What is the current state of affairs in the Strait of Hormuz?
Steve
Matt Smith
Traffic has ground to a standstill in the actual strait. Many loaded tankers are stuck in the Gulf because empty tankers are being used for storage. Producers are having to shut down production.
What ships are getting through? The US is reportedly planning to clear hazards for swifter passage.
Steve
Matt Smith
Less than a handful of tankers pass through daily, some Iranian, some just 'brave ones.' Iranian crude exports from Kharg Island are holding up well (12M barrels/6 VLCCs this month).
What does it take to secure the strait given shoulder-launched missiles and drones?
Steve
Matt Smith
You cannot make it safe. Insurance offers little comfort, and naval escorts won't prevent drone strikes.
How does the system back up? Storage is filling, production is shutting down.
Steve
Matt Smith
Middle East producers export most of their output, so they have limited storage. They either shut down or find alternative routes.
What does today's lack of production mean for future oil availability once the strait opens?
Steve
Matt Smith
Even if the strait opens today, the backup of tankers means it would take a month to normalize. You need empty tankers to load, production to restart, and full tankers to leave.
If production is shut for months, capacity might only return to 80-95%. The market might shrug this off if product gets through. Multinational flotillas are being considered.
Steve
Matt Smith
The situation is too complex for quick US control. OPEC producers are used to curtailing, not shutting off completely. Some players (Saudi Arabia, UAE) are rerouting crude.