eases

Oil flows out of the Gulf have increased substantially, easing the huge supply disruption caused by the United States/Israel war on Iran.

Crude exports from the Gulf averaged 24.6 million barrels per day (bpd) in the week to October 18, exceeding the pre-war average, according to market intelligence firm Kpler.

Yet, oil prices continue to rise.

Brent crude, the global benchmark, is trading at its highest prices since April, up more than 60 percent compared with before the war.

On Friday, Brent crude front-month futures – contracts for oil deliveries in December – rose more than 2 percent to briefly top $117 a barrel.

The climbing prices reflect anxiety about the possibility of renewed hostilities in the US war on Iran, dwindling oil stocks, and the increased costs of transporting supplies out of the region, according to market analysts.

“The market is doing exactly what it is supposed to do: It is telling us there is plenty of prompt oil, but there is no end to this war in sight – in fact … escalation is very likely,” Adi Imsirovic, a lecturer in energy systems at the University of Oxford, told Al Jazeera.

“Therefore, futures markets reflect that expectation,” Imsirovic, a veteran oil trader, said.

Oil producers have become increasingly adept at responding to the volatile climate in the Middle East to keep supplies flowing.

Facing the threat of Iranian attacks on shipping in the Strait of Hormuz, shipping lines have established a shuttle system involving ship-to-ship transfers off Oman and the United Arab Emirates to reduce the distance any one vessel must travel in perilous waters.

Shuttle boats carry the oil through the strait and load it onto waiting tankers once they are out of the danger zone.

In August, more than 70 percent of the crude that crossed the strait did so via ship-to-ship transfers, according to Kpler.

Oil producers have also ramped up exports that bypass the strait altogether via Saudi Arabia’s East-West pipeline, which carries oil supplies from its eastern oil fields to its Yanbu port on the Red Sea in the west, and the United Arab Emirates’ Habshan-Fujairah pipeline.

As of September, 40 percent of exports from the Gulf were bypassing the strait, a conduit for one-fifth of global oil and liquefied natural gas supplies during peacetime, compared with 17 percent before the war, according to Kpler data.

The soaring cost of delivery

Such workarounds have nonetheless come at a cost.

Freight costs have reached as much as $40 per barrel in recent weeks, about 10 times the usual rate, according to data from the London Stock Exchange Group, the surge driven by elevated insurance premiums in addition to logistical challenges.

October has been the deadliest month for attacks on commercial vessels since the start of the war, with 32 incidents logged by the United Kingdom Maritime Trade Operations (UKMTO) as of Friday.

“So barrels are moving, but neither smoothly nor reliably. That should not be read as a sign of normalisation,” Isabel Figuerola-Ferretti, an expert in oil markets at Comillas Pontifical University in Madrid, Spain, told Al Jazeera.

“Delivering a barrel has become far more expensive,” Figuerola-Ferretti said.

While market intelligence data has shown exports reaching pre-war levels at various points in recent weeks, the longer-term supply trend is less clear.

Pavel Molchanov, an investment strategist at Raymond James & Associates, expressed scepticism that supply has returned to the pre-conflict trend.

“The IEA’s most recent production data – for September – shows OPEC Gulf production at 15.8 million bpd, which equates to 75 percent of the pre-war baseline,” Molchanov told Al Jazeera, referring to the International Energy Agency’s latest energy outlook.

“That slightly surpassed July’s 74 percent to reach the highest level since the start of the war, but it’s still a considerable distance from 100 percent.”

Meanwhile, oil stockpiles, a buffer during supply disruptions, are waning.

Observed inventories fell by 10 million barrels in September, taking the global stockpile to 509 million barrels below its pre-war level, according to the IEA.

“The market has moved to a chronic squeeze, driven by concrete supply risks: Hormuz transit, shipping and depleted inventories,” Figuerola-Ferretti said.

No reprieve anytime soon

With no permanent end to the Iran war in sight, few analysts see prices returning to normal anytime soon.

Brent futures for delivery in October 2027 stood at more than $90 a barrel on Friday, in a sign that markets see normality as a long way off, still.

“When could prices return to $70? Not soon,” Figuerola-Ferretti said.

“It would need durable de-escalation, a return to normal transit and shipping conditions through Hormuz, rebuilt inventories and freight costs back to normal,” she added.

Molchanov, the investment strategist, said he did not believe supply could realistically exceed 85 percent of pre-war levels without a permanent diplomatic solution to the war.

“Once the political groundwork is in place, the next steps will be logistical: Demining Hormuz, bringing shipping crews back to work, and resuming production at currently shut-in oilfields,” he said.

United States President Donald Trump has signed an executive order waiving newly-passed Russia sanctions, claiming the move is in the US’s “national interest”.

Earlier this month, Trump also announced a deal to bring stocks of Russian diesel into global markets, in a bid to drive down energy prices that have spiked during the US-Israel war on Iran. The US Treasury waived sanctions on Russian diesel sales until April 2027.

Trump’s embrace of Russian energy has angered Ukraine, European partners and many US officials, who say the move rewards Moscow while it continues its four-and-a-half-year war against its neighbour.

Ukraine’s President Volodmyr Zelenskyy slammed Trump’s diesel deal as “a gift” to Russia’s President Vladimir Putin that will help fund his war effort.

While European countries have also criticised Trump’s embrace of Russian energy, the US president has accused them of “hypocrisy”, as figures show that European Union countries continue to import Russian gas.

Here’s what we know:

Which sanctions has Trump waived?

In his executive order on Friday, Trump called off numerous planned Russia-related sanctions days before they were due to take effect, including duties on Russian goods and penalties for buying the country’s oil and gas.

The now-blocked measures were part of legislation passed in Congress with bipartisan support last month, named after the late US Senator Lindsay Graham, an outspoken critic of Russia.

They would have included up to 100 percent tariffs on all goods brought into the US from the five top importers of Russian crude oil or gas, including China and India. They could also have imposed equal penalties on countries deemed to have knowingly bought oil or gas from Russia 30 days after the law’s implementation, or to be among the top five countries helping Moscow circumvent sanctions on sales of its oil.

The waiver will hold until the Trump administration believes “further action is appropriate”, according to the executive order.

US Congressman Don Beyer, a Democrat from Virginia, said the sanctions waiver amounts to a “surrender to Putin” that “betrays our Ukrainian partners and defies clear congressional intent”.

Who will benefit from this?

Vasily Astrov, an economist at the Vienna Institute for International Economic Studies, told Al Jazeera that the Russian government will likely be the greatest beneficiary because the easing of sanctions means Russian oil will not have to be further discounted.

He estimated that about 60 cents of every extra dollar in the price of a barrel of Russian oil would “end up in state coffers”.

Russian official Kirill Dmitriev, an envoy for Putin, hailed the US decision to waive the sanctions as “an important and truly historic moment”.

Other beneficiaries include major importers of Russian oil and gas, such as China and India, who are now less exposed to the risk of secondary US penalties.

While Trump hopes the measures will also help bring down oil prices for US consumers before November mid-term elections, experts say that is less certain.

Addressing the US’s recent diesel deal with Russia, EU economy chief Valdis Dombrovskis said it is unlikely to have a significant impact on global prices.

According to Trump, that deal would bring 300,000 tonnes of diesel fuel into US and global markets “immediately”, followed by 500,000 tonnes in November, and 1 million tonnes afterwards.

“If we look at the volumes, they are not of any macroeconomic significance, and frankly, there are strong doubts whether Russia is even able to supply those volumes, and according also to US quality standards, those are big question marks,” Dombrovskis told the AFP news agency.

Which countries still buy oil from Russia?

China and India are the largest buyers of Russian crude oil, purchasing 6 billion euros ($6.74bn) and 3.6 billion euros ($4.04bn) worth respectively in September, according to the Centre for Research on Energy and Clean Air (CREA), a nonprofit think tank.

Hungary and Slovakia, the landlocked EU members that have exemptions to the bloc’s ban on Russian crude, also remain big customers, buying a combined 290 million euros ($326m) worth of the commodity in September, said CREA. Turkiye imported 172 million euros ($193m) worth of Russian crude oil the same month, the think tank added.

Since the end of 2022, the largest importers of Russian oil products, which include diesel, have been Turkiye, China, Saudi Arabia, Brazil and Singapore.

Saudi Arabia imported the most Russian oil products in September at 534 million euros ($600m), followed by Turkiye with 321 million euros ($361m), China with 304 million euros ($342m) and India with 161 million euros ($181m).

Is Europe buying increasing amounts of gas from Russia?

“The European Council regrets the United States’ decision to temporarily lift sanctions on Russian diesel,” European leaders said in a joint statement adopted following a two-day European Council meeting in Brussels this week.

But despite its own near-blanket ban on Russian oil, the EU has continued to import large quantities of Russian gas, though it plans to phase out those imports next year.

Urgewald, a Germany-based group that researches coal companies, reported this week that more than 12 million tonnes of Russian Arctic LNG was transported into EU ports from January to September this year, a 9.5 percent jump from the same period last year.

In September, EU countries imported 817 million euros ($918m) of pipeline gas, and 615 million euros ($691m) of liquefied natural gas (LNG), according to CREA.

EU members France and the Netherlands were the largest LNG importers, bringing in 446 million euros ($501m) and 116 million euros ($130m) respectively, according to the think tank. France’s LNG imports represented a 103 percent increase from the previous month, it added.

France’s President Emmanuel Macron has been among the most outspoken about Trump’s diesel deal with Russia, saying on Friday that it “sends a negative message” and would have no impact on global prices.

Hungary imported the most Russian pipeline gas of any EU member by far during the month, with 414 million euros ($465m) worth. Slovakia and Bulgaria brought in 161 million euros ($181m) and 132 million euros ($148m), respectively, according to CREA data.