Oil Tanker Market Roiled by Israeli Airstrikes Against Iran
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Israel’s overnight airstrikes on Iran drove up freight rates and tanker stocks June 13 as traders and investors priced in the prospect of disruption to a large swath of the global oil-shipping fleet.
Forward freight agreements for July — bets on the future cost of moving Middle East crude to Asia — jumped as much as 15% to $12.83 a metric ton, according to data from brokerage Marex Group Plc. They pared their gain later in the day to about 12%. Benchmark tanker rates soared.
Tanker stocks jumped, with one of the world’s top owners saying it was more wary of leasing out its vessels in the region. People involved in the freight market reported a large number of firms declining to offer their vessels for hire while they take stock of what has happened.
Israel struck targets across Iran early June 13, including nuclear and military facilities. The operation marked a significant escalation in the standoff between the two adversaries, with Tehran vowing its foe will “pay a very heavy price.”
“For now, this is a risk premium — owners will hold back from putting ships into the Gulf on a business-as-usual basis,” said Anoop Singh, global head of shipping research at Oil Brokerage Ltd. “A threat of war in the Middle East is material to freight rates.”
The attacks have revived long-standing concerns in oil and shipping markets that Iran could try to shut the Strait of Hormuz, an unavoidable chokepoint for a large chunk of the world’s petroleum.
Tehran has made multiple threats to close the waterway over the years, even if there are good reasons to believe it wouldn’t do so for any long period of time.
That doesn’t preclude harassment of commercial ships that are controlled by Iran’s rivals, making voyages more fraught and owners more wary — a tactic Tehran has deployed in the past.
Tokyo-based shipping companies Nippon Yusen KK, Mitsui OSK Lines Ltd. and Kawasaki Kisen Kaisha Ltd. were among the first to instruct vessels to exercise caution after the overnight strikes.
JMIC Advisory Note 008-25 Update 002
Escalating Regional Tensions - Potential Impact on Maritime Security
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Issued by: JMIC in consultation with UKMTO & MSCIO — UKMTO Ops Centre (@UK_MTO)
Among Asian stocks, Cosco Shipping Holdings Co. and China Merchants Energy Shipping Co. rose more than 5% on June 13. In Europe, Frontline Plc jumped as much as 9% in Oslo before paring its gains.
Cosco ranks No. 13 on the Transport Topics list of the largest global freight companies.
“We are far more hesitant” about offering vessels for charter from the Middle East, said Lars Barstad, CEO of the company that manages Frontline’s fleet.
Tanker rates from the region soared, according to the Baltic Exchange in London.
The cost of hiring vessels to move Saudi Arabian oil to China jumped 24% to 53.85 Worldscale points, the standard measure of charter fees in the tanker industry. The gain was far bigger than elsewhere in the world.
Before the attacks, the U.K. Navy had warned that any escalation could affect shipping, including in the Strait of Hormuz, through which much of the world’s seaborne oil and gas flows.
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Similarly, the Joint Maritime Information Center, an information-sharing hub that comes under the Combined Maritime Forces, warned of heightened risks from the hostilities, including the possible use of missiles around chokepoints.
The JMIC said June 13 that there are signs that ships’ electronics are increasingly being jammed and that vessel operators should “be ready with alternative options should navigation aids fail.”
Barstad said that during past flare-ups, shipping had been organized into “flotillas” that move through Hormuz under naval escort to keep them safe.
But such a measure is very inefficient — and hence bullish for freight — because tankers are forced to wait to transit rather than moving freely, he said.
Blocking Hormuz, the entry and exit point for tankers picking up cargoes from key oil producers in Saudi Arabia, the United Arab Emirates, Kuwait — and even Iran itself — is seen as an extreme option. The country’s oil-consuming allies need the waterway to function normally. While a closure is possible, it’s unlikely that such an act would be long-lasting, Barstad said.
At least 10% of the global very-large crude carrier fleet are in the Middle East Gulf at any given time, with about 20 vessels transiting the Strait of Hormuz each day.
Barstad, speaking early June 13, said that the market would take its cue from the premiums that war-risk insurers charge.
Neil Roberts, secretary of the Joint War Committee that determines the world’s riskiest waters for insurers, said insurers already have to be notified when ships are passing through the area in question because it is already a so-called Listed Area.
“The chance of collateral damage is perhaps raised but the current strikes are not at marine targets,” Roberts said. “From the marine perspective, it’s a case of keeping aware of developments and acting accordingly.”
There are also ways in which disruption could actually prove bearish for tanker markets. A surge in oil prices that erodes demand wouldn’t be helpful, and nor would a long-lasting restriction in Middle East crude cargoes.
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Still, the strikes will help ancillary services that provide safety of passage for ships through the region, said Jayendu Krishna, a director at Drewry Maritime Services.
Bulk carrier rates may also benefit: The Middle East contributes more than 10% of the global dry-bulk trade, which handles unpackaged commodities such as ores and minerals, he said.
“Additional war-risk premium will suddenly shoot up, to and from the Middle East,” Krishna said. “It takes time to recalibrate the supply chain.”
Written by Weilun Soon and Alaric Nightingale
