Globe says goodbye to cheap oil

(MENAFN) The sudden escalation of the Israel-Iran conflict has thrown global oil markets into uncertainty by threatening two of the world’s most crucial shipping chokepoints. Tehran’s increased military activity near the Strait of Hormuz, coupled with strategic messaging, has already disrupted global trade routes. Recent maritime reports reveal a spike in electronic jamming in the Gulf, which interferes with merchant ship tracking systems. On June 17, two oil tankers collided near the Strait, resulting in a fire and crew evacuation, though no oil spill occurred. These events underscore the fragile security of a waterway that handles about 18 to 20 million barrels of oil daily—roughly one-fifth of global trade.

While Iran’s moves may aim to deter adversaries, the regional threat perception is acute. Historically, even the mere possibility of the Strait of Hormuz closing has driven oil prices sharply higher. With ongoing airstrikes between Israel and Iran, shipping routes remain highly vulnerable. Merchant ships have reported navigational disruptions near the strategic Iranian port of Bandar Abbas. Greek authorities, overseeing much of the world’s tanker fleet, have mandated strict logging of passages through Hormuz, highlighting the seriousness of the situation.

Any accidental strike or retaliation from regional groups like the Houthis could block this vital passage temporarily, causing instant spikes in oil prices and disrupting logistics. Even without a total closure, economic effects are intensifying. War-risk insurance premiums for tankers heading to the Gulf have surged, with freight rates from the Arabian Gulf to Asia jumping over 20% in mid-June and possibly rising further if tensions continue. Analysts warn that attacks on Strait infrastructure or rising maritime conflicts would push insurance costs higher—one London broker estimated an added $3 to $8 per barrel due to risk adjustments alone. These costs ultimately burden consumers and countries dependent on energy imports, many already struggling with inflation.

Further south, instability in the Red Sea and at the Suez Canal adds to the challenges. Since late 2023, Yemen’s Houthi rebels have attacked commercial vessels in the Bab al-Mandab Strait, disrupting East-West maritime traffic. Many container ships and oil tankers now avoid the Suez Canal, opting for the longer route around the Cape of Good Hope. This diversion adds 10 to 14 days to journeys and strains African ports, causing supply chain delays and increasing shipping expenses. Although a ceasefire earlier this year eased tensions temporarily, transit volumes through the Red Sea remain low. The Suez Canal Authority reported revenues plummeting from $2.4 billion to $880 million within a year. To attract traffic back, Egypt has offered discounts of up to 15%, yet many carriers remain cautious of ongoing threats.

War-risk insurance reflects this caution, with premiums for ships passing through the Red Sea staying high despite fewer attacks. A June 17 report noted that insurance costs for vessels heading to Israel ranged from 0.7% to 1.0% of the ship’s value—meaning nearly $1 million extra for a week-long voyage on a $100 million tanker. These rising costs underscore the broader economic impact caused by maritime insecurity in these vital corridors.

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