MFC Container Solutions

The last month has been the most dramatic in my over 25-year career of reporting on shipping. The US/Israel attacks on Iran and ensuing war have realised the worst nightmares for shipping in terms of what could happen in the Strait of Hormuz and the wider gulf region.

Within hours of the first strikes by the US and Israel on 28 February it became clear that the Strait of Hormuz was going to be a key point of leverage for Iran and audio recordings of VHF Channel 16 warnings to ships that the Strait was closed circulated on What’s App.

The key waterway normally sees around 20% of the world’s oil and gas move through it, roughly 10% of global container throughput, as well as large volumes of fertiliser exports and food imports into the region. 

Now while legally speaking Iran could not unilaterally close the Strait the threat to commercial shipping in this narrow choke point was a very clear one and present one and as a result vessels almost immediately began diverting away either turning back into the Arabian Gulf or holding position in the Gulf of Oman.

Shipping and its infrastructure were very much on the front line and by the second day of the conflict Seatrade Maritime News was reporting on strikes on the ports of Jebel Ali in Dubai and Duqm in Oman, as well as the first attack on a merchant ship the 11,622 dwt tanker Skylight off Oman with four crew injured, one killed, and one seafarer missing.

Attacks on ships
To date there have been 18 confirmed incidents of ships be attacked or struck in the region according to the International Maritime Organization (IMO), all taking place between 1 March and 19 March. Nine seafarers are known to have died in these attacks another four are missing, as well as number more severely injured.

Given the extreme dangers of transiting of the Strait, not to mention skyrocketing rates for war risk insurance, only a handful of ships even attempted the sailing in the early weeks of the conflict, some ill-fatedly such as the Thai-flagged bulker Mayuree Naree.

This has left an estimated 1,000 international trading vessels with some 20,000 seafarers stranded in the Gulf region. With the ships being struck either directly or by debris from missile defence systems these stranded crew have faced an extremely uncertain and difficult time with no idea when they will be able to make safely home. The dangers and the mental stress are being compounded by reports of some ships running low on basic supplies such water, food, and fuel.

Iran allows transits from 'non-hostile ships'
The last week or so has seen some shift in how the conflict has impacted shipping with no attacks confirmed on commercial vessels since 19 March. The Iranians have also declared that the Strait of Hormuz is open to “non-hostile ships” and “provided that they neither participate in nor support acts of aggression against Iran and fully comply with the declared safety and security regulations.”

Exactly which vessels Iran will allow to transit the Strait is complex and full of grey areas with ships having to apply to the Iranian authorities to transit the Strait and reportedly paying a $2 million toll in either Chinese Yuan or Crypto currency if the voyage is approved. There have also been several bilateral government discussions with Iran and countries such as China, India, Pakistan, Malaysia, and Thailand doing deals for ships from that country to transit the Strait.

However, what constitutes a ship being from a particular nation is far from straightforward. A Marshall Islands flagged vessel could have beneficial owners in the US or Greece, or it could be carrying cargo bound to or from a nation that Iran considers hostile. For most shipowners this will likely make the voyage simply too risky, assuming the Iranian authorities would approve it in the first place, as the majority flags and owners would fall into grey areas.

Even though China retains friendly relations with Iran two container vessels from Cosco Shipping the CSCL Indian Ocean and the CSCL Arctic Ocean attempted to exit the Gulf via the Strait of Hormuz on Friday but were turned around the Islamic Republican Guard Corps, along with one other container ship. "Three container ships of different nationalities attempted to proceed towards the designated corridor for authorised vessels. They were turned back after a warning from the IRGC Navy," a statement by the public relations of the IRGC was reported as saying. Both Cosco Shipping vessels are Hong Kong-flagged and the track of the two vessels can be seen below from Pole Star Global.

Cosco has reopened container bookings into Gulf states however, it is using landbridge connections from Khor Fakken and Fujairah across the UAE into the Gulf.

War risk cover
And if companies are thinking that Iran approving a ship’s passage through the Strait will mean lower war risk insurance premiums this is probably not the case. The wider risk profile of the region still remains extremely high, at “critical” according to the Joint Maritime Information Center (JMIC) and its highest level of risk, so war risk premiums would likely be assessed on this. Additionally, as an insurance broker pointed out if a company is paying a “toll” to Iran this is being made to a sanctioned entity and could therefore invalidate the war risk cover.

As it stands, at the time of writing, US President Donald Trump has extended a deadline for Iran to fully reopen the Strait of Hormuz or the US will strike Iran’s energy infrastructure for a second time until to 7 April. President Trump said that talks on a ceasefire are going very well, although there has been a rather different view from the Iranians who have denied negotiations are even taking place.

A secure corridor
In the longer term there is the possibility of a multi-national force securing the waterway and secure corridor for commercial shipping, somewhat similar to that seen for grain in the conflict in Ukraine. 

However, unless there is a ceasefire this would remain fraught with danger. Those who experienced the tanker wars of the Iran – Iraq war of the 1980’s attest to this. To quote from a firsthand account posted on LinkedIn by Arjun Vikram-Singh, Founder and CEO of Quantum BSO,  who was onboard the VLCC Caribbean Breeze when it was struck in 1987 while under US escort, he says, “No matter what any administration says – the straits and maritime transit cannot be protected given the short range and minimum flying time from an Iranian covert missile/drone base”.

To read it in seatrade-maritime.com:  click here