a severe recession.
Jeff Currie, longtime head of commodities at Goldman Sachs and now at Carlyle, noted with his colleague James Gutman: "We believe the world is more vulnerable to an oil shock today than it was in 1973, not less."
If the Strait of Hormuz remained closed for another month, Brent could rise towards $150, JP Morgan chief economist Bruce Kasman explained at the end of March. Experts from Société Générale expressed similar views. Almost simultaneously, analysts at Macquarie warned that the price could rise to $200 if the war lasted until the end of June. BlackRock boss Larry Fink warns that a permanent price level of $150 would have even more serious consequences: “We will have a global recession.”
Even in the spring, when the first price shock had already subsided, the forecasts remained bleak. JP Morgan forecast prices of more than $150 if disruptions in Hormuz continued into mid-May. IEA boss Birol warned of bottlenecks at the end of May: The oil market could enter the “red zone” in July or August if exports from the Middle East stopped and supplies continued to shrink. The EU Commission also warned of supply bottlenecks for kerosene and diesel from the summer.
But surprisingly little of this happened at the end of August. The war has now lasted six months, and a barrel of Brent currently costs around $95. That's a weekly increase of almost six percent after the US bombed Iran again and Iran responded with counterattacks on US bases. But a few months ago, prices would have reacted more extremely to such news.
It seems as if the market has now become dull. Oil exports from the Gulf region are still only around two-thirds of the pre-war level of 20 million barrels (159 liters) per day.
Why has the oil market developed so fundamentally differently than many experts had expected? The answer lies in an interaction of several factors. Handelsblatt answers the most important questions.
How much oil flows through pipelines?
Gulf producers quickly found alternative routes for their oil, ensuring that prices did not rise any further. Saudi Arabia's East-West pipeline in particular played an important role. Through them, Saudi Arabia transports oil across the country to the Yanbu port on the Red Sea.
During the most intense phases of the Hormuz blockade, Saudi Arabia diverted record quantities of up to five million barrels per day via this route, according to the major Swiss bank UBS. Before the war, in January and February, it was 1.4 million barrels per day.
However, the infrastructure is vulnerable: A compressor station in the pipeline has already been hit by projectiles and reduced export capacity by ten percent for days, as energy expert Francesco Sassi from the University of Oslo writes.
The Houthi rebels also attacked ships that wanted to transport oil from Yanbu to Asia. Although the tankers can take a detour via the Suez Canal, this increases the travel time by up to 40 days, with correspondingly higher costs, according to UBS.
Saudi Arabia still plans to expand the pipeline to allow additional capacity of up to two million barrels per day. The United Arab Emirates also wants to expand its pipeline and enable more than three million barrels per day of additional capacity. The Abu Dhabi Crude Oil Pipeline currently has a capacity of up to 1.8 million barrels per day. It leads to the port of Fujairah outside the Persian Gulf.
Iraq, on the other hand, has fewer alternatives to Hormuz. The Kirkuk-Ceyhan pipeline to Türkiye can transport up to 1.6 million barrels per day, but it has been out of service for a long time due to a lengthy legal dispute. According to Commerzbank, only 190,000 barrels per day flow through it.
Can other producers absorb the loss of oil from the region?
Instead of the Gulf region, it was the USA in particular that became the new oil power, i.e. the country that triggered the war. According to the analysis firm Kpler, US oil exports rose to a record level of 5.66 million barrels per day in May, at the height of the crisis, almost 25 percent more than in the previous year. Some US shale oil producers have taken advantage of high prices to expand their production capacity, such as Diamondback Energy. By far the largest shale oil producer, Exxon, increased its production by 12.5 percent to 1.8 million barrels per day in the second quarter.
Nevertheless, the US Energy Agency (EIA) only expects overall production growth of 200,000 barrels per day this year. Other oil companies primarily use their profits to pay higher dividends to their shareholders and pay off debts. In addition, many of US oil exports come from strategic reserves, which are now at low levels.
However, Brazil was also able to significantly increase its production. State-owned Petrobas increased production by 19 percent to 4.5 million barrels per day in June, Bloomberg reported.
What role does clandestine transport through the Strait of Hormuz play?
So far, neither other producers nor the alternative pipelines have been able to fully compensate for the transport through the strait. Analysts therefore expected prices to continue rising until the summer. What many did not expect: Despite the blockade of the Strait of Hormuz, oil continues to flow through the strait. However, estimates of how large these quantities are vary widely. Meanwhile, around ten million barrels of oil per day passed through the Strait of Hormuz as a fragile ceasefire existed between the United States and Iran.
Even after fighting resumed in early July, US Energy Secretary Chris Wright insisted that nearly nine million barrels per day continued to be shipped through the Strait of Hormuz.
However, independent analysts consider this estimate to be significantly too high. Most estimates are between three and five million barrels per day, writes Arne Lohmann Rasmussen, chief analyst at the Danish analysis firm Global Risk Management. The current estimate from the US investment bank Goldman Sachs is slightly higher: eight to ten million barrels per day. Bloomberg's estimate is right in the middle, at six to eight million barrels per day.
According to Goldman experts, overall oil exports from the Persian Gulf are expected to be around two-thirds of their pre-war level, i.e. 15 to 16 million barrels per day.
Shipping companies and producers have gotten creative in moving oil through the passage despite Iranian and U.S. threats. For example, they rely on so-called shuttling: significantly smaller tankers than usual commute between different transshipment points and cross the Strait of Hormuz several times.
To make their movements more difficult to track, many ships temporarily turn off their AIS transponders, which normally broadcast their location and route to other ships and authorities. This makes the ships difficult to spot for potential Iranian attacks. In addition, insurance costs for smaller ships are lower and the risk is spread.
At the transshipment points, the cargo is often pumped to larger tankers using the so-called ship-to-ship process (STS). These then take over the onward transport towards the international markets. The combination of shuttling and transshipment on the open sea also makes supply chains much more difficult to trace.
What experts have been suspecting for weeks was confirmed by a major energy company for the first time at the end of August: “I can tell you that today crude oil is being transported through the Strait of Hormuz very quietly and far from public attention,” said Patrick Pouyanné, CEO of the French energy company Total Energies, at an energy conference in Stavanger, Norway.
In this way, his company maintains crude oil trading through the Strait of Hormuz as discreetly as possible. “It’s not easy because you have to find shipowners who are willing to do it,” he said. Total Energies is currently probably the largest trader of oil from Iraq or Qatar. However, when asked by Handelsblatt, the company did not provide any information about the quantities the company was transporting.
Despite the dangers that the passage entails, the transport is worthwhile for Total Energies. According to Pouyanné, it costs around $20 million to bring a very large crude oil tanker - a so-called VLCC - through the Strait of Hormuz and back. For a load of around two million barrels, this corresponds to additional transport costs of around ten dollars per barrel. These additional costs would be more than offset by the high discounts offered by producers. “Crude oil will be sold to you at $50 or $60 a barrel - not Brent because producers are desperate to get their oil to market,” Pouyanné said. You don't pay a fee to Iran.
Is the problem not with crude oil but with refined products?
Crude oil pays off for the risky passage past the Iranian Revolutionary Guards because it can be transported in particularly large supertankers. The situation is different with refined products such as gasoline and diesel, said Pouyanné. Smaller tankers are used for this. According to Pouyanné, this increases the transport surcharge to around $50 per barrel - a level at which the passage is no longer economically worthwhile.
The result is an unusual, two-tiered market: While crude oil is becoming cheaper due to producers' discounts, refined products are scarce on the world market and correspondingly expensive. A windfall for companies like his that refine crude oil.
The price of gas oil, the precursor to diesel and heating oil, has actually risen significantly more than the price of crude oil.
In addition, refinery capacities in the Gulf region were destroyed by Iranian attacks. A total of around two million barrels per day of refining capacity in the Middle East is currently being lost, says Kerstin Hottner, head of raw materials at the Swiss bank Vontobel.
According to her, seven million barrels a day are currently being lost worldwide. 1.5 million barrels per day are missing from Asia because Asian countries do not receive enough crude oil.
And 3.5 million barrels per day are missing from Russia. Ukraine has expanded its attacks on Russian refineries since May. According to Hottner, around 50 to 60 percent of Russian refineries are currently out of operation.
Russia, normally one of the top diesel exporters, is now struggling with a domestic shortage and has already had to ration diesel for consumers. The government has therefore now imposed a ban on the export of diesel.
The consequences are now also being felt on the global market. According to data from the financial information service Bloomberg and the British analysis house Vortexa, Russian exports of diesel and gasoil fell to a record low of just 80,000 barrels per day in the first seven days of August. At the end of last year, exports were still more than a million barrels a day.
Together with the failures from the Middle East, around 15 percent of diesel exports worldwide are currently being lost, says Vontobel expert Hottner. The result: inventories are falling rapidly. According to Bloomberg, diesel stocks in the USA, measured against the level typical for the end of August, are lower than ever before. The US retail price for diesel rose to a record high on Friday.
How does China help stabilize oil prices?
In addition to the transports through the pipelines and the secret transports through the Hormuz Passage, it is above all China that ensured that oil prices did not explode. The world's largest oil importer bought large quantities of oil last year when prices were low, thereby filling its strategic reserves. The People's Republic is currently benefiting from this. Instead of importing expensive oil, China can fall back on its huge reserves.
The result: According to Bloomberg, China's crude oil imports fell to just 6.4 million barrels per day in June, their lowest level since October 2016. That is around four to five million barrels per day less than before the conflict.
Can the big oil shock still come – and what would have to happen for it?
The fact that the oil price has not reached the feared highs is due to cover-up tactics by the shipping companies that still venture through Hormuz, to pipeline transport and to reduced demand from China. How large China's stockpiles are is unknown because the People's Republic keeps this number secret. In June, however, the rate of extraction was more than a million barrels per day, according to Energy Aspects. According to Kpler estimates, inventories were up to 1.2 billion barrels.
If the military conflicts in the Strait of Hormuz escalate to such an extent that clandestine transport through the strait becomes too risky or important infrastructure is hit, the price could quickly rise again.
