Dark Transits

Key arguments

• Renewed US-Iran attacks have pushed Brent just above USD 100/bbl and made a diplomatic deal less likely, but both sides have economic incentives to curb military costs and partially reopen the Strait of Hormuz.
• A secure shipping corridor near the Omani coast and covert 'dark transits' with transponders off mean oil is still flowing; dark transits are estimated at least 5 mb/d, up to 8 mb/d including ship-to-ship transfers.
• Combined with Red Sea pipeline diversions of about 3 mb/d and non-Gulf supply growth of 1.2 mb/d, the remaining Gulf shortfall shrinks to roughly 5.8 mb/d, easing to under 2 mb/d if transits reach 12 mb/d next year.
• Ample OECD inventories can cover the shortfall for nearly two years and Asian demand destruction of up to 5 mb/d has absorbed part of the gap, so Brent should ease back toward pre-war levels by mid-next year.
• Oil products and gas remain tighter: refinery capacity losses in the Gulf and Russian production losses limit product supply, while Qatari LNG output at about 20% of capacity and no alternative export routes keep gas prices above pre-war levels into next year.

Corresponding source evidence

1. But even without a diplomatic solution, a gradual de-escalation is likely to begin in the coming months, and thanks to tankers’ covert transits through the strait, oil shipments from the Gulf region should gradually recover.
2. The outlook for petroleum products and natural gas is less favorable.
3. While Iran is stepping up attacks on ships in the Strait of Hormuz and U.S. military bases in the region, the U.S. is striking targets along the Iranian coast as well as oil tankers flying an Iranian flag.