Following the news of the attack, oil prices surged by as much as 4% amid fears of heightened tensions between the US and Iran. The vessels involved were the 27,000-dwt chemical tanker the Kokuka Courageous and the 110,000-dwt Front Altair that was believed to be carrying 75,000 tonnes of naphtha having loaded in Abu Dhabi and en route to Taiwan when the incident occurred. This attack comes after another incident last month, where four tankers were attacked off the United Arab Emirates, Iran has denied any involvement. However, Iran has threatened to disrupt shipping in the Strait of Hormuz, should the US continue to damage the country’s economy through the use of the sanctions put in place by Donald Trump last year, after he pulled out of a nuclear deal with Iran.
The Strait of Hormuz is the world’s most important chokepoint and estimates from the EIA suggest that around 80% of the crude oil moving through this route is destined for China, Japan, India, South Korea and Singapore. One fifth of the world’s oil passes through the Strait of Hormuz every day, which equated to over 18.5 million barrels per day in 2016 according to data from the EIA. As tensions continue between the US and Iran, it is inevitable that will be some disruption to crude supply as the market waits to see how the situation will develop.
OPEC members are heavily reliant on this route for exports with Saudi Arabia, Iran, Iraq, Kuwait and the UAE using this route to export most of their crude. Saudi Arabia has two pipelines that allows them to bypass the Strait of Hormuz and it is therefore likely that some of the crude will be diverted through pipelines to the Red Sea or to Turkey and then shipped from these locations but neither pipeline is able to carry anywhere near the quantities of crude that pass through the Strait of Hormuz.
However, with the expanding production in the US, crude supply levels are climbing and there is plenty of stock in reserve and should trade shift to the US then this would be beneficial for tanker tonne mile demand. There is also plenty of production capacity available due to the OPEC+ supply cuts.
As yet, we have not seen any ship owners declining to accept voyages in and out of the Persian Gulf as there is no other route for these cargoes, although insurance premiums for ships travelling on these routes have increased by as much as 10%. In terms of the period market, charterers don’t know what to do and it seems that they will wait for the dust to settle before taking on any new timecharters. This incident, as is often the case with geopolitical issues, has caused increased volatility in the market that is likely to have a positive effect on the market and push rates upwards. The products market on paper has gone through the roof and we have heard reports of some companies fixing their tankers loading from the middle east at considerably higher rates than the levels seen before the attacks last Thursday, but it is still to early to say what the impact will be on tanker freight rates.