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05 January 2020
BUSINESS

Middle East shipping risks set to increase amid US-Iran tensions

About a third of the world’s oil transported on tankers moves through the Strait of Hormuz, bordered by Iran to the north.

Bloomberg/Simon Dawson


The risk to shipping in one of the world’s key oil-producing regions is set to rise following a US airstrike in Iraq that killed a top Iranian commander, just months after spiking to record levels on heightened geopolitical risk, reported Bloomberg.

Iran vowed ‘severe retaliation’ for the attack that killed General Qassem Soleimani. The episode ratchets up already-high tensions in a region that exports much of the world’s oil. Brent crude prices jumped as much as 4.9 per cent in intraday trading.

In October 2019, daily earnings for supertankers on the benchmark route to China from the Middle East soared to more than $300,000 a day, after Iran said missiles hit one of its vessels in the Red Sea. That followed attacks on Saudi Arabia’s oil infrastructure a month earlier. The US reimposed sanctions on Iran in late 2018, and separate American sanctions on some vessels from China also contributed to an increase in shipping rates last year.

So far, freight rates and insurance premiums have not moved much in response to the conflict, said Stefanos Kazantzis, McQuilling Services’ Senior Adviser for Shipping and Finance. “

According to UK Marine Trade Operations, ships operating in the Gulf region should be vigilant following the US strike.

Additionally, Fearnley Securities said that it does not expect Iran to close the strait because of China’s reliance on its crude but risk premiums will be higher for now.

The event could trigger attacks on tankers lifting crude from US-allied countries, such as Saudi Arabia or the UAE and it could also prompt demand for restocking inventories, said Espen Fjermestad, Fearnleys Securities Analyst.

 “Overall, it remains too early to assess the market impact, though increased concerns on cargo availability should likely keep the market well-supported,” added Clarksons Platou Securities.

 


RELATED STORIES: oil infrastructure oil shipping


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