Tankers load inside strait, transfer cargo outside

Single voyage costs up to $40 million

VLCC daily charter rates top $1.2 million

Crew wages double or triple, with year's pay in bonuses

A cargo ship anchors near the Strait of Hormuz off Bandar Abbas, Iran, on Tuesday (local time). [AP]
A cargo ship anchors near the Strait of Hormuz off Bandar Abbas, Iran, on Tuesday (local time). [AP]

Gulf oil producers are running high-risk "shuttle voyages" through the Strait of Hormuz at enormous cost, even as Iran's military threats and repeated attacks on commercial vessels continue. Under the arrangement, very large crude carriers load oil inside the strait and transfer it to waiting tankers outside. A single voyage costs up to $40 million, but producers have concluded that is still better than losing their export routes entirely.

According to the Wall Street Journal on Monday (local time), Saudi Arabia and other Gulf oil-producing nations are sustaining exports by sending very large crude carriers (VLCCs) inside the Strait of Hormuz to load oil, then transferring the cargo to other vessels waiting outside the strait.

The practice emerged after the US-Iran war prompted Asian oil buyers to stop sending their own ships into the high-risk waters of the Gulf. Producer-side vessels now handle the dangerous shuttle leg, handing off crude to export tankers in relatively safer waters beyond the strait.

The costs are steep. A single shuttle voyage is estimated at $30 million to $40 million, adding $15 to $20 per barrel in extra costs, not including insurance.

Freight rates for tankers transiting Hormuz have also surged. The daily charter rate for a VLCC carrying crude from the Gulf to China stood at around $231,400 just before the war; by late last month it had surpassed $1.2 million — more than five times the prewar level.

Crew members willing to make the dangerous run are receiving extraordinary compensation. Sailors from India, the Philippines, China and elsewhere are earning two to three times their normal wages. One crewing company has offered a bonus of up to $25,000 upon completing a round voyage — more than a year's pay for some engine-room crew.

"The money being paid to crew is nothing compared to the millions shipowners are making right now," said Richard Matthews, a director at shipbroker E.A. Gibson.

Gulf producers continue to rely on shuttle voyages despite the staggering costs partly because overland alternatives to Hormuz have their own limits.

Saudi Arabia's east-west pipeline, the main bypass route, can carry up to 7 million barrels a day, but recent drone strikes have disrupted its operation. Some exports have resumed, but analysts say capacity constraints mean Saudi Arabia has no choice but to keep running shuttle voyages alongside the pipeline for now.

Sailing directly through Hormuz has come to resemble wartime navigation. Ships move at night with windows shut and all lights off. When GPS signals drop out for hours at a stretch, crews switch to radar, calculating angles and distances to nearby islands and headlands to fix their position.

Attacks have continued. According to the United Kingdom Maritime Trade Operations and other bodies, seven vessels were struck near the Strait of Hormuz after Sept. 28. Widening the window to the past two weeks, the number of attacked merchant ships rises to nine, with one crew member killed and two injured.

Shuttle voyages persist because Hormuz — the world's busiest oil transit chokepoint — simply cannot be replaced. For producers, absorbing surging transport costs, soaring insurance premiums and inflated crew wages is still economically preferable to halting exports altogether.

The strait remains open, but oil no longer moves through it the way it once did. A high-cost transport network — built on mid-strait transfers, freight rates several times their peacetime levels, and outsized crew pay — is now what keeps Gulf crude flowing to the world.


sjy@heraldcorp.com