Gulf oil producers are pushing tanker transfers as far as India’s coast and slashing prices to keep crude flowing to Asia, as the makeshift export network around Hormuz buckles under congestion and attack.
Ship-to-ship transfers in India's Gulf of Kutch reached 82 cargoes in September, equivalent to about 680,000 barrels a day, according to shipping analytics company Vortexa. Refined products accounted for about 65 per cent of the volume, with crude making up the remainder.
"Fujairah and Sohar STS zones were handling record volumes with some indications of delays relating to operational limitations, and thus the activity has spilled over to India,” said Varaleka Pant, senior market analyst at energy intelligence firm Vortexa
The expansion shows how the workaround sustaining Gulf exports is coming under strain. Producers have shuttled oil through Hormuz before transferring it to supertankers outside the strait, but congestion and longer voyages are tying up vessels and driving up costs.
Crude transfers onto very large crude carriers (VLCCs) have held at about 5 million to 7 million barrels a day since September, accounting for 60 to 70 per cent of total Hormuz flows, according to Rystad Energy. The full process, including waiting time, now takes more than a week, compared with five to six days earlier in the conflict.
"The overflow has started to move into the Arabian Sea, but it is still small," said Rahul Choudhary, vice president for oil and gas at Rystad. Some supertankers previously used for Saudi transfers are now discharging directly off India's west coast, he said.
A recent tanker strike off Fujairah, the first there in six months, has added pressure to disperse operations. Attacks on Saudi Arabia's East-West pipeline have further exposed the vulnerability of alternative export routes.
Transfers move east
The shift towards India is growing, though analysts differ over its scale.
South Korea, India, China and Japan took almost 70 per cent of the Kutch volume, according to Vortexa.
In one such transfer, a 2 million-barrel cargo of Saudi Arab Medium loaded at Ras Tanura on September 9 was moved onto the Front Forth VLCC tanker off Kutch in late September. It was bound for S-Oil’s Onsan refinery in South Korea, according to Kpler data.
Bimco, the shipping industry association, reported a much smaller figure of 12 STS operations in the area in September, based on Signal Ocean data that counts transfers differently from Vortexa’s cargo-based tally.
"The Gulf of Oman remains the main area for this," said Niels Rasmussen, Bimco's chief shipping analyst.
The increase is unlikely to have changed overall tanker demand significantly, he said, though longer voyages to transfer points mean more ships are needed.
Yui Torikata of Kpler cautioned that some eastern transfer arrangements were in place before the recent shift, including Japanese refiners receiving Aramco and Adnoc cargoes off Malaysia. Kpler has yet to establish how much activity has shifted east.
Reported tanker activity near Sri Lanka is largely unrelated. Vortexa said vessels there were primarily sanctioned Iranian tankers stranded after discharging pre-blockade cargoes, while Bimco recorded no STS operations off the island.
Security versus cost
Moving transfers farther from Hormuz reduces the exposure of receiving tankers but does not eliminate the danger of transporting oil out of the Gulf.
"The STS transfer itself is relatively low risk. The real risk lies in getting the barrels out of the west of Hormuz to the STS zone” Ms Pant said.
Kutch offers relatively calm waters and proximity to Indian refiners, but the cargoes must still pass through contested routes before reaching the transfer point. Buyers could retreat after a security incident on that route, if discounts fail to cover higher freight and STS costs, or if congestion spreads to India, she said.
Egypt's Sidi Kerir terminal is the safest place to take delivery, according to Kpler, because receiving tankers can avoid both Hormuz and the Bab Al Mandeb strait. But the journey to Asia takes about 55 days, compared with just over 20 days from the Gulf of Oman, according to Mr Torikata.
Disruptions to Saudi Arabia's East-West pipeline have also left Japanese-chartered tankers waiting for cargoes there, he said. Japanese refiners, and to a lesser extent South Korean ones, rely on medium-sour crude for blending, limiting their ability to switch suppliers.
A Japanese refiner paid a record high price of above $80 million to charter a tanker from the US Gulf Coast to Japan, Mr Torikata said.
"If they paid such high [rates] to buy US crude, they would go to Sidi Kerir to buy Arab Light as it takes approximately the same time as sourcing from the US Gulf Coast," he added. Arab Light is also favoured by Japanese refiners over US light sweet oil.
Discounts deepen
The disruption is dividing Gulf producers between those cutting prices to compensate buyers for transit risks and those able to command premiums for more secure supply.
Iraq, which has no export route around Hormuz, offered October-loading Basrah Medium at a discount of $34.50 a barrel and Basrah Heavy at $37, compared with discounts below $30 in August, according to Rystad.
The reductions have helped restore Iraqi production to within 10 per cent of pre-war levels, Rystad said. Iraq now pumps almost 70 per cent as much crude as Saudi Arabia, compared with less than 40 per cent before the conflict.
Saudi Aramco cut its November Arab Light price for Asian buyers by $3 to $5 a barrel below the Oman/Dubai average, the widest discount since 2020, defying market expectations of an increase.
QatarEnergy also cut its November prices by $3, setting Qatar Marine at $8 a barrel below the Oman/Dubai average and Qatar Land at $7.50 below, according to a pricing document.
“In the short term, deep discounting of crude is protecting market share more effectively by providing price incentive for buyers to lift crude from the Gulf, but it’s a situational move,” Ms Pant said.
Adnoc has taken a different approach, benefiting from its ability to export Murban crude through Fujairah without passing through Hormuz.
"Murban carries none of the transit risk the other cuts compensate for," Mr Choudhary said. "It reaches Fujairah by pipeline and loads outside Hormuz, so buyers pay a premium for it."
The grade traded as much as $26 a barrel above Dubai swaps in late September before easing to about $15, according to Rystad.
For its other grades, Adnoc has used spot tenders rather than resetting official prices, preserving flexibility while testing what buyers will pay, according to Vortexa.
The divergence underscores how secure access to export infrastructure has become a competitive advantage, allowing some producers to protect margins while others sacrifice revenue to keep their oil flowing.
Beyond price
Gulf producers are increasingly taking on transit and security risks themselves to keep Asian customers.
Adnoc, Aramco, Iraq and Qatar now offer STS deliveries outside Hormuz, and Kuwait has adopted the same approach to attract buyers, according to Mr Choudhary. These arrangements let buyers receive cargoes without sending their own tankers through the strait.
The UAE has also moved to lock in Asian demand. Adnoc agreed in May to explore raising its crude storage in India to as much as 30 million barrels, from about 5.9 million at Mangalore.
Aramco, which sold more than 60 million barrels for transfer off Sohar for September and October deliveries, is negotiating term contracts for next year involving loadings outside Hormuz, Mr Choudhary said, signalling that buyers and sellers alike expect the arrangement to last.