Key facts
- China and India's top refiners face difficulties securing tankers for Persian Gulf crude due to high rates and safety concerns.
- An Iran framework agreement has led to an initial increase in tanker traffic through the Strait of Hormuz.
- The resumption of normal loading operations and upstream production depends on sustained two-way tanker traffic.
- The US-Iranian memorandum includes a waiver of sanctions on Iranian oil and toll-free transit for 60 days.
- War risk insurance premiums for the Strait of Hormuz were between 3-10% of hull value, down from pre-war levels below 1%.
- The war prompted Saudi Arabia and the UAE to utilize bypass pipelines to avoid the Strait of Hormuz.
Persian Gulf oil shipments to Asia are facing disruptions due to high tanker rates and safety concerns, impacting major refiners in China and India. While an agreement between the US and Iran has led to an initial increase in vessel traffic through the Strait of Hormuz, sustained economic recovery hinges on the normalization of shipping operations.
Maritime intelligence firm Windward reported a noticeable uptick in vessel transits through the Strait of Hormuz following the US-Iran memorandum of understanding. Between June 17 and June 18, 18 vessels, including LNG tankers, vehicle carriers, and oil tankers, navigated the strait. This followed a period where ten outbound vessels had been delayed for 109 days due to the conflict that began in late February.
Before the recent hostilities, the Strait of Hormuz was a critical chokepoint, handling approximately 20% of global oil supplies, along with significant volumes of LNG and other commodities. Daily transits in the first two weeks of June averaged around seven vessels, with the total for June already surpassing May's figures, indicating a gathering momentum.
Analysts emphasize that the true economic impact depends on consistent two-way tanker traffic. For loading operations and upstream production to resume fully, shipping companies require confidence in the safety of transit and the absence of renewed hostilities. The US-Iranian deal includes a waiver of sanctions on Iranian oil and offers 60 days of toll-free transit, pending demining efforts.
Concerns over war risk insurance premiums, which had risen significantly, and the potential for harassment of vessels remain key factors. While the agreement aims to facilitate demining and remove obstacles within 30 days, details on these processes are pending. The war also prompted Saudi Arabia and the UAE to utilize bypass pipelines, highlighting the risks associated with over-reliance on the Strait of Hormuz and potentially leading to a reassessment of global supply chain dependencies.
Experts suggest that buyers will re-evaluate supply and transit risks in the Middle East, and the Strait of Hormuz may not regain its previous share of global oil transit as alternative infrastructure and bypass routes are explored.