By Michael J. Armstrong

The United States and Israel have repeatedly boasted about airstrikes in their current war with Iran. In Week 1, they claimed the destruction of 75 per cent of Iran’s missile launchers. By Week 2, they had reduced Iranian missile fire by 90 per cent and said the war was “already won in many ways.”

And yet, Iran keeps damaging refineries and blocking tankers from crossing the Strait of Hormuz.

The country has certainly suffered many tactical losses. But its missiles and drones have been strategically successful.

Iran so far has launched at least 5,400 such projectiles. Surprisingly, less than a tenth of them have targeted Israel, its traditional rival.

Missiles over Israel

Israel faced about 450 Iranian missile attacks during the war’s first four weeks. The rate of fire fell rapidly after the first weekend but has never halted.

Some missiles carry several hundred kilograms of explosives, enough to destroy an entire building. The rest instead dispense dozens of cluster bombs over wide areas. Those are less powerful but still lethal.

Israel’s long-range Arrow interceptors engage the missiles first. Its mid-range David’s Sling and short-range Iron Dome interceptors provide backup. (The country’s Iron Beam lasers are not being used.) Together, they’ve reportedly intercepted 92 per cent of incoming missiles.

But interceptors sometimes miss. And their supply is limited. Consequently, at least nine large warheads and 150 cluster bombs have hit populated areas.

These numbers imply that almost all Iranian missiles are accurate enough to need interception. By contrast, during Israel’s earlier conflicts with Gaza in 2008, 2011 and 2014, less than a third of incoming rockets were so accurate.

Meanwhile, more than 90 per cent of Iran’s missiles and drones have targeted Arab countries in the Persian Gulf.

Drones across the Persian Gulf

Saudi Arabia, Jordan, Iraq, Kuwait, Bahrain, Qatar, Oman and the United Arab Emirates (UAE) collectively reported around 4,900 Iranian attacks during the first four weeks. Only one fifth were missiles: the rest were drones.

These countries have stated they are neutral in the war. However, they do have defence agreements with the U.S., and some host American military facilities.

These countries defend themselves using weapons like the U.S.-made Patriot and Israeli-made SPYDER interceptors. Drone experts from Ukraine now advise the defenders too.

For example, the UAE reported attacks by 1,835 drones, 378 ballistic missiles and 15 cruise missiles. As of March 10, it claimed to have intercepted 94 per cent of the drones and 99 per cent of the missiles.

The deadliness of these attacks has varied.

Continuing lethality

In Israel, Iranian missiles have killed 20 people, implying roughly 4.1 deaths per hundred missiles arriving.

That’s less than the 5.1 the country saw during its 2025 war with Iran. But it’s four to 40 times higher than the rates it suffered from rockets in earlier Gaza and Lebanon conflicts.

In the Persian Gulf, Iranian projectiles have killed at least 15 civilians, 13 U.S. soldiers and seven merchant sailors.

There were about 0.6 deaths per hundred Iranian attacks in Kuwait, Bahrain and the UAE combined. That’s much lower than Israel’s rate, presumably because those countries were attacked by drones and short-range missiles carrying smaller warheads.

Interestingly, although the quantity of Iranian attacks fell after the first week, their lethality did not. Death rates per projectile in Arab countries showed little change week-to-week. In Israel, the rates were highest in Week 3.

In fact, Iranian missiles keep hitting precise targets, like U.S. military aircraft parked beside runways.

This implies Iran’s government has recovered from its initial surprise. It’s likely benefiting from Russian intelligence and Chinese technology too.

Tactical U.S. vs strategic Iran

So, U.S. and Israeli warplanes have bombed thousands of targets, killed thousands of civilians, and slowed Iran’s missile fire. But they haven’t stopped it.

That’s not surprising. Airstrikes alone didn’t stop rocket fire during Israel’s previous conflicts in Gaza and Lebanon. Ground invasions were needed for that.

U.S. President Donald Trump can post jingoistic mashup videos and “bullshit” about having “militarily won” the war in Iran. But he hasn’t achieved strategic outcomes like “unconditional surrender” from Iran or regime change there.

By contrast, Iran’s missiles have been strategically effective. They’ve damaged Persian Gulf refineries and halted tanker traffic. They’ve forced Trump to relax sanctions on Russian and Iranian oil, and on Belarusian fertilizer. And they’ve shown Arab monarchies that U.S. defence agreements have limited value.

Trump recently, and inadvertently, admitted this weakness. While discussing Iran’s closure of the Strait of Hormuz, he said “it would be great if we could do something, but they have to open it.”

This strategic failure despite tactical success is reminiscent of the Vietnam War. U.S. units had overwhelming firepower as they killed enemy soldiers. But body counts by themselves indicated little about strategic progress.

Some historians rank that war as the second worst U.S. foreign policy decision ever. The 2003 invasion of Iraq was ranked the worst.

Trump talks about being the greatest U.S. president in history. So, perhaps his Iran war will make him the new leader on that policy failure list.

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By Candace Dunn, Justine Barden

• In 2024, about 20 per cent of global liquefied natural gas (LNG) trade transited the Strait of Hormuz, primarily from Qatar. The strait is a critical route for oil and petroleum products as well.
• Qatar exported about 9.3 billion cubic feet per day (Bcf/d) of LNG through the Strait of Hormuz in 2024, and the United Arab Emirates (UAE) exported about 0.7 Bcf/d, accounting for nearly all LNG flows from the Persian Gulf through Hormuz.
• We estimate that 83 per cent of the LNG that moved through the Strait of Hormuz in 2024 went from Persian Gulf countries to Asian markets. China, India, and South Korea were the top destinations for LNG moving through the Strait of Hormuz, accounting for 52 per cent of all Hormuz LNG flows in 2024. In 2024, disruptions to LNG flows through the Bab al-Mandeb Strait, which connects the Red Sea to the Gulf of Aden and Arabian Sea, and more U.S. LNG exports to Europe pushed LNG exports from Qatar away from Europe to Asia.
• Kuwait and the UAE imported LNG that originated outside of the Persian Gulf, including from the United States and West Africa. Bahrain began operating an LNG import terminal in April 2025 and also received cargoes that transited Hormuz from outside of the Persian Gulf, including recent cargoes in April and June that originated from the United States.

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By Candace Dunn and Justine Barden

The Strait of Hormuz, located between Oman and Iran, connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. The strait is deep enough and wide enough to handle the world’s largest crude oil tankers, and it is one of the world’s most important oil chokepoints. Large volumes of oil flow through the strait, and very few alternative options exist to move oil out of the strait if it is closed. In 2024, oil flow through the strait averaged 20 million barrels per day (b/d), or the equivalent of about 20% of global petroleum liquids consumption. In the first quarter of 2025, total oil flows through the Strait of Hormuz remained relatively flat compared with 2024.

Although we have not seen maritime traffic through the Strait of Hormuz blocked following recent tensions in the region, the price of Brent crude oil (a global benchmark) increased from $69 per barrel (b) on June 12 to $74/b on June 13. This piece highlights the importance of the strait to global oil supplies.

Chokepoints are narrow channels along widely used global sea routes that are critical to global energy security. The inability of oil to transit a major chokepoint, even temporarily, can create substantial supply delays and raise shipping costs, potentially increasing world energy prices. Although most chokepoints can be circumvented by using other routes—often adding significantly to transit time—some chokepoints have no practical alternatives. Most volumes that transit the strait have no alternative means of exiting the region, although there are some pipeline alternatives that can avoid the Strait of Hormuz.

Between 2022 and 2024, volumes of crude oil and condensate transiting the Strait of Hormuz declined by 1.6 million b/d, which were only partially offset by a 0.5-million b/d increase in petroleum product cargoes. The decline in oil transit through the strait partially reflects the OPEC+ decision to voluntarily cut crude oil production several times starting in November 2022, which lowered exports from Saudi Arabia, Kuwait, and the United Arab Emirates (UAE). In addition, disruptions in 2024 to oil flows around the Bab al-Mandeb Strait, which connects the Arabian Sea to the Red Sea, led Saudi Arabia’s national oil company Aramco to shift seaborne crude oil flows from the Strait of Hormuz, instead sending it over land through its East-West pipeline to ports on the Red Sea. Also, more refining capacity in the Persian Gulf states increased regional demand for crude oil and shifted some flows to local markets within the Persian Gulf.

Flows through the Strait of Hormuz in 2024 and the first quarter of 2025 made up more than one-quarter of total global seaborne oil trade and about one-fifth of global oil and petroleum product consumption. In addition, around one-fifth of global liquefied natural gas trade also transited the Strait of Hormuz in 2024, primarily from Qatar.

Based on tanker tracking data published by Vortexa, Saudi Arabia moves more crude oil and condensate through the Strait of Hormuz than any other country. In 2024, exports of crude and condensate from Saudi Arabia accounted for 38% of total Hormuz crude flows (5.5 million b/d).

Alternative routes
Saudi Arabia and the UAE have some infrastructure in place that can bypass the Strait of Hormuz, which may somewhat mitigate any transit disruptions through the strait. The pipelines do not typically operate at full capacity, and we estimate that about 2.6 million b/d of capacity from the Saudi and UAE pipelines could be available to bypass the Strait of Hormuz in the event of a supply disruption.

Saudi Aramco operates the 5 million-b/d East-West crude oil pipeline, which runs from the Abqaiq oil processing center near the Persian Gulf to the Yanbu port on the Red Sea. Aramco temporarily expanded the pipeline’s capacity to 7.0 million b/d in 2019 when it converted some natural gas liquids pipelines to accept crude oil. In 2024, Saudi Arabia pumped more crude oil through the East-West pipeline to avoid the shipping disruptions around the Bab al-Mandeb.

The UAE also operates a pipeline that bypasses the Strait of Hormuz. This 1.8 million-b/d pipeline links onshore oil fields to the Fujairah export terminal in the Gulf of Oman. In 2024, crude oil and condensate volumes originating in the UAE and traversing Hormuz were 0.4 million b/d less than in 2022 because refinery upgrades allowed more heavy crude oil to be refined locally. These upgrades also allowed the UAE to increase exports of its lighter crude oil grades, and use of the pipeline to the Fujairah export terminal increased. Increased use of the pipeline for day-to-day operations has limited the excess capacity available to reroute additional volumes around the Strait of Hormuz.

Iran inaugurated the Goreh-Jask pipeline and the Jask export terminal on the Gulf of Oman (avoiding the Strait of Hormuz) with a single export cargo in July 2021. The pipeline’s effective capacity remains around 300,000 b/d. However, during the summer of 2024 Iran exported less than 70,000 b/d from ports (Bandar-e-Jask and Kooh Mobarak) using the Goreh-Jask pipeline and stopped loading cargoes after September 2024.

Destination markets
We estimate that 84% of the crude oil and condensate and 83% of the liquefied natural gas that moved through the Strait of Hormuz went to Asian markets in 2024. China, India, Japan, and South Korea were the top destinations for crude oil moving through the Strait of Hormuz to Asia, accounting for a combined 69% of all Hormuz crude oil and condensate flows in 2024. These markets would likely be most affected by supply disruptions at Hormuz.

In 2024, the United States imported about 0.5 million b/d of crude oil and condensate from Persian Gulf countries through the Strait of Hormuz, accounting for about 7% of total U.S. crude oil and condensate imports and 2% of U.S. petroleum liquids consumption. In 2024, U.S. crude oil imports from countries in the Persian Gulf were at the lowest level in nearly 40 years as domestic production and imports from Canada have increased.

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This article was published by the International Energy Agency on Sept. 5, 2021.

In the Middle East and north Africa, global warming is not a distant threat, but an already painful reality. Rising temperatures are exacerbating water shortages. In Iraq, temperatures are estimated to be rising as much as seven times faster than the global average. Countries in this region are not only uniquely affected by global temperature rises: their centrality to global oil and gas markets makes their economies particularly vulnerable to the transition away from fossil fuels and towards cleaner energy sources. It’s essential the voices of Iraq and similar countries are heard at the Cop26 climate change conference in Glasgow this November.

To stand a chance of limiting the worst effects of climate change, the world needs to fundamentally change the way it produces and consumes energy, burning less coal, oil and natural gas. The International Energy Agency’s recent global roadmap to net zero by 2050 shows the world’s demand for oil will need to decline from more than 90m barrels a day to less than 25m by 2050. This would result in a 75 per cent plunge in net revenues for oil-producing economies, many of which are dominated by a public sector that relies on oil exports and the revenues they produce.

An energy transition that fails to engage with fossil fuel-producing countries and their needs could have profound implications for regional and international security and the stability of global energy markets. If oil revenues start to decline before producer countries have successfully diversified their economies, livelihoods will be lost and poverty rates will increase. In a region with one of the youngest and fastest-growing populations in the world, economic hardship and increasing unemployment risk creating broader unrest and instability.

The Covid-19 crisis provides a cautionary tale. Poverty rates in Iraq are estimated to have doubled in 2020. This is largely a result of the country’s decline in oil income, as prices nosedived globally because of the pandemic-induced collapse in demand. We cannot allow the livelihoods of millions of families to continue to be dictated by the vagaries of an unpredictable oil market.

Redressing this will require policies and investments that enable oil and gas-producing countries such as Iraq to channel capital and labour into productive industries for the future and stimulate the private sector. Indeed, this was one of the key motivations behind Iraq’s recent white paper for economic reform, which seeks to fundamentally alter the nature of the Iraqi economy, allowing the private sector to play a larger role, reducing the country’s reliance on hydrocarbon exports and committing to an economic renewal focused on environmentally sound policies and technologies. The energy sector could play a role here by making use of the region’s vast potential for producing and supplying clean energy.

The decarbonization strategies of different countries will be shaped by their individual circumstances. In Iraq, oil and gas production accounts for as much as 40 per cent of total greenhouse gas emissions, before any of this is even burned to fuel cars or produce electricity. This makes the country’s recent commitment to curbing gas flaring – an unnecessary and harmful practice where natural gas from oil wells is burned into the air – all the more important.

There are opportunities for decarbonization within relatively easy reach. By making energy use more efficient across industries, transport and the building sector, Iraq and other countries could put the brakes on the runaway demand for energy growth they are currently experiencing. Increasing energy efficiency would have other benefits too: it would mean countries such as Iraq wouldn’t need to spend as much on increasing their overall level of electricity supply, and would allow them to create new jobs in areas such as the construction and maintenance of energy efficient buildings. A recent IEA report shows that for every $1m invested in energy efficiency, up to 30 jobs are created. This is crucial in a country such as Iraq, with its young and fast-growing population.

Renewable energy offers countries the ability to build a cleaner and more efficient electricity sector, instead of relying on costly imports and polluting fossil fuels. The worst potential solar sites in Iraq get up to 60 per cent more direct energy from the sun than the best sites in Germany. And yet the solar plants that Germany has built to date together offer two and a half times the electricity capacity of all Iraq’s operational oil, gas and hydropower plants combined. Solar is increasingly becoming more affordable than electricity from fossil-fuel plants in many parts of the world. Some large projects in the Middle East and north Africa are already at the forefront of this trend, but a lot of countries, Iraq included, will need support to capitalize on their huge solar resources.

This would bring tremendous economic benefits. Iraq’s inability to provide enough electricity to meet demand has cost the country nearly $120 billion over the past seven years, according to recent IEA analysis. Power cuts are recurrent, and the cost of securing electricity from private generators has stifled many small- and medium-sized businesses. Renewables, especially solar, could provide a cost-effective means of addressing the issues that have plagued Iraq’s electricity system for so long by increasing the reliability and affordability of the energy needed to power homes and businesses. Policymakers in Iraq are also closely watching technological developments in the promising field of small nuclear reactors as an additional low-carbon energy source.

Countries such as Iraq cannot make the transition to clean energy alone. If they are to bring together the financial resources, expertise and policies to transform their economies in an equitable, affordable way, they will need international support. Otherwise, the path to net zero and the security of the world’s energy markets will both be imperilled.

This commentary was first published on The Guardian.

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This article was published by the US Energy Information Administration on July 23, 2019.

The Suez Canal and the SUMED Pipeline are strategic routes for Persian Gulf crude oil, petroleum products, and liquefied natural gas (LNG) shipments to Europe and North America. Located in Egypt, the Suez Canal connects the Red Sea with the Mediterranean Sea, and it is a critical chokepoint because of the large volumes of energy commodities that flow through it.

Chokepoints are narrow channels along widely used global sea routes that are critical to global energy security. Total oil flows through the Suez Canal and the SUMED pipeline accounted for about 9 per cent of total seaborne traded petroleum (crude oil and refined petroleum products) in 2017, and LNG flows through the Suez Canal and the SUMED pipeline accounted for about 8 per cent of global LNG trade.

Since 2016, growth in northbound total petroleum flows through the Suez Canal and the SUMED pipeline has slowed, and southbound flows through the canal have risen substantially. In particular, the Suez Canal is gaining importance as a southbound route for U.S. and Russian crude oil and petroleum products to destinations in Asia and the Middle East.

Slightly more than half of total petroleum transiting the Suez Canal in 2018 was sent northbound to destinations in Europe and North America. Petroleum exports from Persian Gulf countries, such as Saudi Arabia, Iraq, and Iran, accounted for 85% of Suez Canal northbound traffic. Northbound flows of petroleum products have risen in recent years, particularly as more ultra-low sulfur diesel fuel has been shipped from Saudi Arabia to European countries.

Northbound crude oil flows decreased in 2018 for several reasons:

• Higher U.S. crude oil exports displaced Persian Gulf crude oil that had been historically sent to Europe.
• Key Middle East producers, mainly Saudi Arabia and Iraq, have been increasing crude oil exports to China and other growing Asian oil markets using eastbound routes rather than the Suez Canal.
• Renewed U.S. oil sanctions on Iran, imposed in late 2018, contributed to a decrease in Iran’s crude oil exports to Europe.

Southbound crude oil shipments, mainly to Asian markets such as Singapore, China, and India, have more than doubled in the past two years. Petroleum exports from Russia accounted for the largest share (24%) of Suez southbound petroleum traffic. Increases in Libya’s crude oil production and exports in 2018 also contributed to a rise in southbound shipments. In the past two years, increased production and exports of U.S. crude oil and petroleum products—especially liquefied petroleum gas—have also increased southbound traffic through the canal.

Overall LNG flows through the Suez Canal have declined in recent years. Nearly all (98%) of the northbound LNG transit is from Qatar and mainly destined for European markets. Although Qatar remains a key exporter of LNG through the canal, it has been diverting more cargoes to Asia in recent years.

Changes in LNG traffic through the Suez Canal also reflect the growth in U.S. shale gas production and LNG exports, falling LNG demand in some European countries, and competition for LNG in the global market, especially in Asia.

The 200-mile long SUMED Pipeline transports crude oil northbound through Egypt from the Red Sea to the Mediterranean Sea. Crude oil flows through two parallel pipelines that have a total maximum flow capacity of 2.8 million barrels per day. The SUMED Pipeline is the only alternative route to transport crude oil from the Red Sea to the Mediterranean Sea if ships cannot navigate through the Suez Canal. Crude oil flows through the SUMED Pipeline have declined since 2016 as a result of the shifting oil trade patterns and a widening of the Suez Canal.

Principal contributors: Candace Dunn, Natalie Kempkey

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By Justine Barden

The Strait of Hormuz, located between Oman and Iran, connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. The Strait of Hormuz is the world’s most important oil chokepoint because of the large volumes of oil that flow through the strait.

In 2018, its daily oil flow averaged 21 million barrels per day (b/d), or the equivalent of about 21 per cent of global petroleum liquids consumption.

Chokepoints are narrow channels along widely used global sea routes that are critical to global energy security. The inability of oil to transit a major chokepoint, even temporarily, can lead to substantial supply delays and higher shipping costs, resulting in higher world energy prices.

Although most chokepoints can be circumvented by using other routes that add significantly to transit time, some chokepoints have no practical alternatives.

Volumes of crude oil, condensate, and petroleum products transiting the Strait of Hormuz have been fairly stable since 2016, when international sanctions on Iran were lifted and Iran’s oil production and exports returned to pre-sanctions levels.

Flows through the Strait of Hormuz in 2018 made up about one-third of total global seaborne traded oil. More than one-quarter of global liquefied natural gas trade also transited the Strait of Hormuz in 2018.

There are limited options to bypass the Strait of Hormuz. Only Saudi Arabia and the United Arab Emirates have pipelines that can ship crude oil outside the Persian Gulf and have the additional pipeline capacity to circumvent the Strait of Hormuz.

At the end of 2018, the total available crude oil pipeline capacity from the two countries combined was estimated at 6.5 million b/d. In that year, 2.7 million b/d of crude oil moved through the pipelines, leaving about 3.8 million b/d of unused capacity that could have bypassed the strait.

Based on tanker tracking data published by ClipperData, Saudi Arabia moves the most crude oil and condensate through the Strait of Hormuz, most of which is exported to other countries (less than 0.5 million b/d transited the strait in 2018 from Saudi ports in the Persian Gulf to Saudi ports in the Red Sea).

EIA estimates that 76 per cent of the crude oil and condensate that moved through the Strait of Hormuz went to Asian markets in 2018. China, India, Japan, South Korea, and Singapore were the largest destinations for crude oil moving through the Strait of Hormuz to Asia, accounting for 65 per cent of all Hormuz crude oil and condensate flows in 2018.

In 2018, the United States imported about 1.4 million b/d of crude oil and condensate from Persian Gulf countries through the Strait of Hormuz, accounting for about 18 per cent of total U.S. crude oil and condensate imports and 7 per cent of total U.S. petroleum liquids consumption.

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Iran oil shipping fleet being used as floating storage

By Matthew French

This article was published by the US Energy Information Administration on Oct. 23, 2018.

Iran’s crude oil exports and production have declined since the May 2018 announcement by the United States that it would withdraw from the Joint Comprehensive Plan of Action (JCPOA) and reinstate sanctions against Iran.

The announcement included two wind-down periods to allow those doing business that involved Iran time to comply.

On August 6, 2018, the first wind-down period ended and triggered the re-imposition of some sanctions. On November 4, 2018, the second wind-down period will end and trigger the re-imposition of full sanctions, including a number of measures that target Iran’s energy sector.

According to data from ClipperData, Iran’s exports of crude oil and condensate peaked in June at about 2.7 million barrels per day (b/d), more than 300,000 b/d higher than the average during the first four months of the year (before the May announcement of sanctions).

In September, Iran’s crude oil and condensate exports fell to 1.9 million b/d. Although some countries, such as France and South Korea, stopped importing crude oil and condensate from Iran in July, other countries continue to import from Iran. The United States has not imported crude oil and condensate from Iran in several decades.

ClipperData indicates that China and India collectively received nearly half of Iran’s crude oil and condensate exports in the first half of 2018. During this period, China’s imports from Iran averaged 644,000 b/d and India’s imports from Iran averaged 554,000 b/d.

In September, China’s imports from Iran dropped to 441,000 b/d, the second lowest level since December 2015, while India’s imports from Iran were 576,000 b/d.

Whether Iran’s energy exports are declining entirely because of the sanctions or for other reasons is unclear. Trade press reports indicate a willingness on India’s part to at least partially comply with the sanctions, but China had continued to import from Iran even when previous sanctions were in effect.

In response to the announcement of sanctions by the United States, the European Union passed a statute to protect European companies doing business in Iran from the effects of U.S. sanctions.

Despite this effort, data from ClipperData indicate that France has not imported any crude oil or condensate from Iran since June. In addition, Italy’s and Spain’s imports from Iran in September were 27,000 b/d and 15,000 b/d lower than their averages for the first half of the year.

Some countries could continue to import Iran’s crude oil and condensate until the November 4 deadline, at which point they might stop importing from Iran.

Iran’s exports have fallen at a faster rate than production. Shipping operators have decreased operations with Iran, but Iran has continued to export largely through the state-run National Iranian Tanker Company (NITC) and the Islamic Republic of Iran Shipping Lines.

Trade press reports indicate that as countries continue to decrease imports from Iran, some of Iran’s shipping fleet is already being used as floating storage, where crude oil is placed onto ships and stored indefinitely.

Surplus crude oil production capacity in the Organization of the Petroleum Exporting Countries (OPEC) could be used to replace some of Iran’s crude oil barrels that are coming off the market.

Saudi Arabia’s Arab Light is similar in composition to Iran Light crude oil and may provide refiners with a possible crude oil that would not require refiners to make significant alterations to their crude slates.

In addition, trade press reports indicate that Saudi Arabia is offering sales of Khuff condensate. However, the extent to which Saudi Arabia and other OPEC members offer enough volumes of crude oil and condensate to replace exports from Iran is unclear.

After full sanctions are implemented in November, the total volumes of crude oil and condensate coming off the market will become more apparent in the following months.

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Trump administration looks to block all Iranian oil exports

By John Kemp

LONDON, Oct 1 – Hedge fund managers are increasingly betting Saudi Arabia and its allies cannot or will not replace all the crude lost from the market when US sanctions on Iran go into effect fully from November.

Hedge funds and other money managers increased their combined net long position in the six major petroleum contracts by another 50 million barrels in the week to Sept. 25.

Portfolio managers have raised their combined net long position by a total of 196 million barrels over the last five weeks, according to exchange and regulatory data.

Bullish long positions now outnumber bearish short ones by a ratio of more than 12:1, and the imbalance is rapidly closing in on the record 14:1 back in April.

But the new wave of hedge fund bullishness is concentrated almost entirely in Brent rather than WTI or refined fuels.

Fund managers have raised their net in Brent by 172 million barrels since Aug. 21 compared with an increase of just 5 million in WTI.

Fund managers now hold a net long position of almost 500 million barrels in Brent betting prices will increase even further from their current four-year high.

Hedge fund long positions outnumber short ones in Brent by more than 19:1, up from a ratio of just 8:1 at the start of August, and closing in on the record 21:1 set in April.

Traders foresee a shortage of seaborne crudes linked to Brent as U.S. sanctions on Iran go into effect on Nov. 4, despite reassurances from Saudi Arabia, Russia and the United States supplies will remain adequate.

Concern about feedstock shortages linked to sanctions explains why position-building has been overwhelmingly concentrated in Brent rather than WTI or refined fuels.

The inland US crude market remains well-supplied and refined fuel markets appear balanced as an international freight slowdown and higher prices take their toll on consumption.

But Brent spot prices have climbed by more than $12 per barrel (17 per cent) since mid-August while the six-month calendar spread has risen almost $2.60 and swung from contango into a pronounced backwardation.

Saudi Arabia and Russia have both pledged to increase production to make up for the loss of crude oil exports from Iran. US officials have been working with refiners in Asia to find replacements or Iranian oil.

None of that has assuaged fears about shortfalls in crude availability as sanctions go into effect.

Some analysts question whether Saudi Arabia has enough spare capacity to replace all the barrels lost as a result of sanctions while maintaining enough in reserve to meet any further shortfalls.

Others question whether the kingdom is willing to increase production enough to act as a cap on prices or bring them back down below $80, despite political pressure from the United States.

The enormous concentration of hedge fund long positions in Brent creates a significant risk of a short-term price reversal if and when fund managers attempt to realize some of their profits following the rally.

For the time being, however, with doubts swirling around the outlook for oil supplies, the message from hedge fund managers is simple: show me the barrels.

John Kemp is a Reuters market analyst. The views expressed are his own.

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OPEC decision boosts oil prices Monday

OPEC and its allies in the cartel’s supply cut agreement decided on Sunday to rebuff demands from US President Donald Trump to boost their production to contain rising oil prices.

Responding to Trump’s tweet from last week where he called for the Organization of Petroleum Exporting Countries to “get prices down now!”, Saudi Arabia’s Oil Minister, Khalid al-Falih, said “I do not influence prices” while speaking to reporters following the cartel’s meeting in Algiers.

By 1:54 p.m., on Monday, oil prices rose significantly with Brent jumping 2.81 per cent to $80.44/barrel and US WTI climbing $1.38 to $72.16/barrel.

At the meeting, Falih said Saudi Arabia has the spare capacity to boost its output, but the kingdom does not believe an increase is necessary and may not be needed in 2019, according to OPEC’s projections.  The cartel argues that rising production in non-OPEC countries could exceed global demand growth.

“The markets are adequately supplied. I don’t know of any refiner in the world who is looking for oil and is not able to get it,” Falih said.  He added that Saudi Arabia could raise production by up to 1.5 million barrels per day (b/d) if demand increased.

“Given the numbers we saw today, that (an output increase in 2019) is highly unlikely unless we have surprises on the supply and demand,” Falih added.

Meanwhile, Tehran has said Trump is behind the increase in oil prices because he opted to reimpose sanctions on Iranian crude exports.  Iran also accused Saudi Arabia of bowing to pressure from the United States.

Reuters reports that Iranian Oil Minister Bijan Zanganeh said Trump’s tweet “was the biggest insult to Washington’s allies in the Middle East”.

To back up its decision, OPEC released a mid-term report on Sunday which forecast that supply from non-OPEC countries will increase by 2.4 million b/d next year and global demand is expected to grow by just 1.5 million b/d.

The report also showed that US crude output is expected to continue to grow to 2023 and also predicted that OPEC would lose more market share as a result.

“Our attention is shifting to 2019. We have been briefed on the prospect of 2019 inventory builds which result from significant supply growth from non-member counties,” Falih said.

Russia’s Energy Minister Alexander Novak agrees and says there is no need to increase output.  However, he said the ongoing trade war between the US and China along with US sanctions on Iranian crude are creating new challenges for oil market.

“Oil demand will be declining in the fourth quarter of this year and the first quarter of next year. So far, we have decided to stick to our June agreements,” Novak said.

In early 2017, to cut the global oversupply and boost prices that had fallen below $30/barrel, OPEC and its allies agreed to cut their output by 1.8 million b/d.  Since then, plummeting production in Venezuela along with fluctuating Nigerian output resulted in much higher reductions in overall OPEC output.

Last June, the group agreed to increase its production to return to 100 per cent compliance, which is about a 1 million b/d increase.  According to Reuters, the latest data shows the group is not close to reaching this goal.

One factor impacting OPEC’s goal to boost production is a drop in Iranian crude exports as the country’s European and Asian customers comply with the Trump administration’s demands to cut out Iranian crude purchases.

OPEC’s secondary sources along with researchers and ship-trackers tell Reuters that Iran’s current production sits at 3.58 million b/d, down about 300,000 b/d from the beginning of the year.

On Sunday, Hossein Kazempour Ardebili, Iran’s OPEC governor softened his stance on possible increases in the cartel’s overall output.

“If there is a fall not only from Iran, but anybody else, it is the responsibility of OPEC and non-OPEC to balance the market,” Reuters reports Kazempour told reporters.

Falih said returning to 100 per cent compliance with the 2017 pact was the cartel’s main objective.  He predicts this goal should be achieved within the coming two to three months.

While Saudi Arabia is the only OPEC producer with spare capacity, it remains unclear how this will be achieved.

“The biggest issue is not with the producing countries, it’s with the refiners, it’s with the demand. We in Saudi Arabia have not seen demand for any additional barrel that we did not produce.”

The next meeting for the cartel and its allies will be on Nov. 11 in Abu Dhabi.  OPEC will meet again in Vienna on Dec. 6-7.

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Trump imposed sanctions on Iranian crude despite Tehran’s compliance with the 2015 nuclear deal

Iran has complied with the main restrictions on its nuclear activities outlined in the 2015 nuclear deal agreed to by Tehran as well as the US, the UK, Russia, France, and China, Germany and the European Union.

Reuters reports that a confidential report by the International Atomic Energy agency, a UN atomic watchdog, showed Iran is meeting its requirements.

According to the agency’s second quarterly report issued since US President Trump announced in May that the US would abandon the pact and re-impose crippling sanctions, Iran has complied with caps on uranium enrichment levels, enriched uranium and other provisions of the deal.

In the last report issued in May, the IAEA said Tehran could improve its cooperation with inspectors which would “enhance confidence”, but did not say Iran had given it cause for concern.

Reuters reports Thursday’s report issued to member states contained similar language and reported that the watchdog group was able to carry out its inspections needed to verify Tehran was complying with the agreement.

“Timely and proactive cooperation by Iran in providing such access facilitates implementation of the Additional Protocol and enhances confidence,” said the report.

“The production rate (of enriched uranium) is constant. There is no change whatsoever,” a senior diplomat added.

In the wake of the Trump administration’s decision to quit the deal and reimpose crippling sanctions, a number of diplomats and analysts do not believe the pact will remain in place, despite EU efforts to counter some of the fallout from the US move.

French Foreign Minister Jean-Yves Le Drian told his fellow ministers, who are meeting in Vienna to discuss EU policy on Iran, to do more to protect Iran from US sanctions.  He called for “permanent financial mechanisms that allow Iran to continue to trade”.

Earlier this month, the EU enacted a law that shielded European companies from the impact of US sanctions on Iran and approved aid for the Iranian private sector.  Despite these actions, large European firms are pulling out of Iran.

Reuters reports that on Wednesday, Iran’s Supreme Leader Ayatollah Ali Khamenei said he doubted the EU country’s ability to save the agreement.  He added that Tehran may abandon it.

Khamenei reportedly told Iran’s President Hassan Rouhani to not rely too much on European support.  The president has come under increased pressure of his handling of the economy in the wake of the Trump decision and key ministers are now under attack by parliament.

Le Drian argues that Iran should be prepared to negotiate on its future nuclear plans, its ballistic missile arsenal as well as its role in Syria and Yemen wars.

The French minister said Tehran was arming regional allies with rockets and allowing “ballistic proliferation”.  He cautioned that “Iran needs to avoid the temptation to be the (regional) hegemon.”

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