Rising tensions around the Strait of Hormuz are rapidly spilling beyond regional security concerns into global trade. Shipping lines are diverting vessels, fuel costs are climbing and insurers are raising premiums, as the maritime industry prepares for prolonged disruption in one of the world’s most critical trade corridors.
The shipping, energy and insurance industries are witnessing the confrontation with Iran develop rapidly from a security shock into a global supply shock. Recent strikes by a US-Israeli coalition on targets in Iran have sharply escalated tensions across the Gulf.
The Strait of Hormuz, one of the world’s most important energy and trade corridors, is effectively out of reach for many shipping lines, speakers said at a recent European Shippers’ Council meeting. The effects also extend to food imports‚ container shipping and the market for marine fuels‚ such as bunker fuel․
Roughly one fifth of the world’s oil shipments pass through the Strait. This makes any disruption in the waterway a critical risk for global energy and commodity markets.
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Safety of seafarers and vessels in the region remains the most pressing concern. Industry stakeholders also warn of increased freight costs, pressure on bunker supplies, and disruption to sailing schedules. Congestion could also shift to other maritime hubs.
Fuel shock raises costs
International Trade & Global Shipping Strategist Joel Grau said the effects are already visible in trade routes and costs. “We have a twofold effect on that,” he said.
According to Mr Grau, a number of ships in the region are waiting for new orders. Others have diverted around Africa before reaching the Gulf. Oil and gas prices have gone up significantly, pushing fuel costs through the system.
It’s not only an export story. It’s also an import story for the area and for the food security of the region․ — Joel Grau, International Trade & Global Shipping Strategist
However‚ Grau cautioned that availability‚ rather than price‚ was the issue․ According to him, a large volumes of oil, gas and fertiliser flows through the Strait of Hormuz. Disruptions could therefore affect food security as well. “So it’s not only an export story. It’s also an import story for the area and for food security of the region,” he said.
Effectively closed
Damian Viccars, Director of Government Affairs for Europe at the World Shipping Council, said container lines face the same fundamental constraint as energy shippers: trade can move only where it is safe. “The liner sector is going to do everything it can to keep trade moving‚ as long as it can be done safely‚” he said․
Mr Viccars also emphasised the humanitarian dimension. “Our absolute priority, the uppermost consideration, is the safety and well-being of seafarers,” he said. He added that seafarers trapped in the Gulf must not become targets in anyone’s conflict.
Around 138 container ships are stuck in the Persian Gulf. Shipping companies are responding through military advisories and industry liaison groups. For the time being, however, the result is stark.
“The clear advice from the militaries and the Iranian side currently is that the Strait of Hormuz is not safe to transit,” Mr Viccars said. “It may be legally open, but it’s de facto closed for the shipping interests we represent.”
The WSC official warned that disruption could also spread through interconnected shipping networks. “Disruption is going to ripple across supply chains globally,” he noted.
Insurance markets
Insurance markets are still writing cover, but at considerably higher cost. According to Ellis Morley, Divisional Director at Howden, confusion around cancellations created uncertainty in marine insurance markets.
“There were some contrary views in the media last week around the uninsurable nature of vessels and cargoes in the region, which frankly isn’t the case,” Mr Morley said. He explained that insurers triggered notice clauses within war-risk sections of policies and reinstated cover at different levels.
There is by no means a safe option․ The Straits are incredibly high risk, but so is the Persian Gulf as a whole. — Ellis Morley, Divisional Director, Howden
He also warned against focusing too narrowly on the immediate risk zone. “The Straits are incredibly high risk, but so is the Persian Gulf as a whole,” he said.
On possible alternate‚ safe ports to Hormuz‚ the speakers were circumspect․ Asked if Salalah could be considered a safe harbour‚ Morley said‚ “There is by no means a safe option․”
Taken together‚ the recommendations represented an industry that did not expect a brief disruption. Instead, the shipping‚ insurance, and commodity professionals think we are in for an extended period of volatility․
Mr Viccars puts it succinctly. “We hope for the best, but we have to be ready for the worst as well,” the shipping representative said.
