Gulf Oil Flows Normalize, Yet Prices Stay High Due to Thin Inventories and Geopolitical Risk

Key points

• Total crude exports from Iran, Iraq, Kuwait, Qatar, Saudi Arabia, the UAE, and Oman have recovered to within 10% of January and February levels, according to TankerTrackers.com.
• Iran’s exports remain at zero due to a U.S. blockade reimposed in mid-July, but Saudi Arabia’s exports have jumped 10% above their pre-war average.
• Brent crude for December delivery settled at $108.82 per barrel, while WTI settled at $97.15, with both rising over 2% on Thursday morning.
• U.S. commercial crude inventories fell by 3.1 million barrels for the week ending Oct. 16, marking the third consecutive weekly decline and pushing total stocks to roughly 412.5 million barrels.
• The State Department is planning to order the departure of some personnel from U.S. embassies in the Persian Gulf, including Saudi Arabia, UAE, Jordan, Qatar, and Bahrain, amid rising tensions.

Background

Since the U.S.-Israel war with Iran began in February 2026, the region has seen 93 confirmed incidents and 24 seafarer deaths. A preliminary peace agreement collapsed in June, but oil exports through the Strait of Hormuz have recently averaged 12 million barrels per day, reaching approximately 80% of pre-war levels. In early October, record premiums and shuttle runs helped restore crude exports to 16.5 million barrels per day, though shipping costs added 27% to the final price of oil compared to 3% before the conflict. Iranian officials have warned that a renewed U.S.-Israeli attack would trigger strikes against oil facilities, undersea cables, and AI data centers across up to seven Gulf nations.

Why it matters

Despite the normalization of tanker traffic, oil prices remain high because the recovery is fragile and costly. Shipping routes are convoluted, relying on over-the-ground pipelines, shuttle tankers, and dark-fleet tankers, which keeps freight costs elevated. With U.S. inventories at their lowest levels, even a loss of 5-10 million barrels per week could keep prices elevated. Geopolitical risks, including potential post-midterm military operations and continued attacks on energy infrastructure, prevent the market from pricing in a stable surplus. Analysts suggest that a negotiated ceasefire could eventually bring Brent prices down to $74 per barrel in 2027, but an extended war could push prices toward $130.

What to watch

Traders are watching for potential U.S. military operations to resume after the Nov. 3 midterm elections, which could escalate geopolitical risks. The State Department’s decision to evacuate embassy staff from several Gulf nations signals heightened tensions. Continued attacks on shipping and energy infrastructure, such as the drone strike on Saudi Aramco’s Shaybah field, will likely cause fluctuations in daily oil export levels. If a negotiated ceasefire leads to broader talks, the oil market could swing into a large surplus, potentially lowering prices. However, without a stable peace, refinery crack spreads are likely to stay high, and prices may remain volatile.