- After Israel’s retaliatory missile attack on Iranian soil, global shipping freight, insurance, and crew wages are expected to increase significantly.
- Ongoing loadings are likely to continue, although war risk premia may rise manifold, and tankers along with crew may avoid the Straits of Hormuz.
- Importers may opt for more US and African crude as a precautionary measure.
Global shipping freight, insurance, and crew wages are expected to increase significantly in the near term following Israel’s missile attack on Iran, according to market participants on April 19.
Ongoing Loadings Continue
“While the current loadings are ongoing in key oil [and refined products] producing countries, the situation is very fluid,” a shipping broker in Singapore said. However, the chartering of ships or lack of it will depend on the scale of the conflict, particularly as it is a Friday — a designated public holiday in most Persian Gulf countries.
Higher Freight Costs
Sources in refining companies across South Korea said that higher freight for importing cargoes from the Middle East is now a bigger concern as opposed to security issues. “It all depends on how extensive the attack on Iran was,” another broker said.
Tanker Operations Affected
“The Persian Gulf loadings will not be affected so quickly and will probably depend on the scale of Iran’s retaliation,” an executive at a major oil tanker-owning company said. But, he added, the company will seek higher freight for voyages from the region.
Additional War Risk Premia (AWRP)
It is the Additional War Risk Premia, or AWRP, which will increase manifold in the next few days, industry sources said. For the last few months, the AWRP in the Red Sea has been 0.5%-1.0% of the value of the hull and machinery of the ship varying with age and size, compared with 0.0001% in the Persian Gulf, they added.
Impact on Trade Flows
Any blockage on the Straits of Hormuz will result in importers dipping into their strategic reserves and panic buying from West Africa and the US, a VLCC broker said. Japan’s second-largest refiner Idemitsu Kosan was considering procuring crude oil from West Africa and North America as alternative supply sources for potential Middle East supply disruptions.
Global Oil Exports through the Strait of Hormuz
The Persian Gulf and the Red Sea regions have close to a 40% share in global oil exports, with more than 20 million barrels, equivalent to 10 VLCCs of oil and refined products, and over 10 Bcf of LNG moving daily through the Strait of Hormuz alone, according to shipping industry estimates. During the Iran-Iraq war in the 1980s, only 20% of the global tanker fleet lifted cargoes from the region, and wages of seafarers doubled.
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Source: SP Global
