Why it’s so hard to get oil through the Strait of Hormuz right now
Global oil prices rose sharply, although down slightly from highs reached last week, threatening greater economic instability across the world. Trump threatened to hit Iran “20 times harder” if it disrupted this vital artery of the world’s fuel supply.
Of the handful of tankers that have braved the crossing, about half belong to a so-called ghost fleet — that is, they carry sanctioned oil from Iran, Russia or Venezuela — according to Lloyd’s List Intelligence, another London-based analytics firm. These crossings include alleged “dark transits,” where ships turn off their tracking systems to effectively disappear, Lloyd’s said in an analysis Monday.
On Wednesday, the United Kingdom Maritime Trade Organisation, a monitoring service run by the British Navy, reported that a “cargo ship was hit by an unknown projectile” 11 nautical miles north of Oman. This caused a fire and the crew was about to evacuate the ship, he added.
Another bulk carrier 50 nautical miles northwest of Dubai was hit by a projectile, with the crew declared “safe and sound”, and a container ship, whose location was not given, was assessing damage after being struck, it said.
One of the affected ships was Liberian-flagged, Iranian state media reported, and Thailand’s transport ministry said another was a Thai vessel.
A total of 13 ships have been hit in the strait since US and Israeli strikes started the war on February 28, according to the UKMTO.
These ships not only have to worry about missiles, but also the possibility that Iran will deploy its fleet of mine-laying ships to make the passage impassable. “There remains no confirmed evidence of a mine deployment or explosion in regional shipping lanes,” Britain’s Joint Maritime Information Center said Wednesday, although it said one attack showed evidence of a “serious explosive event at or near the waterline.”
Although it is unclear how many mines Iran has laid or has the capacity to lay, the threat could cause disruption, which could persist long after the conflict ends.
The threats to tankers are also an “ecological time bomb,” according to Greenpeace Germany, which simulated a possible oil spill and found that such an event could threaten sensitive ecosystems, including coral reefs, mangrove forests and seagrass beds.
Even in peacetime, the world of shipping is a bureaucratic maze of captains, owners, brokers and insurers. When war breaks out, many insurers trigger what are called standard war risk cancellation clauses, according to Vortexa’s Jungman.
These clauses allow insurers to “withdraw coverage at short notice when an area becomes an active conflict zone,” she explained. And “without insurance, most commercial vessels simply cannot sail.”
Some companies offer insurance, “but the prices and terms can be extremely restrictive,” Jungman added. In some cases, premiums have increased by as much as 1,000%, according to Reuters.
For any voyage, the ship’s owners must first give the green light to the itinerary. They insure the ship – usually at 0.25% of the value of the ship plus its cargo. The war has seen premiums rise to 3% of the ship’s total value, which can range between $200 million and $300 million, according to US brokerage firm Jefferies.
One of the companies providing coverage is Illinois-based brokerage Gallagher, which says it continues to offer coverage through market giant Lloyd’s of London.
Gallagher is “very open for business,” its maritime division director, Angus Blayney, said in an emailed statement. “Given the challenging maritime security environment, rates have increased relative to the levels that shipowners and charterers will be accustomed to,” Blayney added, without providing specific figures.
“Some owners are willing to take risks and receive huge sums of money,” said Tim Huxley, director of Mandarin Shipping in Hong Kong. “If you’re willing to do it, you could get paid half a million dollars a day. That obviously carries significant risk.”
The United States and France suggested they could escort the ships. But doing that for “every commercial ship traveling through the strait would require a very large and sustained naval presence,” Jungman said, and they would not be safe from mines and drones.
Even if shipowners green-light the route and manage to obtain insurance, crews “have the right to refuse to enter a war zone,” said Captain Pradeep Chawla, a veteran seafarer and maritime security expert based in Hong Kong.
“Seafarers have been caught in the middle” of this conflict, Chawla said. “It’s at times like these that we realize that without sailors, countries would have neither oil nor food.”
