Ship-to-Ship (STS) oil transfer operations on the western coast of India are significantly expanding due to congestion in the Strait of Hormuz. Last September, 82 shipments, equivalent to about 680,000 barrels per day, were transferred in the Kutch Gulf of India.
Current Status of Oil Transfers
The Kutch Gulf, which opens to the Arabian Sea and the Gulf of Oman, has become one of the new points for STS operations for Gulf oil producers. Middle Eastern oil exporters are seeking to maintain supply flows to Asian markets, despite increasing risks of tanker voyages in the Strait of Hormuz. According to Vortexa's senior market analyst, Varlika Pent, areas near Fujairah in the United Arab Emirates and Sohar in Oman have reached maximum operational capacity, and as a result, activities are spilling over to the western coast of India.
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Challenges and Risks in Oil Transfer
Congestion in STS transfers near the Strait of Hormuz indicates that the oil transportation system that Gulf producers used for exporting oil through Hormuz has reached its ultimate limit. Shipments may face delays, and in some cases, transfers must occur further away from the Strait of Hormuz. Experts have differing opinions on the scale of STS transfers eastward towards the Indian Ocean, but they all acknowledge that congestion in Oman and the UAE is prompting some producers and buyers to seek transfers along longer routes to Asia.
Varlika Pent also pointed out that the real risk in transferring barrels from west of Hormuz to the STS area lies therein. The latest price changes for Middle Eastern oil types reflect the level of risks associated with transferring barrels from Hormuz. For example, Iraq is offering Basrah Medium oil for loading in October at a discount of $34.50 per barrel and Basrah Heavy oil at a discount of $37 compared to regional benchmarks, as Baghdad has no alternative route around Hormuz.
In contrast, the UAE receives a premium for its Murban crude oil, which is transported via a pipeline to Fujairah outside the Strait of Hormuz. This situation highlights the challenges in the oil transfer process from the Gulf and its impact on global prices and markets.
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