Highlights:

• Hormuz shipments hit six-month highs, yet Saudi backup routes remain under pressure.
• China’s diesel export surge offers relief as Europe loses access to Saudi crude.
• Australia’s heavy diesel reliance keeps energy costs central to the inflation debate.

Hormuz Recovery Masks Fragile Oil Routes

Global energy markets are receiving tentative relief as oil and liquefied natural gas shipments through the Strait of Hormuz recover. Traffic during the past two weeks reached its highest level in six months. Primary transit lanes have reportedly been cleared of mines, while Persian Gulf allies have moved more than one billion barrels of crude through the waterway over the past couple of months.

Despite the improvement in oil traffic through the Strait of Hormuz, broader supply conditions remain fragile. Saudi Arabia’s East-West pipeline, which previously carried about 4 million to 5 million barrels per day toward Red Sea export terminals, is still affected by damage linked to drone attacks. Without a recovery in pipeline operations, crude inventories at Yanbu may be sufficient to maintain current export volumes for only around five to seven days. Partial operations could resume earlier, although full restoration may require five to six weeks.

Saudi Supply Shift Redirects Global Oil Trade

For September and October shipments, Saudi Aramco has shifted approximately 60 million barrels of crude to export facilities in the Persian Gulf. The shift is helping Asian buyers including China, India, Japan and South Korea, but European term customers have reportedly been told they will receive no Saudi crude in October.

Ship-to-ship transfers near Oman have become an important workaround. It is estimated that 7.15 million barrels per day were exchanged through such transfers over a recent 14-day period, representing a 56% increase from the previous month. While these operations help maintain exports, they introduce higher collision, pollution, insurance and operational risks.

Energy Companies Bet on Longer Shipping Routes

The disruption is also changing investment decisions. Estimates suggest shipowners have ordered between 164 and 217 very large crude carriers during 2026, involving more than US$20 billion of investment. The wider crude-tanker orderbook has reached roughly 130 million deadweight tonnes, equivalent to about 27% of the operating fleet.

The trend suggests energy companies are preparing for a world in which oil increasingly travels longer distances as traditional chokepoints become less reliable. Longer Atlantic-to-Asia routes can increase tanker demand even without stronger global oil consumption.

China Provides Relief as Diesel Markets Tighten

Refined fuel shortages remain another pressure point. China exported 6.01 million tonnes of refined products in August, up 12.7% year-on-year. Diesel exports surged 42.1% to 1.33 million tonnes, while jet-fuel exports increased 41.4% to 2.55 million tonnes. However, Chinese diesel inventories have fallen to their lowest level in 15 months, potentially limiting future export support.

Supply-security concerns are also extending beyond crude oil. Russian gas deliveries to Armenia were suspended from September 15 to 25 for stated maintenance reasons. Russia supplied roughly 82% of Armenia’s gas imports in 2025, highlighting why governments increasingly view diversification and alternative energy routes as strategic priorities.

Australia Faces a Growing Fuel-Inflation Problem

Australia remains particularly exposed because it imports around 80% to 90% of its diesel. Refining margins for diesel have risen sharply, while transport businesses are passing higher fuel costs through supply chains more rapidly; some fuel surcharges are now being adjusted weekly rather than monthly. Australian inflation was running at 3.6% in the year to July, above the Reserve Bank of Australia’s 2%–3% target.

RBA Governor Michele Bullock said some upside inflation risks appear to be materialising, with the Middle East conflict among the pressures confronting policymakers. Following three rate increases this year, the cash rate has reached 4.35%. Meanwhile, Minneapolis Federal Reserve President Neel Kashkari told US inflation remains too high even when volatile food and energy prices are excluded, showing that central banks face broader price pressures beyond oil.

Outlook: More Oil Moving, but Less System Resilience

Improving Hormuz traffic reduces the immediate danger of a severe global supply breakdown, but the broader energy network remains vulnerable. Damaged pipelines, contested Red Sea routes, expensive ship-to-ship transfers, longer tanker journeys and tight diesel inventories are transferring risk rather than eliminating it.

For markets, the next test is whether Saudi infrastructure can recover before logistics buffers weaken further. For Australia, persistently high diesel and freight costs could keep inflation sticky and monetary policy restrictive, making Middle East energy security an increasingly important driver of the domestic economic outlook.

Note- All data presented is based on information available at the time of writing.

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