Gulf Oil Flows Recover Yet Prices Surge Amid Persistent Iran Conflict Risks

Crude shipments from the Gulf have rebounded strongly, largely offsetting the severe supply disruption triggered by the U.S.-Israel war on Iran.

According to market intelligence firm Kpler, Gulf crude exports averaged 24.6 million barrels per day (bpd) in the week ending October 18, surpassing pre-war levels.

Despite the recovery in physical flows, oil prices continue to climb. Brent crude, the global benchmark, is trading at its highest level since April, up more than 60 percent since before the conflict began.

On Friday, front-month Brent futures for December delivery jumped over 2 percent, briefly breaching $117 a barrel.

The price gains reflect persistent anxiety over potential renewed hostilities, shrinking global inventories, and the steeply higher costs of moving oil out of the region, analysts say.

“The market is functioning exactly as it should: it signals ample prompt supply, but no end to the war in sight—in fact, escalation remains very likely,” said Adi Imsirovic, a lecturer in energy systems at the University of Oxford and veteran oil trader. “Futures prices are pricing in that expectation.”

Producers have grown increasingly adept at navigating the volatile Middle East environment to keep cargoes moving.

To counter the threat of Iranian attacks on shipping in the Strait of Hormuz, operators have established a shuttle system using ship-to-ship transfers off the coasts of Oman and the United Arab Emirates, minimizing the distance vessels must traverse through dangerous waters.

Shuttle tankers ferry crude through the strait and transfer it to larger vessels waiting in safer waters.

In August, more than 70 percent of crude crossing the strait moved via ship-to-ship transfers, Kpler data shows.

Exporters have also expanded use of pipelines that bypass the strait entirely, notably Saudi Arabia’s East-West pipeline linking eastern fields to the Red Sea port of Yanbu, and the UAE’s Habshan-Fujairah line.

As of September, 40 percent of Gulf exports were circumventing the strait—a critical conduit for one-fifth of global oil and LNG supply during peacetime—compared with just 17 percent before the war, according to Kpler.

The Soaring Cost of Delivery

These workarounds have come at a steep price.

Freight rates have surged to as high as $40 per barrel in recent weeks—roughly ten times the normal rate—driven by soaring insurance premiums and logistical complexity, according to London Stock Exchange Group data.

October has been the deadliest month for commercial vessel attacks since the war began, with 32 incidents recorded by the United Kingdom Maritime Trade Operations (UKMTO) as of Friday.

“Barrels are moving, but neither smoothly nor reliably. That should not be mistaken for normalization,” said Isabel Figuerola-Ferretti, an oil market expert at Comillas Pontifical University in Madrid. “Delivering a barrel has become far more expensive.”

While weekly export figures have periodically matched pre-war volumes, the longer-term supply trajectory remains uncertain.

Pavel Molchanov, investment strategist at Raymond James & Associates, expressed skepticism that output has returned to its pre-conflict trend.

“The IEA’s latest production data for September shows OPEC Gulf output at 15.8 million bpd, just 75 percent of the pre-war baseline,” Molchanov noted, referencing the International Energy Agency’s recent outlook. “That slightly exceeded July’s 74 percent to mark the highest level since the war began, but it remains a considerable distance from full recovery.”

Meanwhile, global oil stockpiles—a critical buffer during disruptions—are declining.

Observed inventories fell by 10 million barrels in September, leaving the global stockpile 509 million barrels below its pre-war level, the IEA reports.

“The market has shifted into a chronic squeeze driven by concrete supply risks: Hormuz transit constraints, shipping hazards, and depleted inventories,” Figuerola-Ferretti said.

No Reprieve Anytime Soon

With no durable resolution to the Iran war in sight, few analysts expect prices to normalize in the near term.

Brent futures for delivery in October 2027 traded above $90 a barrel on Friday, signaling that markets view a return to normalcy as distant.

“When could prices return to $70? Not soon,” Figuerola-Ferretti said. “It would require durable de-escalation, a return to normal transit and shipping conditions through Hormuz, rebuilt inventories, and freight costs reverting to baseline.”

Molchanov added that he does not believe Gulf supply can realistically exceed 85 percent of pre-war levels without a permanent diplomatic settlement.

“Once the political groundwork is in place, the next steps will be logistical: demining Hormuz, bringing shipping crews back, and restarting production at currently shut-in oilfields,” he said.

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