The oil market could face a new reality after the Iran war, in which exports through the Strait of Hormuz fail to return to levels once considered normal, with shipowners now having to weigh the risk of fighting suddenly breaking out in the volatile Persian Gulf.
And Western commercial ships will likely be reluctant to pass through Hormuz if it remains under Iran’s de facto control, especially if they have to coordinate with the Revolutionary Guard, putting them at risk of violating U.S. sanctions.
This is a scenario whose consequences are difficult to predict given the vital role that Hormuz plays in global energy markets. Freedom of navigation in the strait was never seriously questioned until Iran closed the sea lane in response to the war launched by the United States and Israel on February 28.
Iran’s blockade of Hormuz has triggered the largest disruption of oil supply in history, by putting pressure on the The United States will make a deal as the threat to the global economy grows day by day. Tehran appears intent on using this leverage to consolidate control of the strait as part of a settlement ending the war.
Mideast leaders believe Iran has already taken control of Hormuz, said Amos Hochstein, who served as a senior adviser on energy and national security to the former president. Joe Biden.
“No matter what happens, the Iranians will control the Strait of Hormuz for the foreseeable future,” Hochstein told CNBC.Scream box”Thursday. “It doesn’t matter what the agreement says. Everyone in the area believes it. »
Tanker traffic through Hormuz before the war could represent the high point of transits for the foreseeable future, said Helima Croft, head of global commodities strategy at RBC Capital Markets.
“Any end to the conflict that leaves Iran to exercise operational control and influence over the strait will in our view result in a material decrease in waterway throughput,” Croft told clients in a note Thursday.
In this scenario, traffic could return to 60-70% of pre-war volumes, with Chinese-affiliated ships moving freely while passage for Western ships would require bilateral agreements with Iran, Richard Meade, editor-in-chief of Lloyd’s List, said at a May 21 press briefing.
“It doesn’t trigger a recession as some of the doomsday scenarios we’ve talked about previously might suggest, but it doesn’t allow for the pre-war rebound,” Meade said. Lloyd’s List is one of the oldest maritime industry journals in the world.
“It produces something more insidious,” Meade continued. “A permanently bifurcated strait where access is a function of political alignment and not freedom of navigation.”
The Red Sea crisisThe crisis that has slowed maritime traffic in the Red Sea shows how geopolitical instability can disrupt trade chokepoints for far longer than initially expected.
Houthi militants in Yemen, allied with Iran, began attacking commercial shipping in November 2023 in response to Israel’s war in Gaza. The attacks began on November 19 with the hijacking of a cargo ship and continued with missile and drone attacks for two years.
Daily traffic passing through the Bab el-Mandeb Strait, which connects the Red Sea to the Gulf of Aden, collapsed by more than half, from 75 ships on November 19, 2023, to 31 ships as of January 30, 2024. More than two years later, traffic passing through the strait has still not returned to levels once considered normal.
One of the key lessons of the Red Sea crisis is that “you don’t need a massive navy to create major disruption in a maritime bottleneck,” said Tomer Raanan, a maritime risk analyst at Lloyd’s List.
The Houthis have not attacked a ship in the Red Sea since late last year, but that hasn’t been enough for shipping traffic to return to levels seen in 2023, said Jack Kennedy, head of Middle East country risk at S&P Global Market Intelligence.
It is unclear whether the collapse of traffic through Hormuz will last as long as the disruptions in the Red Sea. Shipowners will have to decide whether they believe a U.S.-Iran deal, if indeed reached, provides sufficient security guarantees for commercial vessels.
The current ceasefire is likely to hold for now, as Asset The administration appears to be prioritizing increased access for commercial vessels through Hormuz, Kennedy said.
Even if Iran agreed to open Hormuz without any transit conditions, it would likely take a long time to return to pre-war traffic levels, Kennedy said. There will be security concerns, for example, regarding mines that may have been laid in the strait, he said.
And there is a serious risk that war will resume within the next year unless a permanent solution is found to Iran’s nuclear and ballistic missile programs, Kennedy said. These are the key issues, especially from the perspective of Israeli national security, that led to the war, the analyst said.
Ship operators will have to ask themselves whether they are willing to risk having their ships and assets stuck on one side of Hormuz for months if war breaks out again, Kennedy said.
Few alternatives to HormuzBut the Red Sea is also different from Hormuz in key ways, Raanan and Kennedy said. One reason traffic on the Red Sea remains depressed is that ships can bypass it and avoid any security risks by going around South Africa’s Cape of Good Hope. Hormuz, by contrast, is truly a choke point with no equivalent alternatives, analysts say.
Hormuz is also much more important to global energy markets than the Red Sea, they said. About 20% of the world’s oil and liquefied natural gas supplies passed through Hormuz before the war.
Saudi Arabia and the United Arab Emirates use pipelines to divert millions of barrels of oil every day from the Persian Gulf to export terminals on the Red Sea and Gulf of Oman. These pipelines have mitigated supply disruptions, but they do not fully compensate for the Hormuz problem.
“You can get some things out of pipelines, but not everything can go through a pipeline,” Raanan said. “We are not just talking about the oil that needs to come out of Hormuz.”
The appeal of LNG as a product, for example, is that it can be loaded onto ships and transported around the world. Hormuz is also crucial for fertilizers and other products. In the absence of alternatives, shippers may have to accept and adapt to conditions in Hormuz in a way they did not in the Red Sea.
Still, Middle Eastern exporters are looking for more alternatives. The United Arab Emirates, for example, is accelerating the construction of a second pipeline which bypasses Hormuz. It is expected to become operational in 2027.
U.S. Energy Secretary Chris Wright believes Hormuz’s importance to the global energy market will diminish after the war as Gulf countries, such as the United Arab Emirates, build more pipelines to avoid it.
“It’s a card you can play once,” Wright said of the Iranian blockade. “There will be other routes for energy to exit the Persian Gulf.”
“We will see a decrease in the importance of the Strait of Hormuz, but not a decrease in the importance of energy production and supply to these countries,” he said.