Oil exports from the UAE in early June recovered to reach nearly 85 per cent of prewar levels, as the country used alternative shipping routes and pipelines, the International Energy Agency said.
The delivery of crude to customers from the world’s seventh largest oil producer bounced back even before the US and Iran signed an interim deal that has led to an increase in the flow of oil and gas through the Strait of Hormuz, the IEA said in a report.
The UAE’s oil exports jumped to 4.3 million barrels per day at the beginning of June, up from just 1.9 million barrels per day in March, shortly after the war broke out on February 28, according to IEA estimates.
The UAE, drawing on an array of storage, pipelines and other infrastructure, as well as the use of alternative routes, has helped to deliver a “relatively high level of exports even amid the severe disruptions”, Toril Bosoni, head of the oil industry and markets division at the IEA, and senior market analysts David Martin and Rebecca Schulz wrote in a joint report.
Supply losses
Global energy markets have suffered their largest supply disruption in history as a result of the closure of the strait, a vital waterway for global oil and gas exports.
The IEA estimated that the cumulative oil supply losses from producers in the Middle East exceeded 1.3 billion barrels, with flows of hydrocarbons through the waterway falling from about 20 million barrels per day before the conflict to an average of 2.7 million barrels per day in March, April and May.
Like its oil-exporting peers in the six-member Gulf Co-operation Council, the UAE used alternatives to skirt the strait and continue meeting its export commitments to clients, predominantly in the Asian markets.
The country has a 380km pipeline from the production hub of Habshan to the port of Fujairah on the Gulf of Oman, bypassing the strait. The pipeline enables the country to export 1.8 million barrels of crude per day. The 42-million-barrel Mandous underground storage complex near Fujairah also gives the country flexibility.
Several Gulf nations managed to quietly ship oil and gas through the strait, helped by the US Navy. But the volume was far less than the prewar traffic that transited through the strait.
The US and Iran signed a preliminary agreement last week and are in negotiations to secure a permanent peace deal within two months. Oil and gas shipments through the strait has resumed somewhat, but analysts say it will be months before the flow of energy to global markets bounces back to prewar levels.
Oil and gas prices, however, have dropped to a level seen before the conflict began at the end of February amid hopes that the two sides will clinch a permanent peace agreement.
Brent, the benchmark for two thirds of global oil, was trading 0.8 per cent lower to 76.86 a barrel at 8.46am UAE time. Brent has continued to slide this week after losing more than 9 per cent of value last week.
West Texas Intermediate, which tracks US oil, was down 0.79 per cent to 72.63 a barrel.
Impressive agility
The IEA said some of the major oil producers in the Middle East also showed impressive agility in responding to the effective closure of the strait by Tehran.
Saudi Arabia, Opec’s largest oil producer and the biggest Arab economy, increased crude oil flows through its East-West pipeline for export using the Red Sea port of Yanbu. The kingdom’s oil exports from Yanbu increased from two million barrels per day before the outbreak of the war to more than five million barrels per day in early June. "Saudi Arabia also boosted deliveries from stocks held overseas,” the IEA said.
The supply disruptions and price surges have prompted a “wide range of responses” by oil producers, refiners and consumers to adapt to the radically changed market conditions.
Although the talks between Tehran and Washington continue, “the situation nonetheless remains highly unpredictable, with major strains in large parts of the market and uncertainty over how the peace talks will play out”, the IEA analysts said.
“Even if the reopening of the strait proceeds successfully, as we and many others sincerely hope, the Middle East conflict will leave lasting marks on the global energy sector.”
