By Julian Lee, Alex Longley, Weilun Soon and Stephen Stapczynski
(Bloomberg) – Oil and gas tankers are increasingly steering clear of the Strait of Hormuz, which connects the oil-rich Persian Gulf to the open seas, following recent U.S. and Israeli airstrikes on Iran. Many vessels are now staying away from the waterway, and some that were already on their way have turned back.
Ships have reported hearing a radio message, allegedly from the Iranian navy, declaring that passage through the Strait of Hormuz is prohibited. While there hasn't been any official confirmation from Iran regarding the status of the strait, most shipowners are opting for caution. The U.S. has also warned that ships in the region should maintain a distance of 30 nautical miles from U.S. military assets.
Also Read: U.S. Navy Declares Maritime Warning Zone Across Persian Gulf
Tracking data indicates that some tankers are turning back, and at least one shipowner chose not to send a vessel into the strait due to the warning. Nevertheless, some ships are still passing through; reports note that seven vessels were seen leaving Hormuz while six were entering, despite the warnings.
This significant reduction in shipping traffic is one of the first signs of disruptions in commodity markets stemming from the U.S. decision to strike Iran. It's unclear how long this situation will persist. The Strait of Hormuz is crucial, as about 20% of the world's oil and liquefied natural gas flows through it each day. While Iran has threatened to block the strait in the past, it has never fully closed it.
Traffic had already slowed considerably following the attacks, with reports indicating that tankers are piling up both inside and outside the entrance to the strait.
Nippon Yusen KK, a major Japanese shipping line, advised its fleet against navigating Hormuz, and Greece also instructed its large merchant fleet to reassess their routes, according to a circular obtained by Bloomberg. One shipowner mentioned that they interpreted the U.S. advisory as essentially closing the waterway.
Further broadcasts instructed various shipowners not to proceed through the strait, stating it was “banned for all ships.”
Oil futures markets are closed on Saturdays and Sundays, limiting visibility on how traders are pricing risks after the attacks. However, during the trading week, a retail trading product from IG Group Ltd. priced West Texas Intermediate at around $75.33 at one point, marking a 12% increase from Friday's close.
Traders are also closely monitoring for any broader disruptions, including the effects of potential Iranian retaliatory strikes and whether any ports are being impacted.
Oil tankers are coming to a standstill on both sides of Hormuz, with three vessels halting their journeys out of the Persian Gulf and at least eight tankers accumulating in the Gulf of Oman over the past two weeks. Some ships are also abandoning their voyages partway through the waterway.
Tracking data shows that at least three gas tankers traveling to or from Qatar have paused their journeys to avoid the strait. Qatar, the world's second-largest LNG exporter, accounted for 20% of global LNG supply last year, and its shipments must pass through the Strait to reach buyers in Asia and Europe.
Some shipowners are contemplating canceling previously scheduled voyages to the Middle East, as brokers cite a war clause that allows them to do so if hostilities erupt between listed countries including the U.S. and Iran. This could reduce the number of available vessels in the region, further driving up freight rates that have recently reached their highest levels in years.
The very large crude carrier KHK Empress was partially loaded with Omani crude and was en route through the Strait of Hormuz to Basra when it did a U-turn, changing its destination to New Mangalore in India, with an expected arrival on Monday.
In the Persian Gulf, the oil tanker Eagle Veracruz, carrying 2 million barrels of Saudi crude to China, has stopped at the western entrance to the Strait of Hormuz. It is joined by the Front Beauly, which is loaded with a similar quantity of Iraqi and Emirati crude. The Suezmax tanker Front Shanghai, carrying about 1 million barrels of Iraqi crude to Rotterdam, has also stopped near Sharjah, according to tracking data.
A buildup of vessels halting their voyages toward Hormuz from the east has been occurring throughout the week, as shown by tanker tracking data.
Overall, the situation remains fluid, with significant potential implications for global oil supply and shipping routes that require close monitoring in the coming days.