Hormuz Strait Oil Tanker Activity Shifts: Increased Secrecy and Market Fragmentation

Strategic Realignment in Hormuz Strait Oil Tanker Operations

Against a backdrop of escalating tensions in the Strait of Hormuz, the oil tanker sector is witnessing a notable transformation, where surface-level observations diverge significantly from underlying realities. While there has been a marked increase in the number of vessels departing the Gulf region in recent weeks, offering some relief to crude oil backlogs, this trend does not signal a return to normalcy. Instead, it underscores a shift in the energy market towards operating mechanisms characterized by heightened secrecy and fragmentation.

Discrepancy Between Shipping Data and Actual Flows

Publicly available data continues to indicate subdued transit volumes through the strait. Monitoring by the London Stock Exchange Group and Kepler reveals that since the conflict's onset, an average of only about three oil tankers have transited the strait daily, representing roughly one-tenth of its normal capacity. This apparent dip raises questions about the actual reasons behind it.

However, an examination of inventory changes offers a different perspective. By tracking the volume of crude oil held on tankers within the Gulf, it becomes evident that the pace of actual outward shipments is accelerating. This suggests that a significant portion of transportation activities is not being captured by conventional monitoring methods.

"Covert Shipping" Emerges as a Dominant Strategy

The practice of deactivating Automatic Identification System (AIS) to evade tracking has become increasingly prevalent among a growing number of tankers. This strategy, closely mirroring tactics Iran has long employed to navigate Western sanctions, involves vessels entering a "silent" mode before and after transiting the strait, only to reappear days or even weeks later near their destinations.

Vortexa, a shipping analytics firm, estimates that approximately 65% of laden outgoing tankers utilized this method in May, indicating that "covert shipping" has become the prevailing modus operandi. This shift substantially diminishes market visibility into crude oil flows, making it more challenging to ascertain the trade routes that form the basis of benchmark price formation. With declining transparency, relying on alternative metrics to assess supply and demand dynamics becomes paramount.

"Floating storage" on Gulf-based tankers, often referred to as "floating crude," has emerged as a key reference point. Kepler data shows this inventory has fallen from 184 million barrels on March 22nd to approximately 148 million barrels this week, signifying a daily reduction of about 500,000 barrels. Reuters columnist Ron Bousso further analyzes that since early May, this destocking rate has accelerated to approximately 710,000 barrels per day, indicating a gradual recovery in outward flow volumes despite ongoing shipping constraints.

Evading Surveillance Routes and Geopolitical Implications

Precisely identifying the routes taken by these "shadow tankers" presents a considerable challenge. Some vessels may navigate corridors designated by Iran, arrangements stemming from bilateral agreements between Iran and Asian nations like Pakistan, India, and Japan, which permit limited transit. These arrangements also reflect the reliance of these economies on Gulf crude.

Other tankers might hug the coast of Oman, a route potentially tacitly approved or supported by the U.S. Navy, which continues to play a role in maritime security in the region. Furthermore, there are indications that some vessels may pay tolls to Iran in exchange for safe passage. However, this precarious balance is subject to disruption at any moment. If negotiations with the United States remain stalled, Iran could further tighten its control over maritime traffic.

For oil-producing nations such as Iraq and Kuwait, every successfully exported cargo of crude oil is crucial in alleviating fiscal pressures experienced in recent months. For Asian buyers, this also represents a vital source of supply. Bousso points out that sustained recovery hinges on a higher degree of shipping stability and information transparency. Without reliable export channels, producers will struggle to restart the approximately 11 million barrels per day of capacity shut down during the conflict.

Logistical Bottlenecks Hamper Recovery

Logistical bottlenecks also constrain the recovery process. The ability of empty tankers to return to the Gulf smoothly to load is critical for rebuilding the supply chain. Without a stable return flow, onshore storage facilities will continue to approach full capacity, thereby limiting production recovery.

Currently, a balance between laden tankers departing and empty vessels returning has not been established. Shipowners and charterers remain cautious about high-risk areas, and rising insurance costs further discourage fleet deployment.

Uncertainty in the Long-Term Landscape

Even if a formal "reopening" of the strait is achieved through diplomatic means in the future, the market's operational dynamics are unlikely to revert to their previous state. Iran is seeking to retain greater control over passage through the strait and is considering introducing a toll mechanism, which could alter the operational logic of this critical global energy conduit.

For Gulf oil producers, such an arrangement may be unacceptable, potentially compelling them to seek alternative transportation routes. If unable to weaken Iran's influence strategically, some nations might even consider military means to alter the status quo.

Bousso concludes that the current "covert flow," while marginally easing supply pressures, reflects a more fragmented and risk-laden market environment. Within this structure, any brief respite may prove unsustainable.