The Price of Passage: How Middle East Crude Recovered to Near 80 Percent of Pre-War Exports, and Why Passage Now Turns on Insurance and Law

Report summary

Gulf crude is moving in volume again. Kpler put Middle East crude exports at just under 80 percent of pre-conflict levels in a note on 28 September, around their highest since the war began on 28 February, and on 2 October the International Energy Agency's executive director, Fatih Birol, told G7 leaders that crude exports from the region had recovered significantly. What it costs to get each cargo out is a separate question. That cost now turns on insurance and law as well as freight. Three layers decide it. The first is the Joint War Committee's listed areas, which still cover the Gulf, the Gulf of Oman and the southern Red Sea and every state on the Gulf's shores; its current circular, JWLA-035 of 16 September, changed only the Black Sea entry. The second is the law. The US Treasury's Office of Foreign Assets Control warned on 24 August that US and non-US persons risk sanctions by dealing with the three designated bodies named in its alert on passage through the strait, including by accepting insurance or other services from them, even when nothing is paid; and where the model clause the Lloyd's Market Association published on 23 July is written into a hull policy, a qualifying payment to pass discharges the insurer from its obligations for the vessel. The third is whether a toll ever becomes a condition of passage. A US official said on 6 August that temporary routes would carry no tolls or charges; Iran's Fars agency reported, as carried on 6 August, that Iran plans penalties of up to 20 percent of cargo value for those who violate the terms of an agreement still under review; and on 4 October the speaker of Iran's parliament said the strait would not open until Iran's conditions were met.