An expensive network of floating transfer operations is barely propping up global energy supply, yet it remains unclear whether this emergency approach is a stopgap measure or the emerging norm.

The Strait of Hormuz blockade has now entered its seventh month, with Middle Eastern producers relying on a ship-to-ship (STS) transfer system to keep exports moving, though the operating costs of this system are climbing sharply. According to Kpler data, exports through Hormuz have rebounded to roughly 6.5 million barrels per day since September, the highest level seen since the brief recovery following the June ceasefire.

However, this export volume comes with unprecedented logistical expenses. Data from LSEG indicates that benchmark freight rates for very large crude carriers (VLCCs) shipping Gulf crude to China have soared past $30 per barrel, the highest ever recorded. Before the conflict, such costs accounted for merely 2% to 3% of the oil price; at the current crude price of around $105 per barrel, freight now represents more than a quarter of total costs. Last week, Brent crude briefly surpassed $108 per barrel, partly driven by the shock of disrupted Saudi export routes.

Energy markets are adapting rather than grinding to a halt, but the price of this adaptation is being shouldered collectively by producers, the shipping sector, and global consumers alike.

The Floating Transfer Chain in Action

The blockade of the Strait of Hormuz has forced producers to redesign their export pathways. Abu Dhabi National Oil Company (ADNOC) initiated the STS approach back in April, using vessels as shuttle tankers to move crude from Gulf terminals to the safer waters of the Gulf of Oman, where cargo is then transferred to larger ships for onward voyages, typically to Asian refineries. The shuttle tankers then return through Hormuz to reload, creating a continuous loop.

This mechanism reduces the risk of vessels transiting the strait by shortening individual voyages while maximizing the use of limited and expensive tanker capacity, thereby sustaining some critical export flows. An increasing number of tankers are also transiting the narrow corridor near the Omani coastline under U.S. Navy escort, with navigation systems switched off.

Saudi Arabia Follows, Expansion Accelerates

What began as an ADNOC-led emergency measure has evolved into a rapidly growing industry in its own right, with Saudi Aramco increasingly dependent on STS transfers to sustain its exports.

This shift is driven by urgent pressures: Houthi forces backed by Iran have recently stepped up their control over the Bab el-Mandeb Strait at the southern end of the Red Sea. On September 10, Iran-aligned militants in Iraq attacked Saudi Arabia's east-west pipeline, severing roughly 4% of global supply that typically flowed to international markets via the Red Sea port of Yanbu. Squeezed from two directions, Saudi Arabia has begun notifying buyers that it will fulfill deliveries through STS transfers via the Oman route instead.

The scale of this change is clear in the data. According to Kpler, STS transfer loadings in the Gulf of Oman are expected to hit roughly 2.5 million barrels per day in September, a sharp jump from 1.4 million barrels per day in August, and accounting for about 40% of current flows through Hormuz. Before the conflict, STS transfers were virtually never used. By comparison, UAE oil exports in September are projected at 3.6 million barrels per day, up from the 2025 average of 3.4 million.

Wealth Flows from Producers to Shipowners

This floating logistics network has, to some extent, prevented a more severe supply shock, but its costs have already significantly distorted market dynamics.

The direct consequence of surging freight rates is the erosion of producer margins. Producers have been forced to offer larger discounts on their crude prices to remain competitive, effectively absorbing part of the inflated transport costs themselves. Meanwhile, the heavy use of tankers for Gulf STS operations has tightened available global shipping capacity, pushing overall freight rates higher.

"We are witnessing the largest wealth transfer from oil producers to tanker owners in history," said Keshav Lokhiya, CEO of HiLo Analytics.

Structural Fragility Beneath the Adaptation

The global energy market is adapting to the current highly tense geopolitical risks rather than stalling, and that much is certain. Yet Middle Eastern oil trade is growing increasingly inefficient, dependent on an improvised patchwork of military escorts, temporary transfer hubs, and alternative routes that were never designed to handle such volumes.

Every additional transfer step means more vessels, longer transit times, and higher costs, all of which ultimately converge on the global oil market. The longer the conflict persists and the more routes come under threat, the more expensive and fragile this global energy system becomes.