Ship-to-Ship Transfers Keep Gulf Oil Flowing as Hormuz Risks Mount

A ship-to-ship transfer system is reshaping how Middle East crude reaches global markets, as producers work to sustain exports amid an escalating regional conflict now in its seventh month.

Off Oman's coast, south of the Strait of Hormuz, tankers lie at anchor in rows, linked by ropes and hoses as crude moves from one vessel to another. The arrangement creates a floating bridge between Gulf oilfields and buyers, mainly refineries in Asia. Once a tanker is loaded, it disconnects and sails to its destination, while the larger "mother vessel" returns through Hormuz to reload.

By shortening the distance any single ship must travel, the system reduces exposure to the strait. An increasing number of tankers are also crossing through a narrow corridor along Oman's coastline under US naval protection with their navigation systems switched off.

Exports through Hormuz reached about 6.5 million barrels per day (bpd) so far in September, the highest since a brief spike following the June ceasefire, according to Kpler data.

Origins of the shuttle system

Before the US-Israeli conflict with Iran erupted in February, the Strait of Hormuz handled roughly a fifth of global oil consumption. Iran's blockade halted traffic, forcing producers to divert flows where possible and cut output. Many shipowners refused to send vessels through an active conflict zone, and those willing to take the risk demanded unprecedented premiums.

Facing a shortage of tankers, Abu Dhabi National Oil Company (ADNOC) developed the ship-to-ship workaround. From April, it began using vessels as shuttle tankers, carrying crude from Gulf terminals to the safer waters of the Gulf of Oman, where cargoes were transferred to larger ships. The approach maximised the use of a limited and expensive fleet and allowed some vital exports to continue. UAE oil exports in September are set to reach 3.6 million bpd, above the 2025 average of 3.4 million bpd.

Aramco joins in

What began as an emergency response has grown into a sizable industry. Saudi Aramco is increasingly relying on ship-to-ship operations as disruptions to Red Sea export routes reduce the effectiveness of the kingdom's alternative outlet.

In recent weeks, Yemen's Iran-backed Houthi forces have tightened their grip on the Bab el-Mandeb Strait at the southern entrance to the Red Sea. Iran-backed militants in Iraq struck Saudi Arabia's East-West pipeline on September 10, cutting off roughly 4% of global oil supplies that had been flowing to international markets via the Red Sea port of Yanbu.

That combination pushed Brent crude above $108 a barrel last week before the Saudis began informing buyers they would keep shipments flowing through ship-to-ship transfers via the Omani route. Other regional producers have also adopted the method.

According to Kpler, around 2.5 million bpd of crude are expected to be loaded via ship-to-ship transfers in the Gulf of Oman in September, up from 1.4 million bpd in August — roughly 40% of the volumes currently moving through Hormuz. The practice was rarely used before the war.

Steep costs

The floating logistics network has helped prevent a far more severe supply shock, but it comes at a high price. Benchmark freight rates for a very large crude carrier (VLCC) transporting Gulf crude to China have surged to above $30 per barrel, by far the highest on record, according to LSEG data. With crude prices around $105, freight now represents over a quarter of the cost, compared with 2% to 3% before the war.

Every additional transfer requires more ships, more time and more money. Producers have been forced to offer deeper discounts on their crude to keep exports competitive, absorbing part of the increased transportation costs themselves. The expansion of ship-to-ship transfers has also limited tanker availability, pushing up global freight rates dramatically.

"We are witnessing one of the biggest wealth transfers from oil producers to tanker owners," said Keshav Lokhiya, CEO of HiLo Analytics.

The global energy market is adapting to heightened geopolitical risk rather than being paralysed by it. But the Middle East's oil trade is becoming increasingly inefficient, dependent on a patchwork of military escorts, temporary transfer hubs and alternative routes never designed to handle such volumes. The longer the conflict lasts and the more routes come under threat, the more expensive and fragile the global energy system becomes.