Strait of Hormuz Oil Flows Recover as Iran Faces Mounting Economic Pressure and US Blockade

Daily life continues in the strategic port city of Bandar Abbas on the Strait of Hormuz amid ongoing tensions between Iran and the United States, as Iranians spend time along the city's waterfront at sunset in Bandar Abbas, Iran. As Iran and the United States work with mediators to end seven months of hostilities, the reality in the Strait of Hormuz is shifting in ways that could prove to be a game-changer in ongoing negotiations.

According to the latest data from tanker-tracker websites, traffic through the key waterway has been steadily increasing, with some estimates putting oil and petroleum flow through the Strait of Hormuz at nearly 80 percent of what it was before the US-Israeli war on Iran began on February 28. This could dent Iran’s leverage in reaching a favourable deal for itself in its attempts to end the fighting, which has seriously hampered its already heavily sanctioned economy, amid the US blockade of Iranian ships and ports. Despite that, experts believe it would be a mistake to think normality in the Strait of Hormuz is imminent, or that Iran will fold easily despite growing economic hardship.

“The fact that oil is getting through the Strait of Hormuz is encouraging, but flows are not yet regarded as completely secure or guaranteed, particularly while the wider conflict remains unresolved,” Susannah Streeter, chief investment strategist at Wealth Club, told Al Jazeera.

Moreover, oil prices remain high globally, including in the US, where President Donald Trump faces a crucial midterm election that could see his party swept away in both houses of Congress. Tanker insurance costs also remain elevated and energy flows through Hormuz are still far from secure, suggesting Iran’s leverage may be weakening rather than disappearing.

The latest data from commodity analytics firm Kpler points to a significant recovery in oil exports from the Middle East. Crude exports reached an estimated 16.328 million barrels per day (bpd) in September – their highest level since the war began in late February, the firm reported this week. Flows through the Strait of Hormuz itself were expected to reach about 9.719 million bpd during the month. Saudi Arabia has driven much of the increase, with its exports rebounding from 2.446 million bpd in August to about 5.4 million bpd in September. Kpler said Middle East crude exports have recovered to just under 80 percent of their pre-war level.

The rebound in oil flow presents a challenge for Tehran. Iran has sought to use its ability to disrupt the Strait of Hormuz as leverage against Washington’s military and economic pressure. But if large volumes of oil can continue moving through the strait while Iran itself remains under a US naval blockade, Tehran’s bargaining power could diminish. Iran, however, rejects any assessment that its control over the strait is slipping. Islamic Revolutionary Guard Corps spokesperson Hossein Mohebbi on Tuesday said the ability of vessels to transit the waterway with US assistance did not mean Hormuz had returned to normal.

Oil prices are another indication that Iran has not lost all of its leverage. Brent crude fell 2.6 percent to $102.59 a barrel on Tuesday as traders focused on recovering Middle East exports, though it was still heading for a roughly 13 percent gain in September. Chris Beauchamp, an analyst at IG, said markets were beginning to incorporate evidence of recovering flows but remained wary about how durable that recovery would be.

There is little doubt that economic pressure on Iran is intensifying, potentially increasing Tehran’s incentive to reach an agreement. Official data from the Statistical Center of Iran earlier this month showed gross domestic product (GDP) contracting 10.1 percent year on year between March 21 and June 20, while the crucial oil and gas sector shrank 26.4 percent. Despite the military and economic pressure, negotiations have not collapsed, with recent indirect talks taking place at the United Nations General Assembly between Tehran and Washington.