- Some shipowners avoid the Strait of Hormuz due to Israel-Iran tensions
- Conflict triggers freight rate spikes and security concerns in key maritime routes
- Industry remains alert as threat levels rise despite stable insurance rates
In response to Israel’s unexpected military strike on Iran’s nuclear and defense infrastructure last Friday, followed by four days of escalating conflict, shipowners have begun to reroute vessels away from the Strait of Hormuz, according to Bimco, the world’s largest shipping association.
The Strait, a vital maritime artery linking the Persian Gulf with global energy and trade markets, has become an area of high concern, alongside the Red Sea, where maritime risks are similarly elevated.
Jakob Larsen, Head of Security at Bimco, noted a “modest drop” in vessel traffic through the Strait, acknowledging shipowners’ growing hesitation and the uncertain environment.
Tension Spurs Operational Adjustments
Shipowners’ tolerance to risk varies, and while most still choose to transit the Strait, others are opting out. Bimco rarely advises ships to avoid certain regions, but the heightened military activity has introduced sufficient unpredictability to change ship routing decisions.
The economic effects are already being felt. During conflict, freight rates and crew wages typically surge, offering financial incentives for some vessels to continue operations in risky waters — a long-standing pattern throughout maritime history.
The Strategic Importance of the Strait of Hormuz
The Strait of Hormuz is one of the world’s most critical oil chokepoints. In 2023, it saw an average of 20.9 million barrels per day of oil flows, accounting for 20% of global petroleum liquids consumption, per the U.S. Energy Information Administration.
Beyond oil, it plays a central role in container trade due to its proximity to Jebel Ali and Khor Fakkan ports, which are major transshipment hubs for cargo moving across South Asia, East Africa, and the Gulf.
Cautious Industry Reactions
Peter Tirschwell, Vice President at S&P Global Market Intelligence, indicated that more shipping lines are “shying away” from using the Strait. He referenced the precedent set by Houthi threats in the Red Sea, which forced container traffic to divert around Africa’s Cape of Good Hope — a trend that could be mirrored in the Gulf.
“The mere threat of military action in such a narrow, vital trade route is enough to cause significant disruption,” Tirschwell emphasized.
Freight Rates Surge, Insurance Holds Steady (For Now)
The conflict has already influenced freight economics. Data from analytics firm Kpler showed a 24% spike in VLCC freight rates for Mideast Gulf to China routes on Friday, marking the largest daily gain so far this year. The rate climbed to $1.67 per barrel.
Kpler analysts suggest that further increases are likely if tensions escalate, although war risk premiums have not yet shifted significantly.
David Smith, head of hull and marine liabilities at McGill and Partners, said insurance quotes remain steady but warned they could change rapidly based on developments. War risk quotes are valid only 48 hours before entering breach zones, giving underwriters the flexibility to respond quickly to rising threats.
Shipping Firms Remain Vigilant
German carrier Hapag-Lloyd noted that while the threat level in the Strait of Hormuz is currently “significant,” there is no immediate risk that would halt transits. However, they are closely monitoring the situation as it can deteriorate quickly.
The company has also confirmed that it has not resumed operations in the Red Sea since halting them in December 2023, citing continued insecurity in that corridor.
As conflict heightens across the region, shipowners, analysts, and insurers are all preparing for potential disruptions to vital energy and cargo flows. With the Strait of Hormuz under increasing scrutiny, the next steps in the Israel-Iran conflict may determine the course of global maritime logistics and oil pricing in the weeks ahead.
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Source: CNBC
