The Strait of Hormuz shows initial signs of "partial restoration of navigational capacity"

From March 20 to 24, the traffic volume through the Strait of Hormuz was 2/1/5/7/3 vessels (127 vessels on February 27), during which two refined oil tankers passed through the strait in the last three days. Some oil tankers entering and exiting the strait and the Persian Gulf turned off their AIS signals throughout the process, resulting in a loss of positioning data. Initial signals of “partial recovery of traffic capacity” have appeared in the strait.

According to our previous report “Logistics and Travel Service Industry Oil Shipping Cycle Weekly Discussion Series - VLCC Concentration Increase Reshaping Freight Rate Mechanism” (March 18, 2026), it is estimated that the amount of crude oil rerouted via Yanbu, Fujairah, and Oman ports can achieve 6-7 million barrels per day. Assuming that traffic volume recovers to 40% of pre-conflict levels, considering the replacement of demand in the Red Sea and the Gulf of Mexico, the actual demand gap will continue to shrink to below 10%.

Pay attention to the marginal changes in the traffic capacity of the Strait of Hormuz. Short-term adjustments in supply chain methods lead to longer shipping distances, and the release of U.S. strategic reserves is expected to drive up TD22 (Gulf of Mexico to China) freight rates. Once the traffic capacity of the strait partially recovers, the demand for restocking is also expected to become a catalyst for an upward cycle. In 2026, profits for oil shipping companies are expected to reach new highs.

Initial signals of “partial recovery of traffic capacity” have appeared in the Strait of Hormuz, and Iran has begun to establish a shipping “safe corridor” through Iranian territorial waters, anticipating a partial recovery of compliant oil tanker traffic capacity.

According to Kpler data, since March 1, Iranian crude oil exports have accounted for nearly three-quarters of the traffic through the Strait of Hormuz. We estimate that Iranian crude oil exports exceeded 2 million barrels in the past 20 days, which is higher than the average daily export of 1.59 million barrels in 2025. Some oil tankers entering and exiting the strait and the Persian Gulf turned off their AIS signals throughout the process, resulting in a loss of positioning data.

In the last three days, two refined oil tankers passed through the strait. From March 20 to 24, the traffic volume through the Strait of Hormuz was 2/1/5/7/3 vessels (127 vessels on February 27). At the same time, signals related to traffic policies in the strait have appeared. On one hand, the Iranian Foreign Ministry stated that “as long as they do not participate in or cooperate with actions of aggression against Iran and comply with the safety regulations and measures announced by Iran, they can safely pass through the Strait of Hormuz after coordinating with Iranian authorities.”

Additionally, according to Lloyd’s List, several governments, including those of India, Pakistan, Iraq, Malaysia, and China, are reportedly in direct discussions with Tehran regarding vessel transit plans. Officials from the Islamic Revolutionary Guard Corps have established a preliminary vessel registration system for “approved” vessels to pass safely. This safe corridor routes north between Iran’s Larak Island and Qeshm Island and is entirely under Iranian jurisdiction.

According to Lloyd’s List, at least nine vessels have left through this route. On March 23, a Panama-flagged container ship “NEW OYAGER,” controlled by a Chinese shipowner, successfully passed through this channel, becoming the first vessel owned by a Chinese shipowner to use this route, anticipating a partial recovery of compliant oil tanker traffic capacity.

The demand gap caused by limited traffic is expected to be manageable. Assuming traffic volume recovers to 40% of pre-conflict levels, considering the replacement of demand in the Red Sea and the Gulf of Mexico, the actual demand gap will continue to shrink to below 10%.

We expect the demand gap for crude oil shipping due to restrictions to gradually narrow under limited traffic conditions. According to EIA data, the crude oil shipping volume through the Strait of Hormuz is approximately 14.2 million barrels per day, with 74.6% of that crude oil heading to Asia.

If we assume that traffic volume resumes to 40% of pre-conflict levels, the corresponding crude oil shipping volume would be 5.7 million barrels per day. Based on our previous report “Logistics and Travel Service Industry Oil Shipping Cycle Weekly Discussion Series - VLCC Concentration Increase Reshaping Freight Rate Mechanism” (March 18, 2026), it is estimated that the amount of crude oil rerouted via Yanbu, Fujairah, and Oman ports can achieve 6-7 million barrels per day. According to a March 11 report from the U.S. Department of Energy, the U.S. will gradually release 172 million barrels of strategic crude oil reserves over 120 days (corresponding to 1.433 million barrels per day). If all of this goes to the Far East, then under this scenario, the actual demand gap will continue to shrink to below 10%.

In the short term, rerouting and releasing strategic reserves will alleviate the crude oil gap. In the medium term, once stable traffic is restored, the release of restocking demand and upstream inventory digestion will bring about a demand pulse.

From a short-term perspective, the increased shipping distance due to rerouting can partially offset the crude oil gap caused by the closure of the strait. However, the infrastructure in ports like Yanbu is relatively weak, and loading and unloading efficiency is limited, resulting in longer actual travel distances, which may lead to a situation similar to congestion at container ports.

Additionally, for countries with low oil reserves, the actual purchasing demand is expected to be higher. Whether the price is appropriate may not be the primary consideration. Attention should continue to be paid to the release rhythm of strategic crude oil reserves. From a medium-term perspective, when the Strait of Hormuz stabilizes in terms of traffic, the crude oil reserve inventory consumed during the closure period will need to be replenished. Upstream oil producers will need to digest the already filled crude oil tanks to leave space for increasing operational rates, while some countries may further raise crude oil reserve requirements to avoid a repeat of future geopolitical risk events.

These demands are expected to support medium-term demand for oil shipping, pushing VLCC freight rates to maintain a relatively high level.

Investment Strategy.

Initial signals of “partial recovery of traffic capacity” have appeared in the Strait of Hormuz. Iran has begun to establish a shipping “safe corridor” through Iranian territorial waters, anticipating a partial recovery of compliant oil tanker traffic capacity.

According to our previous report “Logistics and Travel Service Industry Oil Shipping Cycle Weekly Discussion Series - VLCC Concentration Increase Reshaping Freight Rate Mechanism” (March 18, 2026), it is estimated that the amount of crude oil rerouted via Yanbu, Fujairah, and Oman ports can achieve 6-7 million barrels per day. Assuming that traffic volume recovers to 40% of pre-conflict levels, considering the replacement of demand in the Red Sea and the Gulf of Mexico, the actual demand gap will continue to shrink to below 10%.

Pay attention to the marginal changes in the traffic capacity of the Strait of Hormuz. Short-term adjustments in supply chain methods lead to longer shipping distances, and the release of U.S. strategic reserves is expected to drive up TD22 (Gulf of Mexico to China) freight rates. Once the traffic capacity of the strait partially recovers, the demand for restocking is also expected to become a catalyst for an upward cycle.

Source: CITIC Securities Research

Risk Warning and Disclaimer

        The market has risks; investment requires caution. This article does not constitute personal investment advice and does not take into account individual users' specific investment objectives, financial status, or needs. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at one's own risk.