Gulf Oil Giants Reroute Shipments to India Amidst Hormuz Congestion and Attacks

Gulf oil producers are increasingly utilizing ship-to-ship (STS) transfers as far as India's coast and offering significant price reductions to maintain crude flow to Asia. This strategy is a response to the growing congestion and escalating attacks impacting the traditional export routes around the Strait of Hormuz.

Data from shipping analytics firm Vortexa reveals a substantial surge in STS transfers in India's Gulf of Kutch, with 82 cargoes recorded in September. This volume is equivalent to approximately 680,000 barrels per day, predominantly consisting of refined products (about 65%) with crude oil making up the remainder.

Varaleka Pant, senior market analyst at energy intelligence firm Vortexa, noted that the record volumes previously handled by Fujairah and Sohar STS zones, coupled with operational limitations, have led to this activity spilling over into India. This expansion highlights the increasing strain on the workaround mechanisms sustaining Gulf exports.

Traditionally, producers have shuttled oil through Hormuz and then transferred it to supertankers outside the strait. However, current congestion and extended voyage times are leading to vessel delays and escalating costs. According to Rystad Energy, crude transfers onto very large crude carriers (VLCCs) have remained between 5 million and 7 million barrels per day since September, representing 60% to 70% of total Hormuz flows. The entire process, including waiting times, now exceeds a week, a significant increase from the previous five to six days.

Rahul Choudhary, vice president for oil and gas at Rystad, observed that the overflow is beginning to extend into the Arabian Sea, albeit on a smaller scale. He also mentioned that some supertankers previously used for Saudi transfers are now discharging directly off India's west coast. A recent tanker strike near Fujairah, the first in six months, has further pressured the need to disperse operations. Additionally, attacks on Saudi Arabia's East-West pipeline have underscored the vulnerability of alternative export routes.

While the shift towards India is evident, analysts have varying estimates of its magnitude. Vortexa reports that South Korea, India, China, and Japan collectively received nearly 70% of the volume transferred in Kutch. An example cited is a 2 million-barrel cargo of Saudi Arab Medium, loaded on September 9, which was transferred onto the Front Forth VLCC off Kutch in late September for delivery to S-Oil's Onsan refinery in South Korea, according to Kpler data.

In contrast, Bimco, the shipping industry association, reported a lower figure of 12 STS operations in the area for September, using a different counting methodology than Vortexa. Niels Rasmussen, Bimco's chief shipping analyst, stated that the Gulf of Oman remains the primary area for such transfers and that the increase is unlikely to have significantly impacted overall tanker demand, though longer transfer voyages necessitate more ships.

Yui Torikata of Kpler cautioned that some eastward transfer arrangements predated the recent shift, with Japanese refiners already receiving Aramco and Adnoc cargoes off Malaysia. Kpler is still assessing the extent of the recent eastward shift in activity. Reported tanker activity near Sri Lanka is largely unrelated, with Vortexa attributing vessels there to sanctioned Iranian tankers stranded after pre-blockade cargo discharges, and Bimco recording no STS operations off the island.

Moving transfers further from Hormuz aims to reduce the exposure of receiving tankers, though it does not eliminate the inherent risks of transporting oil out of the Gulf. Ms. Pant highlighted that while the STS transfer itself is relatively low risk, the primary danger lies in moving the oil from west of Hormuz to the STS zone. Although the Gulf of Kutch offers calmer waters and proximity to Indian refiners, the cargoes must still traverse contested routes. Buyers might reconsider these routes if security incidents occur, if discounts fail to offset higher freight and STS costs, or if congestion extends to India.

Egypt's Sidi Kerir terminal is considered the safest delivery point, allowing tankers to bypass both Hormuz and the Bab Al Mandeb strait, according to Kpler. However, the journey to Asia from Sidi Kerir takes approximately 55 days, compared to just over 20 days from the Gulf of Oman, as per Mr. Torikata. Disruptions to Saudi Arabia's East-West pipeline have also led to Japanese-chartered tankers waiting for cargoes, impacting Japanese and South Korean refiners who rely on medium-sour crude for blending and have limited options for switching suppliers. A Japanese refiner reportedly paid a record high of over $80 million to charter a tanker from the US Gulf Coast to Japan, a cost that Mr. Torikata suggested would make purchasing Arab Light from Sidi Kerir a more comparable option in terms of transit time.

The current disruptions are creating a divide among Gulf producers. Some are offering deep discounts to compensate buyers for transit risks, while others can still command premiums for more secure supply. Iraq, with no alternative export route around Hormuz, has offered October-loading Basrah Medium at a discount of $34.50 a barrel and Basrah Heavy at $37, significantly wider than August discounts below $30. These reductions have helped restore Iraqi production to within 10% of pre-war levels, with current output at nearly 70% of Saudi Arabia's production, compared to less than 40% before the conflict.

Saudi Aramco reduced its November Arab Light price for Asian buyers by $3 to $5 a barrel below the Oman/Dubai average, the most significant discount since 2020, contrary to market expectations. QatarEnergy also lowered its November prices by $3, setting Qatar Marine at $8 below the Oman/Dubai average and Qatar Land at $7.50 below. Ms. Pant commented that these short-term, deep discounts are effectively protecting market share by incentivizing buyers, but are a situational measure.

Adnoc has adopted a different strategy, leveraging its ability to export Murban crude via pipeline through Fujairah, thus avoiding Hormuz. Mr. Choudhary explained that Murban carries no transit risk, as it is loaded outside Hormuz, allowing buyers to pay a premium. Murban traded as much as $26 a barrel above Dubai swaps in late September before settling around $15, according to Rystad. For its other grades, Adnoc has utilized spot tenders rather than adjusting official prices, maintaining flexibility and gauging buyer willingness to pay.

This divergence highlights how secure access to export infrastructure has become a key competitive advantage. Some producers are able to protect their profit margins, while others are sacrificing revenue to ensure their oil continues to flow. Gulf producers are increasingly assuming transit and security risks themselves to retain Asian customers. Adnoc, Aramco, Iraq, and Qatar now offer STS deliveries outside Hormuz, with Kuwait also adopting this approach. The UAE has also focused on securing Asian demand, with Adnoc exploring an increase in its crude storage capacity in India to 30 million barrels. Aramco is negotiating term contracts for next year involving loadings outside Hormuz, indicating an expectation that these arrangements will persist.