Seven-month blockade of the Hormuz: Oil is still flowing, but it's getting more expensive and more vulnerable.

A costly floating transport system is barely sustaining global energy supplies, but it remains unclear whether this emergency mechanism is a transitional arrangement or the new normal.

The Strait of Hormuz has been blocked for seven months, and Middle Eastern oil-producing countries are maintaining oil exports through a ship-to-ship (STS) transshipment system, but the operating costs of this system are rising sharply. According to Kpler data, exports through Hormuz have rebounded to about 6.5 million barrels per day since September, the highest level since the brief rebound following the June ceasefire.

However, this export volume comes at an unprecedented logistical cost. According to Reuters LSEG data, the benchmark freight rate for Very Large Crude Carriers (VLCCs) transporting Gulf crude to China has surged to over $30 per barrel, the highest level on record. Before the war, this figure represented only 2% to 3% of the oil price, but at the current price of around $105 per barrel, freight costs have exceeded a quarter of the total cost. Last week, Brent crude briefly broke through $108 per barrel, partly due to the impact of news of disruptions to Saudi export routes.

The energy market is adapting, not paralyzed—but the cost of this adaptation is being borne by oil-producing countries, shipping markets, and even global consumers.

How do floating transport chains work?

The closure of the Strait of Hormuz has forced oil-producing countries to redesign their export routes. Abu Dhabi National Oil Company (ADNOC) first launched the STS (Short-Shipment Transport) program in April this year: using ships as "shuttle tankers" to transport crude oil from the Persian Gulf terminal to the safer waters of the Gulf of Oman, where it is then transferred to larger vessels to continue its journey to its destination, usually an Asian refinery. The mother ship then returns via Hormuz for reloading, and the cycle continues.

This mechanism reduces the risks for ships crossing the strait by shortening the single voyage, while maximizing the use of limited and expensive tanker capacity, thus allowing some key exports to continue. Currently, an increasing number of tankers, escorted by the US Navy, are turning off their navigation systems and transiting the strait through a narrow corridor near the Omani coastline.

Saudi Arabia followed suit, and the scale expanded rapidly.

What began as an emergency response plan led by ADNOC has now evolved into a sizable emerging industry, with Saudi Aramco increasingly relying on STS transshipment to maintain its exports.

This shift has an urgent background: the Iranian-backed Houthi rebels in Yemen have recently been strengthening their control over the Bab el-Mandeb Strait at the southern end of the Red Sea; on September 10, pro-Iranian militants in Iraq attacked Saudi Arabia's East-West oil pipeline, cutting off about 4% of global oil supply that originally flowed to the international market via the Red Sea port of Yanbu. Caught in this pincer movement, Saudi Arabia began informing buyers that it would switch to the STS transshipment route via Oman to maintain shipments.

The scale of the data clearly reflects this change. According to Kpler, STS transshipment volumes in the Gulf of Oman are projected to reach approximately 2.5 million barrels per day in September, a significant jump from 1.4 million barrels per day in August, representing about 40% of current traffic via the Hormuz. Prior to the war, STS transshipment was almost never used. In contrast, the UAE's oil exports are projected to reach 3.6 million barrels per day in September, above the 2025 average of 3.4 million barrels per day.

Wealth flows from oil-producing countries to shipowners

This floating logistics network has mitigated more severe supply shocks to some extent, but its costs have significantly distorted the market structure.

The direct consequence of soaring freight rates is eroding the profits of oil-producing countries. They have been forced to offer larger discounts on crude oil prices to maintain export competitiveness, effectively absorbing some of the increased transportation costs themselves. Meanwhile, the heavy reliance on tankers for transshipment through the Gulf STS has further tightened global shipping capacity, pushing up overall freight rates.

"We are witnessing the largest transfer of wealth in history from oil-producing countries to tanker owners," said Keshav Lokhiya, CEO of HiLo Analytics.

Structural fragility under adaptation

There is no doubt that the global energy market is adapting to the current high geopolitical tensions rather than stagnating. However, Middle Eastern oil trade is becoming increasingly inefficient, relying more and more on a makeshift system cobbled together from military escorts, temporary transshipment points, and alternative shipping routes that were never designed to handle this scale.

Each additional transshipment means more ships, longer transit times, and higher costs, all of which ultimately impact the global oil market. The longer the conflict persists and the more shipping routes are threatened, the more expensive and vulnerable this global energy system becomes.

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