Oman’s Sohar port is increasingly being utilized for ship-to-ship oil transfers as a result of disruptions to Saudi Arabia’s oil exports following damage to its East-West pipeline by Iran-aligned Houthis. This pipeline was crucial for circumventing the blockade of the Strait of Hormuz, a significant global oil transit route. With the Strait effectively closed and Bab al-Mandeb under Houthi control, Saudi Arabia has sought alternative methods to export its oil, leading to a rise in crude offerings through ship-to-ship transfers off Oman.
As commercial vessels become hesitant to navigate through the strait due to ongoing conflicts, Saudi Arabia is now transporting crude oil to Sohar port, which is situated just outside the strait, where the transfer from Saudi tankers to other vessels occurs. The closure of the strait, which previously facilitated nearly 20% of global energy shipments, has been attributed to Iran's response to the U.S.-Israeli conflict, using the situation as leverage in negotiations.
Reports indicate that the closure of the Strait of Hormuz and the increase in oil prices have prompted the U.S. and its allies to adopt covert tactics similar to those employed by Iran for years in exporting their crude oil.
Ship-to-ship transfers involve the direct exchange of cargo, such as crude oil or liquefied natural gas, between two vessels at sea and are essential when direct port access is restricted. These operations require careful coordination under favorable sea conditions to minimize risks of spills and collisions. Typically, one vessel remains stationary while the other approaches, with protective measures in place to absorb impacts during the transfer.
The U.S. military has reportedly been assisting in these covert ship-to-ship oil transfers since early May. The East-West pipeline, which spans 1,200 kilometers (746 miles) and connects Saudi Arabia’s main oil fields to the Red Sea, has been rendered inoperative due to recent drone attacks. Consequently, Riyadh's strategy now includes shipping more crude from Gulf terminals through the Strait of Hormuz, utilizing ship-to-ship transfers at Sohar.
According to Rishi Rajanala, a research specialist at LSEG Data & Analytics, Gulf producers have already been utilizing this method, although volumes remain below pre-war levels due to factors such as tanker availability and insurance costs. Recent data indicates that exports through the Hormuz route have increased to over 2 million barrels per day in the first two weeks of September, a rise of approximately 1 million barrels per day compared to August.
Saudi Arabia may further depend on dark tanker activity to compensate for losses incurred from the closure of the Yanbu port. Additionally, Kuwait and Qatar have been reported to use similar tactics to navigate cargoes past the Strait of Hormuz.
While ship-to-ship transfers provide a workaround, they are associated with significant risks and inefficiencies compared to standard shipping methods. Experts have noted that these transfers often involve older vessels with inadequate maintenance and lack of insurance coverage. Recent monitoring indicates that ship-to-ship transfers have surged, with 7.15 million barrels per day exchanged in the last two weeks, marking a 56% increase from the previous month.
Despite the inherent dangers, ship-to-ship transfers offer a solution in the current volatile environment of the Middle East. Major transport companies are reluctant to enter the Strait of Hormuz due to potential attacks, while Gulf nations strive to maximize oil and gas exports. Consequently, these countries assume the risks associated with sending tankers across the strait, where they can transfer their cargo to safer vessels for transport to markets in China, India, South Korea, Japan, and beyond.
Insurance for ship-to-ship transfers can be complex, as any loss could involve multiple liabilities. Oscar Seikaly, CEO of the NSI Insurance Group, noted that many oil shipments belong to national oil companies, which often rely on sovereign-backed self-insurance. During periods of conflict or high-risk disruptions, insurers typically do not provide comprehensive coverage for ship-to-ship transfers, leaving a significant portion of the risk with the producing countries.