Analysts: If the Strait of Hormuz is closed, it will lead to a sharp increase in freight rates

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As Israel launches a new round of attacks on Iran and the shipping industry continues to move forward in artillery fire, the Strait of Hormuz may become a new point of war. The British Maritime Trade Organization (UKMTO) warned that although the Tehranian government has not yet clearly targeted the fleet in the Strait of Hormuz, Iran could retaliate through drone attacks on Israel, thereby quickly escalating tensions.

"There is no direct evidence that the merchant fleet is a target of attack. However, given the regional hotspots are proximate to major maritime channels and bottlenecks, the potential for rapid escalation in the maritime environment cannot be ignored."

In addition, threats from non-state actors such as Houthi armed forces also increase the risk of further deterioration of the regional situation. Houthi have publicly stated that they will respond if the United States is seen as being involved in the conflict. This undoubtedly makes the situation more complicated and unpredictable.

Analysts said that despite preliminary opinions that Tehran is unlikely to implement a full lockdown, especially for the oil transport industry it relies on, the Iranian military seized MSC Aries ship owned by Israel-related owner Zodiac Maritime on April 15, 2024, making the prospect of container ships less certain.

"The possibility of a full closure of the Strait of Hormuz is unlikely." After the MSC Aries incident, major shipping companies have begun to redeploy ships associated with Israel to other regions. However, Mr Jensen added that the risks are not limited to that.

“As the case in the Red Sea shows, a credible threat is enough to allow risk-avoiding ship companies to avoid a certain area – several successful attacks are enough to prove their ability to continue attacking,” he explained. “The route diversion of the Red Sea will be quickly unfolded after several container ships were attacked in mid-December 2023, which is enough to initiate the diversion that continues to date.”

The full closure of the Strait of Hormuz will have a huge impact on the container supply chain, as it will effectively cut off the transit hubs between Dubai and Abu Dhabi and cut off import and export routes from Saudi Arabia, Qatar, Bahrain, Kuwait and Iraq. According to the eeSea route database, Dubai's Jebel Ali Terminal serves 132 routes, 30 of which are branch routes within the Persian Gulf and the Middle East, and the rest pass through the Strait of Hormuz. Abu Dhabi serves 55 routes, of which 13 are branch routes. The role of the two ports in deep-sea trade is crucial.

Khor Fakkan port in Sharjah is rarely used, with only four routes, one of which is a branch line. Xeneta chief analyst Peter Sand said the possible closure of the Strait of Hormuz will lead to a sharp increase in freight rates. "Any closure of the Strait of Hormuz will lead to a diverted route, increasing dependence on ports on the West Coast of India's ports to connect the Far East to the Indian subcontinent. The inevitable disruption and port congestion, as well as the potential impact of rising oil prices, will lead to a surge in shipping container freight rates, and carriers may also add a ‘safety surcharge for these trades."

The upgrade also makes it less likely that a large number of container ships will return to the Red Sea. Over the past 18 months, Houthi attacks on ships in the region have had a significant impact on shipping container freight rates.

Although Houthi said last month that it would not target non-Israeli-related merchant ships passing through the Suez Canal, the policy shift comes with many conditions, including an intention to respond to any U.S. action deemed to be involved in the region.

Shipping in the Strait of Hormuz could face threats as war escalates

According to BIMCO's assessment, if the Israeli-Iran war escalates further in the coming days, offshore oil transport in the important Strait of Hormuz in the Persian Gulf could be threatened. The situation has become very tense after Israel launched a widespread air strike on Iran's nuclear program facilities.

"If the United States is seen as being involved in an attack, the risk will increase significantly. The escalation may affect freedom of navigation in the Red Sea and the Persian Gulf/Strait of Hormuz. Such escalation may include missile attacks on ships or laying mines in the straits." He noted that there is currently no indication that Iran will attempt to destroy shipping in the Strait of Hormuz and Persian Gulf, nor does it indicate that Yemeni Houthi armed forces will conduct armed attacks on merchant ships in the Red Sea.

However, Houthi forces have carried out numerous armed attacks on ships in the Red Sea in response to Israel's war on Gaza. BIMCO urges shipping companies to keep a close eye on the situation and implement industry-recommended ship protection measures.

Tanker operators such as Frontline and Norden are closely following the dynamics in the waters near Iran. Frontline CEO Lars H. Barstad explained that Frontline has been operating ships in the region, but Iran has an economic interest to continue exporting oil through the Strait of Hormuz. However, Barstad noted that small changes in trade patterns could lead to substantial fluctuations in freight and oil prices.

The Danish Shipping Association also called on its members to act cautiously. Operators are conducting safety and risk assessments to ensure that necessary safety measures are taken. The Israeli attack caused the tanker company's shares to rise on Friday, with analysts noting that it would reduce the likelihood of safe passage through the Red Sea.

Currently, a large number of cargo ships are circling southern Africa instead of through the Red Sea and the Suez Canal. Analysts expect conflicts between Israel and Iran to continue and hostilities will lead to a decrease in Iran's oil exports. If these exports need to be supplemented by unsanctioned sources, this will drive legal tanker freight rates worldwide.