Gulf States Concede Iran's Hormuz Control, Oil Exports Fall to 2.2M

Gulf energy producers are conceding Iran's permanent control over the Strait of Hormuz, where crude exports have collapsed to 2.2 million barrels a day from 8.5 million a month ago.

"In this background the Arab Gulf states cannot really ensure complete safety and openness of the Strait of Hormuz and can no longer rely upon it for transport or trade," said Umer Karim, a researcher in Gulf security matters at the University of Birmingham. "Thus there is no other option for now but to concede to a degree to Iranian demands."

Negotiations to reopen the waterway have stalled over Iranian demands for financial relief and a prohibition on American and Israeli warships in the strait, mediators said. The U.S. has refused to accept an agreement that allows Tehran to place impediments on shipping. Brent crude futures traded around $87 a barrel Monday. Global oil inventories have plunged by more than 400 million barrels in the past six months, leaving the market with less cushion against supply shocks.

The stakes are enormous: roughly 20 million barrels a day of oil and petroleum products transited Hormuz before the conflict. With Gulf states' alternative export routes under attack — Saudi Arabia's Red Sea pipeline hit by Houthi strikes and a drone attack on Egypt's Damiatta port — the region's energy exporters face an extended period where Iran's leverage over their shipments shapes global supply.

The June memorandum of understanding between Washington and Tehran to open the waterway and wind down the war fell apart last month. Since then, Iranian attacks have snarled traffic through the strait. The UAE said four of its ships were hit last week while attempting to transit, bringing the total to 16 vessels struck since the war began. Saudi Arabia, which had preserved much of its export capacity by piping oil across the desert to a Red Sea port, has seen that alternative route come under attack by the Iran-backed Houthi militia in Yemen. Egypt came under fire with a drone attack on a gas tanker at the port of Damiatta, showing Iran's threat to energy exports extends well beyond Hormuz.

Attacks on Gulf Infrastructure Mount

Between Feb. 28 and July 30, Iran and its allied militias in Iraq conducted at least 172 attacks on nonmilitary infrastructure across the six Arab Gulf states, according to Armed Conflict Location and Event Data, a U.S.-based conflict monitor. Energy facilities — oil infrastructure, gas plants, power and desalination plants — accounted for about half of the attacks. On Sunday, the Houthis claimed responsibility for an attack on a Saudi refinery in Jizan on the Red Sea, after also claiming an earlier strike there in late July.

Iranian exports have also been hit, falling by half in a week to 47,000 barrels a day last week, according to Kpler. Iranian Foreign Ministry spokesman Esmail Baghaei said Monday the strategic waterway won't be opened until the U.S. stops and makes amends for aggressive actions including the blockade of Iran's ports.

Workarounds Falter

Gulf countries are looking at plans to bypass Hormuz by expanding pipelines to the Red Sea and the Gulf of Oman, as well as expanding storage facilities to ship more oil during calm periods. The UAE successfully used a combination of routing oil across the desert and sneaking ships through the strait to get exports back to prewar levels by mid-year, according to ship tracker Vortexa. Those gains have been eroded by Iranian attacks.

Producers can ease the stranglehold on Hormuz with workarounds, but "it has not been enough to render Iran's veto irrelevant," said Eric Alter, dean of the Anwar Gargash Diplomatic Academy in Abu Dhabi.

The last time the strait faced a comparable threat was during the 1980s Tanker War, when Iran and Iraq attacked each other's oil shipping and the U.S. Navy escorted Kuwaiti tankers. That conflict eventually ended with a ceasefire, but the current standoff has no clear endpoint, with Gulf officials resigned to the likelihood that any deal would leave Iran's missile program and support for allied militias intact.

Ellen Wald, senior fellow at the Atlantic Council's Global Energy Center, said a near-term deal to reopen the strait could ease Gulf energy shipments but wouldn't remove the threat. "After five months of conflict, it is understandable why Gulf states are eager to find a way to increase maritime traffic through the strait," Wald said. "But ceding control over inbound and outbound traffic to Iran, even on a 'temporary' basis, will not resolve the larger issues and leaves their exports subject to Tehran's whims for the foreseeable future."

Oil prices remain well off the highs hit during the fiercest fighting last spring, thanks to subdued demand from China, Japan, India and Europe. But with global inventories down more than 400 million barrels over the past six months, the market has minimal cushion against a new shock. If negotiations fail and Iran escalates further, Brent could test levels not seen since the war's early months, while Gulf states' energy infrastructure remains a prime target.

This article is for informational purposes only and does not constitute investment advice.