About a third of the world's oil transported on tankers moves through the Strait of Hormuz, bordered by Iran to the north. The risk to shipping in one of the world's key oil-producing regions is set to rise following the strike that killed the top Iranian commander, who led the Revolutionary Guards Quds Force.
Iran vowed 'severe retaliation' for the attack, and the episode ratchets up already-high tensions in the region. 'Whenever there's tension in the region, the risk premium increases,' said Olivier Jakob, managing director at Petromatrix GmbH, reports Bloomberg.
In October, daily earnings for supertankers on the benchmark route to China from the Middle East soared to more than US$300,000 a day, after Iran said missiles hit one of its vessels in the Red Sea. That followed attacks on Saudi Arabia's oil infrastructure a month earlier. US re-imposed sanctions on Iran in late 2018, and separate American sanctions on some vessels from China also contributed to an increase in shipping rates last year.
So far, freight rates and insurance premiums haven't moved much in response to the conflict, said Stefanos Kazantzis, McQuilling Services LLC's senior adviser for shipping and finance. 'Until there is another attack or there is some retaliation from Iran that affects oil infrastructure and notably maritime logistics, these prices will keep steady.'
US President Donald Trump authorised the strike that killed Genearal Soleimani, who led proxy militias that extended Iran's power across the Middle East, the Defense Department said in a statement last Thursday. Secretary of State Michael Pompeo said the attack was in response to an imminent threat, while providing few additional details. The US embassy in Baghdad urged its citizens to leave the country.
Fearnley Securities AS said it doesn't expect Iran to close the strait because of China's reliance on its crude but risk premiums will be higher for now. The event could 'trigger attacks on tankers lifting crude from US-allied countries,' such as Saudi Arabia or the UAE, according to Fearnleys analyst Espen Fjermestad. It could also prompt demand for restocking inventories, he said.
For now, markets are waiting to see how Iran responds.
'Overall, it remains too early to assess the market impact, though increased concerns on cargo availability should likely keep the market well-supported,' Clarksons Platou Securities AS said in a note.