The Chinese government has called for ships passing through the Strait of Hormuz to be protected by all parties in the escalating conflict with Iran, as freight rates soar.
Maritime traffic through the strait – a narrow channel on Iran’s southern border that connects the Persian Gulf with the Gulf of Oman – has been effectively closed since the United States and Israel launched missile attacks on Iran over the weekend, prompting retaliation from Tehran.
Beijing’s Foreign Ministry on Tuesday urged “all parties to immediately cease military operations, prevent escalation of tensions and safeguard the safety of navigation in the Strait of Hormuz.”
China is the world’s largest importer of fossil oil and gas and has recently been the largest buyer of Iranian oil, making it one of the countries most exposed to disruption of energy shipments.
The Strait of Hormuz, located on Iran’s southern border, is one of the world’s most important trade arteries and remained devoid of ships for the fourth day on Tuesday. It transports around 20% of the world’s seaborne crude oil, while around 20% of seaborne gas tankers and a third of most used fertilizers pass through it.
The effective closure of the strait chokes off energy exports from major producers, including Saudi Arabia, the United Arab Emirates, Iraq and Kuwait, as well as Iran, to the rest of the world, causing energy shortages and higher prices.
India, which depends on oil and gas imports from the Middle East, is one of the other Asian countries hardest hit by the shipping channel closure. Meanwhile, Korea, Thailand and the Philippines are considered among the most vulnerable to rising oil prices, according to industry analysts, given their dependence on energy imports.
Iranian forces claimed to have attacked the Honduran-flagged fuel tanker Athe Nova in the strait with two drones on Monday, setting it on fire. Two other oil tankers were hit off the coast of Oman on Sunday in incidents that left a crew member dead.
At least 150 tankers carrying crude oil, liquefied natural gas (LNG) and petroleum products anchored in the Gulf over the weekend, representing 4% of the world’s fleet by tonnage, according to the International Chamber of Shipping.
Oil and gas prices rose again on Tuesday after some of the Middle East’s largest energy-producing nations shut their facilities.
Qatar has closed its liquefied natural gas (LNG) plants, which are responsible for around 20% of global LNG exports, while Saudi Arabia halted production at its largest domestic refinery, and parts of oil and gas production were shut in Israel and the autonomous Kurdistan region of Iraq.
Energy-producing nations have few alternative export routes. There are some pipelines, including the Saudi Arabian East-West Pipeline and others in the United Arab Emirates and Kurdistan, but they have much lower capacity than shipping by sea.
Ship traffic through the Strait of Hormuz has not previously faced prolonged periods of disruption, even in times of conflict. If the effective shutdown continues, it is expected to cause a further rise in energy prices.
Transit disruptions have also sent freight costs soaring, raising the cost of chartering a vessel to record levels. The spot rate to charter a crude oil tanker – known as a VLCC or very large oil carrier – from the Middle East to China has surpassed $424,000 a day: four times more than the $100,000 a day seen in recent weeks.
It comes as major marine insurers have canceled war risk cover for ships operating in the Gulf and the London marine insurance market has expanded the area in the Gulf considered high risk. The Joint Warfare Committee’s widely followed guidance, which influences insurers’ considerations on insurance premiums, on Tuesday added the waters around Bahrain, Djibouti, Kuwait, Oman and Qatar to high-risk areas.
Container ships – which carry goods ranging from furniture and clothing to food and construction materials – around the world are also affected by the disruption. Major shipping companies had hoped to resume shipping on Red Sea routes this year, after a pause in attacks on ships by Iran-backed Houthi rebels in Yemen.
However, companies including Denmark’s Maersk and Germany’s Hapag-Lloyd have diverted their ships around the Cape of Good Hope at the southern tip of Africa after the Houthis threatened to resume attacks, which will add extra time and costs to journeys.
On Tuesday, France’s CMA CGM announced it would suspend with immediate effect all bookings requiring loading and unloading at ports in Bahrain, Kuwait, Qatar, the United Arab Emirates (except Fujairah and Khor Fakkan), most ports in Saudi Arabia and most ports in Iraq. He described the decision as a “precautionary measure to ensure the safeguarding of our crew, vessels and customer cargo in the current circumstances.”
A spokesperson for the International Chamber of Shipping said: “Shippers are understandably reluctant to put seafarers in harm’s way while a major conflict is underway. If traffic continues through the Strait of Hormuz at its current volume (currently down 80%) then pressure is likely to increase by the day.”
