The Daily View: Accidents happen
THE longer a war lasts, the more things tend to depend on accidents, noted Thucydides in his History of the Peloponnesian War.
Nearly 2,500 years later that still holds true.
As we write this, four days into a missile and air war between Israel and Iran, the impact at sea has been mercifully limited.
Rates are up, fixtures have slumped as justifiably nervous owners pull back, but shipping has continued to trade through electronic interference and missiles flying overhead.
How long that continues to be the case will depend on what happens next.
A full closure of the Strait of Hormuz, blocking the fifth of the world’s daily oil consumption that moves through it, remains an outlier scenario for fairly obvious reasons.
An attempted closure would provoke such a major response from the US and the Gulf Arab states, that it really would be a last roll of the dice from a regime that feels existentially threatened, which right now, it isn’t.
Iran’s much weakened conventional military position limits its options, but shipping remains well within its grasp as a potential target, either directly or via its proxies.
US- and Israeli-affiliated vessels top the risk list, but every political show of support widens the nexus of potential national affiliations that could come into range.
Israel’s attacks mark a material reduction in stability in the Middle East, but until either ships are directly hit or Tehran is forced to the negotiating table, the shipping industry is playing a dangerous game of wait and see.
Even if shipping is not deliberately targeted, accidents are increasingly likely.
At this point sentiment among owners and underwriters will matter. One significant event will be sufficient for everyone to reassess the current holding pattern and evacuate the Middle East Gulf, triggering a significant economic chain reaction.
At the time of writing, the Brent oil price is around $70 per barrel, up from a low of around $64 in late May. In the extreme scenario of a Hormuz shutdown, expect an immediate spike past $130 with a hefty risk premium remaining in the oil price even once it inevitably settles down after reopening.
And reopen it would, pretty quickly.
Calling a halt to its own exports, which account for around a tenth of Iran’s GDP is one thing. But blocking Saudi Arabia, the United Arab Emirates, Kuwait and Iraq from exporting the bulk of their crude and product exports, comes with consequences that will be swift and decisive.
What comes next for shipping though in the meantime remains far from certain.
In the event of disruption to supplies there will be an immediate race to secure alternative sources from Latin American, the US and West Africa. As much as that would offer a welcome bump to VLCC demand, the impact on clean tanker demand would be less fortuitous. Global refined product prices, including marine fuel, would soar, warns broker BRS, a scenario which would take some of the froth off improved earnings coming from higher tanker demand.
The main concern right now, though, is not the market uncertainty. It’s the immediate security of shipping that has paused activity.
Even those who have lived through previous escalations and accidents know intellectually that in all the past conflicts that have afflicted the Middle East, the strait has never yet been blocked. And yet the risk of accidents are real and shipping is now very definitely a political and military target.
Shipping, once again, finds itself in limbo, sailing through the crossfire.
Richard Meade
Editor-in-chief, Lloyd’s List
Content Original Link:
" target="_blank">
