The vital Strait of Hormuz shipping route is effectively closed and crude oil and gas prices have surged as a result of the escalating US-Israeli conflict against Iran.
At least 150 vessels were stranded in and around the strait, through which about 20% of the world’s oil supply passes, after the USA and Israel began intense airstrikes on Iran on 28 February, The Guardian wrote on 3 March.
In a Reuters report citing Iranian media, an Iranian Revolutionary Guards senior official was quoted as saying that the Strait of Hormuz was closed and Iran would fire on any ship trying to pass.
Two ships had been attacked in the strait, one off Oman and the other off the United Arab Emirates (UAE), the British maritime security agency United Kingdom Maritime Trade Operations (UKMTO) was reported as saying by The Guardian on 2 March.
Danish shipping company AP Moller-Maersk (Maersk) - which just announced returning to some Red Sea-Suez Canal routes a few weeks before - following the end of Houthi attacks in the area, said it would be re-routing some sailings away from Middle East waterways via the Cape of Good Hope, FreightWaves reported on 27 February.
France’s CMA CGM also announced on 3 March that it was suspending all bookings requiring loading and unloading at ports in Bahrain, Kuwait, Qatar, the UAE (except Fujairah and Khor Fakkan), most ports in Saudi Arabia and most ports in Iraq, The Guardian wrote.
Against this backdrop, several leading marine insurers, including Norway’s Gard and Skuld and New York-based American Club, said they were cancelling war risk cover for ships operating in Iranian as well as Gulf and adjacent waters, with effect from 5 March, The Guardian wrote.
The Strait of Hormuz is used for vegetable oil and oilseed cargoes destined for Gulf countries but is not a critical global market chokepoint in the same way as it is for crude oil.
The cost of transporting goods had jumped as shipping was re-routed, The Guardian wrote, and crude oil prices have risen sharply to around US$83/barrel as of 5 March from roughly US$70/barrel earlier in the year.
With shipping rates soaring, the Chinese government had called for vessels passing through the Strait of Hormuz to be protected by all sides, according to a 4 March report by The Guardian.
China – the world’s largest importer of oil and gas – urged “all parties to immediately cease military operations, avoid escalating tensions and safeguard the safety of navigation in the Strait of Hormuz”.
Economists at Goldman Sachs quoted in the 3 March report by The Guardian suggested that if the Strait of Hormuz was completely blocked for a month, crude oil prices would jump by up to US$15/barrel, although that could be partly mitigated by increasing supplies via other routes.
According to economists quoted in the report, the vital question for the world economy was if oil prices would rise further – and for how long.
If crude oil and diesel prices stay high, demand for biodiesel and its vegetable oil feedstocks are likely to increase, pushing up edible oil prices.
