How much oil flows through the Strait of Hormuz each day? All traders, energy executives, and government officials try to solve the mystery but come up with wildly divergent conclusions. This mystery is causing crude oil prices to be inflated by a residual risk premium that may last for several months.

Benchmark Brent crude reached a price of $100 per barrel on Tuesday. This is the highest since July 23. The increase was a result of a new wave of Houthi attacks, backed by Iran, on Saudi energy facilities. Also, Tehran warned that it would wage "economic war" against the United States due to the escalating tensions surrounding the Strait.

Due to competing U.S. blockades and Iranian blockades, the narrow waterway connecting?Iran with?Oman is now the focal point for conflict.

Before the outbreak of the war in February, the flow through the world's main energy artery was largely taken as a given. Although never perfect, flow estimations were remarkably accurate, even when accounting for Iran’s longstanding practice to switch off tanker transponders in order to avoid Western sanctions.

Hormuz is transiting roughly 20 million barrels of oil per day. This is equivalent to one-fifth the global oil consumption.

This certainty has vanished.

As AI systems become more sophisticated, they sift through massive streams of data to determine the amount of oil that is moving through this strait.

Satellite imagery is compared with port records, fuel tanker drafts and loading schedules as well as refinery receipts to reconstruct the movements that were previously monitored in real-time.

It has become more difficult to solve the problem due to the increase in "dark crosses," where tankers turn off their navigation and identification systems as they approach, transit or leave the strait. The picture has been further muddled by a request from the United States to commercial satellite companies to delay images of the Gulf.

No one can tell with certainty how much oil flows through Hormuz each day.

Iran's hold on the Strait of Hormuz is slipping. The tit-fortat exchange of military weapons has weakened Tehran's radar and strike capability near Hormuz. U.S. demining operations and an expanding U.S. protected shipping corridor along Oman’s coast has allowed more vessels enter and exit the Gulf.

How many vessels is the multi-billion dollar question?

CONFUSION REIGNS

The Trump administration's contradictory estimates have highlighted this uncertainty.

Energy Secretary Chris Wright stated on September 2, that on August 31, more than 17,000,000 barrels of oil were transported through the strait under U.S. Navy surveillance, the highest amount recorded since the beginning of the war.

The claim had traders and analysts scratching our heads. Ship-tracking company Kpler, which uses satellite images, transponder signal, port logs, and commercial shipping intelligence to track ships, claimed more than a week after the event that only 6 million barrels may have crossed Hormuz on that particular day.

Kpler estimates that crude oil flows through Hormuz averaged around 4.3 millions barrels per day in August, and increased to almost 5 million bpd for the first six of September. It also noted that transits appeared to have dropped sharply in the recent days.

The administration may be including exports of the United Arab Emirates Fujairah Terminal, which is located outside the Strait and is supplied by Abu Dhabi bypass pipeline.

A single day's observations are not indicative of broader trends. Wright acknowledged this on Sunday, saying that the average flow through Hormuz was more than 9,000,000 bpd. He did not specify a time period. This would match Kpler’s estimates, when exports are combined with Hormuz flow and other routes that bypasses the strait.

Tankers can be dark for weeks or even days before and after crossing the Strait. This means that actual volumes may end up being much higher than estimates.

It is possible that the new Hormuz will carry half or more of its pre-war volume.

This caveat highlights the larger problem.

Price of Uncertainty

Participants cannot accurately measure the flow of oil through the world's largest energy corridor for the first time since modern history.

The implications of tanker movements go far beyond the academic debates. Oil prices should reflect fundamentals. It is hard to judge fundamentals when the largest source of oil in the world has disappeared.

In fact, the uncertainty has itself become a fundamental.

This results in a risk premium which is likely to be embedded into prices for several months.

Clarity will only improve with a resolution of the U.S./Iran standoff. It is not clear whether a resolution will be reached soon or in the future.

Iran's economy is under serious strain following months of war. This is especially true since Washington increased sanctions and imposed a trade blockade against Iran on July 14.

Trump's administration is likely to try to use economic pain in order to get Tehran to return to the negotiating table. Iran's clerical leaders continue to demand sanctions relief, and hope that they can eventually collect fees from ships passing through the Strait.

Iran also retains its ability to disrupt maritime traffic. According to United Kingdom Maritime Trade Operations, Iran-linked forces targeted 27 vessels between early July and now. The Islamic Republic also?vowed? to announce in the coming days a new restricted area in the Gulf.

Other words, there is more uncertainty.

Philosophers have asked for years: Does a tree fall in a forest if nobody hears it?

On today's oil markets, the question is whether or not a tanker that crosses the Strait of Hormuz and nobody can see it can have an impact on global supply.

It is not obvious what the answer to this question is.

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(source: Reuters)