- Israeli Strikes on Iran Raise Regional Shipping Concerns.
- Gulf Economies Depend Heavily on Strait for Breakbulk Imports.
- War Risk Premiums May Surge if Tensions Escalate.
The Strait of Hormuz serves as a vital maritime route that links the Gulf Cooperation Council (GCC) countries to the global marketplace. These nations are significant players in the export of oil, petrochemicals, and construction materials, while they depend heavily on imports of grains, industrial machinery, and various breakbulk cargo. Even minor disruptions in the strait could have a major impact on trade flows, drive up freight costs, and put a strain on regional logistics, reports Drewry.
Tensions Rise After Israeli Strikes on Iran
Recent airstrikes by Israel on Iran have heightened geopolitical tensions in the Middle East, sparking concerns about possible Iranian retaliation. While a complete or partial closure of the Strait seems unlikely due to the economic ties involved, any military or security issues in the region could still disrupt breakbulk shipping and the movement of general cargo.
Strategic Significance for Breakbulk Shipping
The surge in construction and industrial activities in the Gulf highlights the crucial role of breakbulk transport through the Strait. Essential items like machinery, grain, chemicals, and furniture are frequently transported using multipurpose and handysize vessels. Any disruptions could have a serious effect on these critical supply chains.
Scenario 1: Transit via the Strait of Hormuz and Rising War Risk Premiums
The most favoured and likely shipping route continues to be through the Strait. However, vessels operating in this area are currently facing war risk premiums that range from 0.05% to 0.07% of the ship’s hull and machinery value for a seven-day stay. While these premiums have remained stable for the past 18 months, a rise is expected if tensions between Iran and Israel escalate, leading to increased freight rates and operating costs for charterers.
Scenario 2: Alternative Transit Routes if the Strait Becomes Inaccessible
- Using Omani Ports (Duqm, Sohar) and Khorfakkan (UAE): Ships could change their course to these ports and then depend on road and rail for inland transport. While this is doable, it would lead to a notable rise in overall logistics costs and longer transit times.
- Through the Gulf of Aqaba with Overland Logistics: Another possibility is to navigate through the Gulf of Aqaba and then move cargo overland. However, this method comes with its own set of challenges, including regional instability and a lack of robust logistics infrastructure.
Key Challenges with Alternative Routes
- Rising Operational Costs:
Smaller multipurpose vessels operate on tight margins. Increased distance and logistics complexity can render voyages unprofitable. - Extended Transit Times:
Project cargo involving large, sensitive components is especially vulnerable to delays. Longer routes increase fuel usage and raise risks of penalties and missed delivery windows. - Complex Multimodal Coordination:
Shifting to alternate routes requires seamless integration of maritime, rail, and road networks. This adds logistical complexity and increases the risk of disruption, undermining delivery reliability.
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Source: Drewry
