The World Is Running Out Of Easy Ways To Move Fuel

That distinction is starting to matter.

Before the war, roughly 125 large commercial vessels moved through the Strait of Hormuz every day. Over the weekend, only 17 commodity vessels were recorded crossing it.

Yet oil is still moving.

That is what makes the current situation easy to underestimate.

Saudi Arabia has been pushing more crude through Hormuz because the alternative route to the Red Sea has been hit. In the week of September 13, 22 tankers carrying about 42 million barrels of crude left Hormuz. At the same time, no visible Saudi crude loadings had been recorded from Yanbu since September 16.

So the market found a workaround.

Then the workaround started eating ships.

Ship-to-ship transfers around Oman have climbed to roughly 2.5 million barrels a day, up from 1.4 million in August. Around 15% of the world’s VLCC fleet is now sitting around Oman. Fujairah and Sohar, the ports handling much of the transfer activity, are close to capacity.

This is where the cost starts showing up.

The Wall Street Journal reported that hiring a VLCC to move oil through Hormuz recently topped $1 million a day. On a barrel basis, that is about $26 just for shipping. Global VLCC earnings reached roughly $651,000 a day last week, nearly double the level from a week earlier.

The barrel didn’t suddenly become more expensive to produce.

The trip became more expensive.

And that distinction is spreading through the rest of the energy system.

Saudi Arabia is using more tankers to compensate for damaged infrastructure. Those tankers get tied up doing shorter shuttle runs. Other ships are taking longer routes around Africa. More ships are required to deliver the same amount of crude. Ports used for transfers start filling up. Freight rates rise. Refiners pay more to get crude delivered.

Then somebody passes the bill along.

That is why diesel is becoming a bigger problem than the crude headline suggests.

U.S. diesel has moved above $6.50 a gallon, while U.S. inventories are at their lowest September level since 1982. The problem is also showing up in Europe and Asia. Russia’s refining system has been hit repeatedly, reducing the amount of refined product available for export. The International Energy Agency has reported Russian refinery throughput around 30% below the previous year, with diesel production also sharply lower.

So even if another tanker gets through Hormuz tomorrow, that doesn’t instantly fix diesel.

The refining capacity is damaged.

The shipping capacity is tied up.

The transfer ports are filling.

And the alternative routes are longer.

This is why Monday’s decline in crude prices doesn’t necessarily tell the whole story. Brent was around $101 while reports of improving Saudi flows helped calm the crude market. But Reuters also reported that refined-fuel shortages were appearing at U.S. retailers.

The price of the raw barrel can fall while the cost of getting usable fuel to the customer keeps rising.

That is a nasty combination.

And the energy problem isn’t staying inside the energy market.

Look at the Black Sea.

Ukraine’s normal deep-water ports handled the overwhelming majority of its agricultural exports. Now shipping disruptions are forcing grain onto alternative routes while attacks continue to interfere with Black Sea trade. The World Food Programme has warned that simultaneous disruptions in the Hormuz, Red Sea and Black Sea are affecting the movement of food, fuel and fertilizer.

That means the same basic problem is appearing in different commodities.

Oil needs tankers.

Grain needs bulk carriers and functioning ports.

Fertilizer needs ships.

Refined fuel needs tankers and refineries.

And all of them depend on insurance, crews, ports, fuel and safe passages.

There is only so much spare capacity sitting around waiting for the next war zone.

The Houthis are making that problem worse from the other direction. Their advance in Yemen is putting additional pressure on the Bab el-Mandeb route, while Saudi Arabia is already being forced to rely more heavily on Hormuz. Traffic through Bab el-Mandeb fell to 51 vessels over the latest weekend from 57 the previous weekend.

Now put the pieces together.

Hormuz is impaired.

Bab el-Mandeb is under pressure.

Saudi’s bypass route has been damaged.

Russian refining has been hit.

Black Sea agriculture is being disrupted.

And the solution to the first problem is consuming the ships needed to solve the second.

That creates a feedback loop.

More disruption → longer routes → more ships tied up → higher freight → fewer economical cargoes → tighter delivered supply → more pressure on prices.

This is also why the tanker shortage may be more important than the next $5 move in Brent.

A market with plenty of oil but insufficient transportation capacity can still experience a fuel shortage.

The oil doesn’t have to disappear.

It just has to arrive late, arrive somewhere else, or cost too much to move.

And Iran’s latest warning adds another layer of uncertainty. The Revolutionary Guard said Monday that an escalation could bring changes in weapons, tactics and targets. An unidentified projectile also struck a tanker entering Hormuz and injured two crew members.

So the system is currently doing something remarkable: keeping barrels moving despite a huge reduction in normal traffic.

But it is doing it by burning through the spare capacity that normally makes the system resilient.

That’s the part worth watching.

Not whether one more tanker gets through Hormuz tomorrow.

Watch how many ships are tied up around Oman. Watch VLCC rates. Watch Fujairah and Sohar. Watch diesel inventories. Watch refinery outages. Watch Black Sea grain flows.

Because the next shock doesn’t need to shut the entire system down.

It only needs to remove another piece of the spare capacity that is keeping it running.

And once the spare capacity is gone, every new disruption gets more expensive.

Not financial advice.