About 20 million bpd of crude in focus amid Israel and Iran tensions

Shipping companies have been urged to exercise extra caution while navigating through Strait of Hormuz

A tanker passing through the Strait of Hormuz, a narrow water channel between Iran and Oman. Reuters

About 20 million barrels per day of oil and refined products could be affected if shipping operations are disrupted along the Strait of Hormuz amid the continued tensions between Israel and Iran, according to analysts.

The Strait of Hormuz is a narrow water channel where oil tankers carry large volumes of oil and refined products to different destinations from Gulf producers as well as from Iran and Iraq.

On Saturday the "closure" of the Strait was being seriously reviewed by Tehran, Iranian media reported, citing statements by Esmail Kosari, a member of the Tehran parliament's security commission. Iran in the past has threatened to close the strait for maritime traffic in retaliation for western pressure. Any closure could impact trade and oil supplies flowing to global markets.

“The Strait of Hormuz remains the critical chokepoint,” Jorge Leon, head of geopolitical analysis at Rystad Energy, said.

“Around 12 million barrels per day of crude oil pass through the strait, over 80 per cent of it bound for Asia. Including refined products, the total volume can reach up to 20 million barrels per day.”

While Saudi Arabia and the UAE have spare pipeline capacity to bypass the strait, it is limited, he said.

Saudi Arabia’s East-West pipeline and the UAE’s Habshan-Fujairah pipeline together can handle around half of the flow, he added.

“The strait is jointly controlled with Oman, and past tactics have included seizing or harassing tankers by jamming their GPS signals to draw them into Iranian waters. This increases the risks of navigating the route.”

Last year, Iran's Revolutionary Guard seized a container ship with links to Israel in the Strait of Hormuz.

Tensions across the Middle East rose on Friday after Israel launched a wave of strikes across Iran, killing senior military officials and hitting key nuclear sites.

Iran also launched retaliatory missile strikes on Israel into Saturday morning, killing at least three people and wounding dozens, raising concerns of a wider Middle East war.

Oil prices have surged in response to rise in tensions in the Middle East.

Brent and West Texas Intermediate (WTI), the gauge that tracks US crude, had jumped more than 13 per cent before settling at around 8 per cent higher on Friday.

“While Iran has threatened to block the strait before, their current weakened position makes this uncertain. There’s still a risk from Iran’s proxies like Houthi rebels and Hamas, who may retaliate,” Phil Flynn, senior market analyst at the Price Futures Group, said.

Last year, Houthi rebels have carried out attacks on ships passing through the Red Sea, disrupting maritime traffic and causing oil prices to rise on supplies worries.

Many shipping companies were forced to reroute and take a longer route around the Cape of Good Hope at the southern tip of Africa to transport cargo to Europe and other destinations.

Houthis said they launched attacks on ships, in solidarity with Hamas fighting against Israel in Gaza.

Shipping companies urged to take extra measures

“The situation is very tense, and we have reports that more shipowners are now exercising extra caution and are opting to stay away from the Red Sea and the Arabian Gulf,” Jakob P Larsen, chief safety and security officer with shipping association Bimco, told The National in a statement.

If the US is perceived to be involved in attacks, “the risk of escalation increases significantly,” which will impact freedom of navigation in the Red Sea and Strait of Hormuz.

“Such an escalation could include missile attacks on ships or laying of sea mines in the strait,” he added.

Bimco has advised shipowners to follow developments closely and implement ship defence measures as tensions continued to rise between Israel and Iran.

India's directorate general of shipping also urged Indian-flagged vessels and Indian seafarers transiting through the Strait of Hormuz "to exercise due caution while operating in or navigating through the region," according to an advisory on its website.

Dubai maritime and shipping company Gulf Navigation is closely monitoring the situation in the Strait of Hormuz and the wider region and the safety of “our crew, vessels, and cargo is our top priority,” it said in a statement to The National.

“In response to elevated regional tensions, we have implemented enhanced risk mitigation measures across our operations,” the company said.

These include, route and voyage planning in coordination with local authorities, continuous communication with regional and international maritime security centers, increased vigilance on board vessels, including elevated security protocols and crew preparedness training,

It is also coordinating with flag states and port authorities to ensure compliance and safe passage.

Oil at $100 per barrel

There is an elevated risk premium in the market that could push oil prices higher, analysts said.

“While a full blockade remains unlikely, the possibility, even if small, helps explain the elevated risk premium in the market today,” Mr Leon said.

Iman Nasseri, managing director of Middle East at FGE Nexant, expects oil to jump above $100 per barrel if the strait is closed.

"It seems like $70 to $80 (per barrel) would be the range for the short term if there is no closure of strait, if the strait gets closed, then we're looking at $90 and even above $100," Mr Nasseri told The National.