A drone shuts the 5 million barrel overland route that carried Saudi crude around Hormuz

Saudi Arabia exported 3.2 million barrels a day last month, its lowest rate in 13 years, according to the shipping intelligence firm Kpler ^[5]. The line that is now shut can carry up to 5 million ^[3]. At capacity it would have taken every barrel the kingdom sold last month and had room for 1.8 million a day more ^[17]. While it is down, that crude goes by water, through Hormuz or through the Red Sea, where the Houthis have seized a strategic point and put Bab el-Mandeb in jeopardy ^[6].

The escort change is a budget decision. The Financial Times reported on the 12th that the US Navy's Naval Cooperation and Guidance for Shipping office emailed maritime advisers early this month, instructing them to cut escort windows to twice a day ^[8]. The paper put the cost of that cover at up to $75,000 an hour and said the reduction is partly preparation for a prolonged war with Iran ^[13]. Air cover along Oman's coast has been running since May ^[9]. The report does not say how long a window lasts, so the saving cannot be sized. The Sedaily account says the number of tankers passing through the strait is bound to fall ^[21], and Reuters reported an Iranian merchant ship hit near Qeshm Island on the 13th ^[12].

Above $100 ^[2], the price reflects both barrels already lost and barrels the IEA expects to lose. Output last month ran 1.6 million barrels a day below a year earlier ^[10], and the agency's estimate for the full year is a decline of 5.7 million ^[11], about 3.6 times the most recent measured month ^[18]. The same report notes the prospect of high prices curbing demand as a limit on further gains ^[22].

Washington's answer is downstream. Trump has ruled out direct US military involvement as the conflict widens, with the midterm elections in view ^[14]. After reports that Crown Prince Mohammed bin Salman asked him for US strikes on the Houthis, Trump said the Houthis had asked the United States not to intervene, adding that "they don't want to fight us" ^[15]. He has met US refining executives about invoking the Defense Production Act to expand domestic refining capacity ^[23]. That buys processing for crude that still has to cross the same two waterways.

In my view the price above $100 is now mostly a physical routing outcome: the overland route has been shut since the 11th ^[1], the Red Sea route is contested ^[6], and Hormuz is rationed to two escort windows a day ^[7]. The counter-thesis sits in the same figures. The IEA's full-year loss is three and a half times anything yet measured ^[18], demand destruction is already capping the top of the range ^[22], and a repaired pipeline would restore up to 5 million barrels a day of capacity that needs no escort ^[3].

Iran, Oman and the six GCC members meet in Salalah on the 14th at Oman's arrangement, without Bahrain, which declined because diplomatic relations with Tehran have not been restored ^[20]. Iranian foreign ministry spokesman Esmail Baghaei said "the safety of shipping in the Strait of Hormuz cannot be guaranteed as long as aggressive actions and illegal interference continue, including the U.S. naval blockade and economic war" ^[16].