Analysis by Energy Workforce President Tim Tarpley
Perhaps the biggest elephant in the room for the entire energy industry is the Strait of Hormuz and just how long the disruption to worldwide energy flows will be. We are now many months into a disruption that many anticipated would be just a few weeks. For the week that ended this Saturday, flows through the strait averaged 10.3 million barrels a day, which is about 23% below the pre-war baseline of 13.5 million bpd. While this is still depressed, the number appears to reflect a steady increase from where it has been over the past few months. This increase, however, does not represent a return to normal. In fact, nearly 20 commercial ships, mostly tankers, have been attacked while sailing through Hormuz or the surrounding region. In fact, on average, Iran attacked roughly two ships for every 100 vessels that crossed the strait in the third quarter, according to Windward. This entity tracks ships for multiple government agencies.
How has this return to semi-normalcy been achieved? In many cases, tankers bring crude through Hormuz and then transfer the oil onto ships in the Gulf of Oman to haul it to Asia. This shuttle system helps limit attacks from Iran, but it is also more expensive and requires many more ships. In fact, costs to move oil out of the region have skyrocketed to $1 million a day per tanker. In many instances, these costs may add $40 to a typical barrel of oil headed from the region to Asia. These costs will ultimately become absorbed by the energy systems. Analysts do not feel that this is sustainable. With shipping costs out of the Middle East being added to the per-barrel price from the region, surely over time there will be a push to source from other locations. This push and pull could change the global demand mix.
What is the endgame here? Like many conflicts, getting in is often much easier than getting out. In the short term, unfortunately, the Iranians are very familiar with our election cycles, and they know the President is unlikely to significantly escalate the military aspect of the conflict before the midterms, so the status quo is likely baked in at least for the next month. After the midterms, we may see a more aggressive US stance to fully reopen the strait and deter Iranian aggression. Is uncertainty in the region the new normal? Possibly in the short term, this uncertainty in the Middle East may be something we need to get used to. One scenario to end the conflict would be an internal overthrow of the Iranian regime by the Iranian people, but we have seen no signs of such actions within Iran. In fact, internal dissent seems to be at a level lower than it was before the conflict. The US also does not appear politically poised to launch a ground invasion. Given the unlikelihood that the current regime could be removed through air power alone, we may be moving into a new normal, at least for a while. It would be a fair bet to assume disruptions and uncertainty for the remainder of 2026, which we believe is necessary to ensure America and the world have adequate supplies of vital energy.
Tim Tarpley, Energy Workforce President, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Energy Workforce newsletter, which highlights sector-specific issues, best practices, activities and more.
