Shipping companies have become significantly less keen to send their tankers to lift oil and chemical products from the Persian Gulf due to the heightened operational risks stemming from the escalated Iran-Israel military conflict.
GPS Interference
The increasing tensions in the Middle East are causing significant operational challenges for maritime traffic, particularly in the Strait of Hormuz and surrounding Gulf waters. Maritime authorities, including the Joint Maritime Information Center (JMIC), have confirmed a rise in electronic interference, which is severely jamming ships’ satellite navigation systems and compromising overall navigational safety. Windward data indicates that approximately 970 ships per day experienced GPS jamming between June 15-18, with AIS signals also being erroneously manipulated.
This electronic interference is directly impacting vessels’ ability to accurately use navigation aids. A concerning incident on June 17 highlighted these dangers when Frontline’s VLCC, the Front Eagle, collided with an alleged “shadow fleet” tanker, the Suezmax Adalynn, off Khor Fakkan, UAE. While Frontline’s CEO, Lars Barstad, suggested the collision was caused by an “unspecified navigational error” and stated there was “no suggestion of outside interference” concerning the regional conflict, the incident occurred amidst widespread reports of severe and prolonged GPS jamming in the area. The UAE’s Ministry of Energy and Infrastructure (MoEI) also attributed the accident to a “navigational misjudgment.” The collision resulted in a fire aboard the Adalynn and has led to an oil spill in the Gulf of Oman, with Greenpeace reporting a slick over 15 sq km.
Consultancy Dryad Global’s senior analyst, Scarlett Suarez, emphasized the critical need for preparedness: “Vessels should be prepared to navigate using alternative means, such as radar and visual fixes, due to reported GPS and gyro compass disruptions caused by electronic interference.”
Impact On Market
The recent escalation of tensions in the Middle East, though not yet involving direct attacks or seizures of commercial ships by Iran in the current conflict, has significantly impacted the cost and operational dynamics of maritime shipping, particularly for crude oil tankers.
Tanker operators and marine insurers have proactively responded by adding substantial risk premiums when offering their services to oil companies. This is a direct reflection of the heightened perceived threat. Munro Anderson, the head of operations at Vessel Protect (part of Pen Underwriting), a marine war risk and insurance specialist, emphasized this point: “In previous times of unique regional sensitivity, Iran has demonstrated both an intent and capability to disrupt commercial shipping activities within the Persian Gulf and Gulf of Oman.” He added that “the current conflict and associated risk profile must be contextualized against previous Iranian activity,” referencing instances where Iran has targeted vessels, laid mines, or seized ships in past periods of tension.
The financial repercussions are already evident in freight rates. Platts assessed the benchmark VLCC (Very Large Crude Carrier) rate for the crucial Persian Gulf-China trade at $15.26/mt on June 18. While this marked a slight decrease from the recent peak of $15.82/mt on June 17, it remains significantly higher than the $9.95/mt recorded on June 12, the day before Israel initiated its current round of attacks on Iran.
The insurance sector has also seen a dramatic increase in costs. Prior to June 13, the additional war risk premium for tankers was approximately 0.05% of the hull and machinery value for a seven-day transit through the Persian Gulf. However, market participants are now reporting that this rate could be hiked to 0.1%, 0.15%, or even as high as 0.5%, reflecting a substantial increase in perceived risk. This means that a $100-million ship could see its insurance costs for a transit jump from $125,000 to potentially $500,000, as reported by the Financial Times. The increased volatility is also leading to shorter validity periods for insurance quotes, sometimes as short as 24 hours.
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Source: S&P Global
