Strait of Hormuz transits collapse as shipping’s risk appetite is tested
Nevertheless, these incidents have served as enough warning to shipowners to avoid the region.
BIMCO chief safety and security officer Jakob Larsen said the security risks for vessels continuing to use the strait were “obvious”.
“The threat to ships with commercial links to US and/or Israel are higher, but other ships could potentially also be attacked either deliberately or in error.”
The closure of the Strait of Hormuz has been seen by many as a worst-case scenario should war in the region break out.
Yet principal of Hewitt Energy Perspectives, David Hewitt, told Lloyd’s List that the “historical thinking” has been that Iran’s ability to effectively close the strait was limited.
Even if it had the capability, the cost to its own economy has led many to conclude that a complete closure would be unlikely.
But Hewitt said that thinking underestimated the actions of a regime posed with existential threat.
Iran has been able to significantly limit traffic through the strait without having to lay mines or physically obstruct the waterway.
War risk cover for the region will effectively end at midnight on Thursday, March 5, after which shipowners will have to renegotiate premiums at likely vastly inflated rates.
There are suggestions that there will still be shipowners willing to transit in and out of the Middle East Gulf though, with voyages likely to take place at night with Automatic Identification Systems turned off.
Dark transits
Lloyd’s List Intelligence data does not show a huge spike in so-called “dark transits” through the Strait of Hormuz yet.
Since the US strikes began, 46 cargo-carrying vessels over 10,000 dwt have stopped transmitting AIS data: 11 in the Gulf of Oman and 32 in the Middle East Gulf (11 of which while at berth).
The lack of crude oil tanker transits is of course a concern for global oil supply. Around 500m barrels of oil transit through the strait each month, or around one fifth of the world’s oil supply.
While oil prices have increased following the US and Israeli strikes, increased supply in recent months by Opec countries mean the market is in a more resilient position, Signal Ocean said in its analysis.
There are significant volumes of crude in floating storage around the world too. Saudi Arabia, for example, has large amounts of storage online in Asia, Hewitt said.
A tighter market could see Russian barrels held in storage clear quicker, Signal Ocean said.
China, for example, could increase its imports of Russian crude should Iranian supply remain offline for a significant period of time.
A long-term closure of Hormuz would put pressure on global crude supply and be bearish for tanker markets, Oil Brokerage’s global head of shipping research, Anoop Singh said.
Lower loadings and lower demand thanks to elevated prices will hurt crude freight rates, he explained, while alternative exits will allow less than 3m barrels per day of incremental exports according to Oil Brokerage’s analysis. The Strait normally transports around 18m bpd of crude and products.
But Singh assessed the chances of a drawn-out closure of the Strait as unlikely. Pressure would likely build on Iran from its own allies, he said.
Gulf states, which have seen their energy exporting infrastructure attacked by Iran (including Aramco’s Ras Tanura refinery), will also feel the pain of an ongoing blockage of Hormuz. Countries such as the United Arab Emirates, Kuwait and Bahrain rely almost solely on imports of food and medicine, Maniatis highlighted.
A far less resilient market in the short term though is LNG, which is far less liquid in its nature, Hewitt explained.
State-owned QatarEnergy said on Monday it has halted production of LNG after Iranian attacks on its Ras Laffan and Mesaieed gas facilities.
With little spare capacity in the market, European and Asian consumers could soon be competing for available cargoes, Wood Mackenzie said.
LNG stocks in Europe are already very low, giving European states little buffer for an extended closure of the Strait.
No LNG carriers transited Hormuz at all on March 1, compared to eight on Sunday, February 22.
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