THE world grows desperate for energy supplies. America’s military steps in to protect ships transiting the Strait of Hormuz. Tanker owners seeking astronomical rates join convoys as military escorts shoot down Iranian drones.

Does anyone in shipping believe this is a realistic scenario, at a scale that would matter?

Owners have war risk cover, but suffering a casualty and receiving a future insurance payout is less attractive than having an undamaged asset that’s still in the market. And cynicism aside, most shipowners do care about the lives of their crew.

Tanker shipping is not a public service. It is a private enterprise focused on making a return with long-lived assets over time.

Going through the Strait of Hormuz is not worth the risk, for most owners, without the express permission of the Iranians, the complete defeat of the Iranians, or an unequivocal ceasefire.

It doesn’t matter if a trickle of ships goes through, such as those owned by Dynacom. If the overall volume is not high enough, non-Iranian production will be shut-in, and the global economy will suffer the consequences.

Financial markets are not yet pricing this in. The thinking on Monday appeared to be the paper market in Brent crude is not signalling disaster, so this will all somehow work itself out.

Meanwhile, shipping is doing what it always does: finding an alternative to the blockage. Crude tankers are rerouting to safe crude loading ports in the Atlantic basin, and to Yanbu in the Red Sea, which represents an acceptable risk for now.

But volumes from Yanbu and emergency oil releases are not a panacea, and the parade of tankers transiting the Bab el Mandeb highlights the fragility of the workaround.

If the Houthis enter the fray, VLCCs loading at Yanbu would have to go north toward to the Suez Canal.

They would have to partially unload at Egypt’s Sumed pipeline to get through the waterway. They would have to pay the canal toll, top off in the Mediterranean, then go all the way around the Cape of Good Hope to deliver to India and points further east.

From a shipping route perspective, the Iranians and the Houthis hold the cards.

Greg Miller,
Senior maritime reporter, Lloyd’s List

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