Supertanker shipping costs from the Middle East to China have surged to a record high, exceeding $400,000 due to the ongoing Iran conflict, according to London Stock Exchange Group data.
Rising fees coincide with insurance companies cancelling war risk coverage for vessels in the Middle East Gulf due to the widening Iran conflict, which disrupts shipping, resulting in damaged or stranded tankers and casualties.
The conflict, now in its third day, has driven oil prices up, with Brent crude climbing over 5 per cent to nearly $77 a barrel, causing a corresponding increase in fuel prices.
BBC News reports that the value of hiring ships now is almost double what it was last week when the US threatened to attack Iran.
Iran has targeted ships passing through the Strait of Hormuz, a crucial waterway in the south of the country, through which about a fifth of the world’s oil and gas is shipped.
The record fees are for the biggest oil-carrying vessels, which can haul up to two million barrels of crude.
These values are just one of the ways we are seeing prices surge since the Israeli and US attacks on Iran over the weekend.
Meanwhile, shipping through the Strait of Hormuz between Iran and Oman has ground to a near halt after vessels in the area were hit as Iran retaliated against U.S. and Israeli strikes.
One tanker in the region was ablaze on Monday, at least four others were damaged, and about 150 ships were stranded.
The disruption and fears of prolonged closure have caused oil and European natural gas prices to jump, with Brent crude futures up as much as 13 per cent as the conflict triggered multiple oil and gas shutdowns in the Middle East.
At least 150 vessels, including oil and liquefied natural gas tankers, had dropped anchor in the Strait of Hormuz and surrounding waters, according to shipping data. About 10 per cent of the world’s container ships are ensnared in the broader backups, and cargo could soon start piling up at ports and transhipment hubs in Europe and Asia, Jeremy Nixon, CEO of container carrier Ocean Network Express, known as ONE, said on Monday.
Iran has said it closed navigation through the critical waterway, prompting Asian governments and refiners to assess oil stockpiles. Iran’s Revolutionary Guards commander said Iran would fire on any ship attempting to transit the vital 21-mile-wide (34-km-wide) maritime chokepoint, Iranian media reported.
The tankers were clustered in open waters off the coasts of major Gulf oil producers, including Iraq and Saudi Arabia, as well as LNG giant Qatar, according to ship-tracking data from the MarineTraffic platform.
In the latest incident, Iran’s Revolutionary Guards said the Honduran-flagged Athe Nova was burning in the Strait of Hormuz after being hit by two drones, Iranian news agencies reported.
The U.S.-flagged product tanker Stena Imperative was damaged by “aerial impacts” while berthed in the Middle East Gulf, the vessel’s owner, Stena Bulk, and its U.S. manager Crowley said in a statement on Monday. The impact killed a shipyard worker.
On Sunday, a projectile hit the Marshall Islands-flagged product tanker MKD VYOM, killing a crew member as the vessel sailed off the coast of Oman, its manager said, and two other tankers were also damaged.
Also on Sunday, a projectile hit the Gibraltar-flagged oil bunkering tanker Hercules Star, which supplies fuel to ships, off the UAE coast, the manager Peninsula said in a statement. The tanker returned to anchorage in Dubai on Sunday morning, and the crew were safe, Peninsula added.
As a result of the incidents, marine insurers are cancelling war risk coverage for vessels, and oil shipping rates are set to surge further.
Companies including Gard, Skuld, NorthStandard, the London P&I Club and the American Club said their cancellations would take effect from March 5, according to notices dated March 1 on their websites.
These cancellation notices mean shipping companies with vessels in the region will need to seek new insurance cover at higher rates to maintain policies.
“As a result of this fast-moving situation, each underwriter is invariably increasing rates or in some instances, for vessels passing through the Strait of Hormuz, even declining to offer terms right now,” said David Smith, head of marine with brokers McGill and Partners.
War risk premiums have risen up to 1 per cent of the value of a ship in the past 48 hours, from around 0.2 per cent last week, industry sources said on Monday, which adds hundreds of thousands of dollars in costs for every shipment.
“The (war insurance) market is facing what is essentially a de facto closure of the Strait of Hormuz, based primarily around perception of threat rather than a tangible blockade,” said Munro Anderson of marine war insurance specialist Vessel Protect, part of Pen Underwriting.
Meanwhile, costs of shipping oil from the Middle East to Asia – already at six-year highs – are set to rise further as the widening Iran conflict is deterring shipowners from sending vessels to the region, market sources and analysts said.
The biggest shock was to natural gas prices, which rose more than 40 per cent in Europe when QatarEnergy, a major supplier, halted liquefied natural gas production after its facilities were attacked.
“Infrastructure is at risk throughout the region, and it’s not just at risk because of deliberate attacks, but also inadvertent attacks,” said Kevin Book, managing director at Clearview Energy Partners.
“Shrapnel and debris from missile interceptions can fall onto facilities and disable them too, and so there are several challenges that come from this kind of conflict in an area with so much energy production.”
In the U.S, average U.S. retail gasoline prices crossed $3 a gallon for the first time since November on Monday as the conflict in the Middle East worsened, setting up a key test of public approval of President Donald Trump’s decision to attack Iran.
“Gasoline prices are psychologically powerful,” said Mark Malek, chief investment officer at Siebert Financial. “They are the inflation numbers that consumers see every single day.”
Analysts expect every rise of $10 a barrel in crude oil prices to result in an increase of 25 cents per gallon at the pump. Refinery snags could lead to bigger jumps in fuel prices, Malek said.
