As the conflict between the U.S. and Iran continues, the global oil market is feeling the pressure. This situation is particularly tense in the Strait of Hormuz, which is vital for oil transport. Over a month into the war, many shipping and insurance specialists believe things won’t stabilize until hostilities decrease significantly.
Since the fighting began, Iran has threatened to target any ships passing through without its permission. This warning has led to a sharp decline in shipping traffic. A recent report from shipping firm Kpler reveals that daily transits through the strait have dropped by up to 95%. Hundreds of tankers are now stuck in the Persian Gulf.
The cost of marine insurance has also seen a dramatic rise. Insurance for tankers has surged to as much as 10% of a ship’s total value, up from just 1-2% at the start of the war, according to David Smith from McGill and Partners. While high insurance costs are concerning, experts say the main deterrent for ships is the risk to crew members and vessels, not just the premiums.
“It’s not just about insurance; it’s the safety of the crew and the ship,” said Matt Wright, a principal freight analyst at Kpler. Shippers fear losing their vessels or facing catastrophic oil spills.
The Trump administration has hinted at providing military escorts for these ships in a bid to enhance safety. However, it’s unclear how effective this would be while the attacks continue. Wright expressed doubt that naval convoys would ease fears. “You can’t simply escort with the current level of threats,” he said.
Historically, military escorts were used to protect Kuwaiti oil tankers during the late-stage Iran-Iraq War, but the dynamics have changed significantly. Today’s threats come from drones and sophisticated missiles, rather than naval skirmishes.
Experts believe that if a ceasefire is reached, it might take a while for market conditions to normalize. Some estimate that oil exports from the region could bounce back by mid-year if peace is restored. However, oil wells that have been shut down due to the fighting can’t be quickly reactivated; transitioning might take weeks or even months.
Interestingly, some vessels continue to transit the Strait, often linked to Iran itself. These ships might have received tacit permission from Iran, which has even considered charging fees for safe passage. Analysts remain skeptical about how many ships will be allowed through while the conflict persists. As Wright noted, Iran’s leverage in the Strait makes it unlikely they’ll ease restrictions significantly.
In terms of oil prices, experts anticipate fluctuations. A ceasefire could trigger a market sell-off, causing a drop in oil prices, but actual oil flow will take time to recover. There’s currently a significant disconnect between market prices and physical oil availability.
Ellen Wald, an energy consultant, likened the situation to gambling. “The physical supply and market reactions are misaligned, causing odd price shifts based on political statements,” she explained.
As the situation evolves, the uncertainty remains palpable for shippers and insurers alike. Only time will tell how this complex interplay of politics, safety, and market forces shakes out.
Source link
