Energy This Week | The National

Could there finally be a middle ground to resolving the Hormuz crisis? Will the next 48 hours ease five months of deadlock and return toll-free passage through one of the most vital corridors for global trade? It feels like we’ve been in the same scenario before with no lasting solution. If the Omani-mediated "middle corridor" plan is approved, traffic through the Strait of Hormuz could slowly return to pre-February 28 levels. Transits are currently down by 70 per cent from pre-war levels.

Either way, the Gulf’s biggest oil exporters are no longer counting on Hormuz as the gateway for their oil.

Saudi Aramco, the world’s largest oil-exporting company, posted its second-quarter earnings yesterday. Its chief executive and president, Amin Nasser, told investors in a call that the company was looking for “optionality” along Saudi Arabia’s west coast. Plans include increasing capacity on the East-West pipeline, which transports crude from the oil-rich East to Red Sea terminals on the west. Already at full capacity, Aramco plans to boost this gateway to the Red Sea as well as explore other ways to increase supply via Egypt’s Sumed Pipeline and the Suez Canal. The Red Sea has turned volatile over the past few weeks due to the Houthi resurgence; however, Saudi Arabia still prefers a non-Hormuz supply route to customers.

The same is true for the UAE, which reduced its Hormuz oil exports by 53 per cent in July, re-routing most supply via the Gulf of Oman.

Even if this negotiated agreement works, will the trauma of the last five months enforce a permanent shift away from the Gulf?

Also in this newsletter, I take a look at how the world’s top six oil companies enjoyed surging profit from Iran war-fuelled high oil prices.

In addition to running the East-West Pipeline at full 7 million bpd capacity, Aramco confirmed it plans to lift that capacity by up to 2 million bpd. Mr Nasser described work as "currently under execution". He declined to comment on reported strikes on Aramco facilities, including the Abqaiq processing plant, Jizan refinery and Yanbu port, saying: "We don't comment on matters related to military and security incidents." Production, exports and domestic fuel supplies remain intact, he said, and Aramco has not drawn on its strategic reserves.

Mr Nasser said the company could return to pre-conflict production levels within days once conditions allow "but it all depends on things normalising in the Strait of Hormuz". He also said Aramco can restore damaged facilities up to six times faster than the industry average, a capability he said the company has maintained since attacks on its infrastructure began in 2019, allowing it to isolate damage and keep overall production running.

Other highlights:

Hydrocarbon output fell 25 per cent to 9.46 million barrels of equivalent per day, even as average realised crude prices rose to $108.10 per barrel
Aramco could restore its maximum sustained capacity, currently 12 million bpd, within three weeks if required
Rerouting via Suez and the Cape of Good Hope adds 20 to 25 days to the voyage to Asia, Mr Nasser said

Bottom line: Aramco is no longer focused on getting back to Hormuz but is willing to get supply to customers from its west coast even if voyage times and costs are likely to increase in the near term.

The Iran war has turned into a windfall for Big Oil. Six of the world's biggest producers made a combined $79.4 billion in net income last quarter, as Brent averaged $104 per barrel. Companies furthest from the conflict banked the sharpest gains, while those most exposed paid an operational price for the same price spike. Chevron and Exxon barely felt the war beyond the tailwind, posting a combined $26.6 billion and drawing a public scolding from Donald Trump for "making too much money". Aramco earned more than either of them alone, yet grew the slowest of the six. Shell sat in between, trading its way through a Qatar LNG outage even as its profit grew three times.

Chevron's net income soared 385 per cent to $12.1 billion, the sharpest jump of the group
Aramco earned $32.7 billion, more than Exxon and Chevron combined, but grew just 44 per cent, the weakest gain of the six
BP's net income more than doubled to $3.91 billion, even as it disclosed output losses tied to Middle East disruption

Bottom line: Proximity to the war mattered more than exposure to high oil prices.

The UAE is leading the way in shifting away from Hormuz. Exports through the strait fell nearly 53 per cent in July to 950,000 bpd, as Abu Dhabi leaned harder on its Fujairah bypass on the Gulf of Oman, whose share of total UAE exports climbed to 66 per cent from 51 per cent the previous month. Kuwait, which has no pipeline alternative and relies entirely on Hormuz, saw its exports through the strait decline 36 per cent to 560,000 bpd. Combined oil flows from every Gulf producer through Hormuz sank to just 4 million bpd in July, a fraction of the 19 to 20 million bpd that moved through before the war.

Daily tanker crossings through the strait fell to an average of 18.7 in July, down from 24.7 in June, according to shipping tracker Kpler
Saudi Arabia and Iraq both managed to push more oil through Hormuz itself in July, with volumes up 72 per cent and 56 per cent respectively, though still a fraction of pre-war levels
Opec+ agreed to raise output quotas by 188,000 bpd for September, an increase analysts call "largely on paper" given Saudi Arabia pumped nearly 3 million bpd below its implied quota in June

Bottom line: Exporters with no alternatives continue to remain squeezed even as negotiations to open up Hormuz are underway

Chart of the week

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Big number

How much oil Aramco's chief executive says the world has lost since the US-Israel war with Iran began in February.

A standard unit that converts oil, natural gas and other energy products into a single measure based on their energy content, allowing companies to report total production in a single figure, even though the commodities have different market values.