Oil flows are up as Iran war turmoil eases. Why do prices keep rising?

More oil is moving, but markets are pricing risk rather than only today’s supply. Traders fear the war could escalate and disrupt future deliveries. That expectation keeps prices elevated even when current exports look strong.

Gulf exports averaged 24.6 million barrels per day in the week to October 18, above the pre-war average. Yet freight costs reached as much as $40 per barrel, about ten times normal. Insurance and dangerous routes make every delivered barrel more expensive.

Supply also remains uncertain. September OPEC Gulf production was only 75 percent of its pre-war baseline, according to the IEA data cited. Global inventories fell by 10 million barrels in September. Brent therefore reflects immediate costs, depleted buffers, and fears that another disruption could arrive soon.

The Strait of Hormuz is a critical maritime passage connecting Gulf oil exporters with international markets. Its importance comes from the sheer volume of energy that normally crosses it. Any threat to shipping there can affect supplies far beyond the region.

The article describes Hormuz as a conduit for one-fifth of global oil and liquefied natural gas supplies during peacetime. Iranian attacks on shipping have made the route dangerous. Shipping companies have responded by using ship-to-ship transfers and longer alternative routes.

The strait still matters even when some cargo avoids it. Bypassing the passage requires pipelines, transfers, extra handling, and greater security. Those workarounds keep oil moving, but they reduce the smoothness and reliability of deliveries. The resulting risk helps explain why oil prices remain high despite recovering Gulf exports.

The Strait of Hormuz normally carries a huge share of the world’s energy trade. The article says it handles one-fifth of global oil and liquefied natural gas supplies during peacetime. That makes any disruption a global market concern.

Gulf producers are now reducing dependence on the strait. By September, 40 percent of Gulf exports were bypassing it, compared with 17 percent before the war. Saudi Arabia is using its East-West pipeline to reach Yanbu on the Red Sea. The UAE is using its Habshan-Fujairah pipeline.

This shift does not mean the risk has disappeared. Bypassing the strait uses limited infrastructure and adds cost. More than 70 percent of crude crossing the strait in August used ship-to-ship transfers. Oil is moving, but the route is more complicated and less reliable.

These methods keep supplies moving by reducing ships’ exposure to dangerous waters. They do not restore normal transport. Instead, they divide the journey into safer sections or redirect oil over land before it reaches international tankers.

Shuttle boats carry oil through the Strait of Hormuz and transfer it to waiting tankers off Oman and the United Arab Emirates. In August, more than 70 percent of crude crossing the strait used such transfers. Saudi Arabia’s East-West pipeline and the UAE’s Habshan-Fujairah pipeline bypass the strait altogether.

The mechanisms protect flows but add complexity and expense. Transfers require more vessels and coordination. Pipelines rely on available capacity and different export ports. As a result, exports can approach pre-war levels while deliveries remain costly, vulnerable, and less dependable than before.

Oil prices include the cost of delivering crude, not just extracting it. When ships face attacks, companies charge more to transport and insure them. Those added expenses become part of the price paid for each delivered barrel.

The article reports freight costs as high as $40 per barrel in recent weeks, roughly ten times the usual rate. Elevated insurance premiums helped drive the increase. Ship-to-ship transfers, longer routes, and extra coordination also make transport more difficult.

This means available oil does not automatically create cheap oil. Barrels are moving, but not smoothly or reliably. October had 32 attacks on commercial vessels logged by UKMTO as of Friday, the deadliest month since the war began. Persistent danger can keep delivery costs and prices high even if exports recover.

Oil inventories matter because they provide a buffer when production or transport is interrupted. Large stocks can soften a temporary shock. Falling stocks leave buyers with fewer immediate alternatives, so even a possibility of renewed disruption can move prices sharply.

The IEA reported that observed inventories fell by 10 million barrels in September. The global stockpile was 509 million barrels below its pre-war level. That decline happened while transport through Hormuz remained risky and production had not fully returned to its earlier baseline.

The market is therefore more exposed to bad news. If conflict disrupts shipments again, replacing missing barrels could be harder and more expensive. Analysts describe the situation as a chronic squeeze, driven by Hormuz transit risks, shipping problems, and depleted inventories. Those conditions can keep prices elevated without a new disruption occurring.

Futures markets are contracts for oil delivered later, so their prices reflect expectations about future conditions. Traders assess conflict, transport risks, production, inventories, and likely demand. Their combined buying and selling turns those expectations into a market price today.

The article gives a clear example. Brent front-month futures for December delivery briefly topped $117 a barrel after rising more than 2 percent. Adi Imsirovic said the market sees plenty of prompt oil but no clear end to the war, with escalation considered likely. That expectation supports higher futures prices.

Today’s exports therefore do not tell the whole story. Producers have restored flows through transfers and pipelines, but deliveries remain costly and unreliable. Falling inventories add another concern. Unless traders see a lasting end to the conflict and safer transport, futures prices may continue reflecting elevated future supply risk.