Goldman sees Hormuz oil flows recovering to only 70% of pre-war levels

Oil flows through the Strait of Hormuz may recover to only about 70% of their pre-war level as Gulf producers increasingly rely on alternative export routes, Bloomberg reported, citing a Goldman Sachs Group Inc. note.

"Normalisation in Gulf exports to pre-war levels might be achieved with a 13 million-barrel-per-day increase in Hormuz flows from current levels," analysts led by Yulia Zhestkova Grigsby wrote in a June 17 note.

The analysts said the expected increase in shipments could be completed by the end of next month, while Gulf oil production is likely to recover by October. Before the conflict, about 20 million barrels per day of crude oil and petroleum products passed through the strait, according to the International Energy Agency.

The global oil market remains focused on activity in the strategic waterway linking the Persian Gulf to international markets after the United States and Iran reached an interim agreement to end their conflict and reopen Hormuz.

During the war, crude shipments through the strait fell sharply as Tehran and Washington imposed a dual blockade that severely restricted commercial traffic. The disruption initially drove oil prices sharply higher, although prices have since retreated.

During the conflict, major Gulf producers including Saudi Arabia, the United Arab Emirates (UAE) and Iraq expanded the use of export infrastructure that bypasses Hormuz. Saudi Aramco increased shipments through its cross-country pipeline to the Red Sea port of Yanbu, while the UAE utilized its pipeline to Fujairah, outside the strait. Iraq also continued exports through the Turkish port of Ceyhan.

Goldman estimated that visible oil flows through Hormuz currently stand at about 1.3 million barrels per day, with an additional 1.6 million barrels per day moving through the Gulf of Oman, some of which may be linked to so-called dark transfers. At the same time, around 7.5 million barrels per day are being exported via Yanbu, Fujairah and Ceyhan.

The bank said tanker availability is unlikely to constrain the recovery in exports, noting that approximately 860 million barrels of empty tanker capacity are positioned either within the strait or within five days' sailing distance. However, some shipowners may remain reluctant to send vessels through the waterway.

The UAE has accelerated efforts to reduce its reliance on Hormuz. Earlier this month, the country announced plans to expand the eastern ports of Dibba, Fujairah and Khor Fakkan, all located outside the strait on the Gulf of Oman, as well as develop at least one additional port on the same coastline.

"We are moving towards having zero Hormuz dependency and that's regardless of whether it's open or not," UAE Minister of Foreign Trade Thani Al Zeyoudi said in an interview. "It's going to open and we hope that will happen quickly, but we will not stop the new plan."

Kuwait has also begun exploring alternative export routes. State-owned Kuwait Petroleum Corp. is in discussions with Saudi Arabia and the UAE about expanding pipeline infrastructure to accommodate Kuwaiti crude exports, Chief Executive Sheikh Nawaf Al-Sabah said at a conference.

Brent crude futures, the global oil benchmark, fell below US$78 a barrel in Thursday trading, compared with a war-driven peak above US$126 a barrel in late April.

Editing by Reiner Simanjuntak