China calls for vessels in strait of Hormuz to be protected amid soaring shipping costs
The Chinese government has called for vessels passing through the strait of Hormuz to be protected by all sides in the escalating Iran conflict, as shipping freight rates soared.Maritime traffic through the strait – a narrow channel on Iran’s southern border that connects the Persian Gulf with the Gulf of Oman – has effectively been closed since the US and Israel launched missile attacks on Iran at the weekend, prompting a retaliation from Tehran.Beijing’s foreign ministry on Tuesday urged “all parties to immediately cease military operations, avoid escalating tensions and safeguard the safety of navigation in the strait of Hormuz”.China is the world’s largest importer of oil and fossil gas and has in recent times been the major buyer of Iranian oil, making it one of the countries most exposed to the interruption to energy shipments.The strait of Hormuz, located on Iran’s southern border, is one of the most important global trade arteries and remained devoid of ships for a fourth day on Tuesday.
It carries around 20% of global seaborne crude oil, while around 20% of seaborne gas tankers and one-third of the most widely used fertiliser pass through it.Only seven vessels crossed the strait on 2 March, according to figures from marine intelligence firm Windward, a 60% drop from the previous day and representing a fraction of the daily average of 79 ships.The effective closure of the strait chokes off energy exports from large producers including Saudi Arabia, the United Arab Emirates, Iraq and Kuwait, as well as Iran, to the rest of the world, triggering energy shortages and higher prices.India, which is dependent on oil and gas imports from the Middle East, is one of the other Asian countries most affected by closure of the shipping channel.Meanwhile, Korea, Thailand and the Philippines are considered among the most vulnerable to higher oil prices, according to industry analysts, given their dependence on energy imports.
Iranian forces claimed to have hit the Honduras-flagged fuel tanker Athe Nova in the strait with two drones on Monday, setting it on fire.Two other tankers were hit off the coast of Oman on Sunday in incidents that caused the death of one crew member.At least 150 tankers carrying crude oil, liquefied natural gas (LNG) and oil products dropped anchor in the Gulf at the weekend, representing 4% of the global fleet by tonnage, according to the International Chamber of Shipping.Oil and gas prices rose again on Tuesday, after some of the largest energy-producing nations in the Middle East closed their facilities.Qatar has shut down its liquefied natural gas (LNG) sites, which are responsible for about 20% of global LNG exports, while Saudi Arabia halted production at its largest domestic refinery, and parts of gas and oil production were shut down in Israel and in Iraq’s autonomous Kurdistan region.
Energy producing nations have few alternative export routes.There are some oil pipelines, including Saudi Arabia’s east-west pipeline and others in the UAE and Kurdistan, but these have far lower capacity than transport by sea.Vessel traffic through the strait of Hormuz has not previously faced prolonged periods of disruption, even during times of conflict.If the effective closure continues, it is expected to trigger a further surge in energy prices.The transit stoppages have also sent freight costs surging, pushing the cost of chartering a vessel to record highs.
The spot rate to charter a crude oil tanker – known as a VLCC or very large crude oil carrier – from the Middle East to China has surged above $424,000 (£318,000) a day: four times higher than the $100,000 a day rate seen in recent weeks.It comes as leading maritime insurers have cancelled war risk cover for vessels operating in the Gulf and London’s marine insurance market widened the area in the Gulf deemed high risk.The closely watched guidance from the Joint War Committee, which influences underwriters’ considerations over insurance premiums, on Tuesday added the waters around Bahrain, Djibouti, Kuwait, Oman and Qatar to high-risk areas.Container ships – which carry goods ranging from furniture and clothes, to food and building materials – around the world are also affected by the disruption.Large shipping companies had hoped to resume sailing on Red Sea routes this year, after a pause in attacks on vessels by Iran-backed Houthi rebels in Yemen.
However, companies including Denmark’s Maersk and Germany’s Hapag-Lloyd have now rerouted their ships around the Cape of Good Hope at the southern tip of Africa after the Houthis threatened to resume attacks, which will add extra time and cost to sailings.Diversions around the cape surged by 112% on Monday, according to Windward, which it said signalled “structural rerouting rather than temporary caution”.On Tuesday, France’s CMA CGM announced it was suspending with immediate effect all bookings requiring loading and unloading at ports in Bahrain, Kuwait, Qatar, the UAE (except Fujairah and Khor Fakkan), most ports in Saudi Arabia and most ports in Iraq.It described the decision as a “precautionary measure to ensure the safeguard of our crew, vessels and customers’ cargo under the current circumstances”.A spokesperson for the International Chamber of Shipping said: “Shipowners are understandably reluctant to place seafarers in harm’s way while a major conflict is under way.
If traffic continues through the strait of Hormuz at its current volume – currently down 80% – then it is likely that the pressure will increase day by day.”
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