The recent escalation between Israel and Iran might extend its impacts from regional tensions to global economic vulnerabilities, particularly in the shipping industry. There are no signs that global shipping is within its sights directly, at least yet. However, growing concerns have been raised regarding the transit of vessels through the Strait of Hormuz and the Red Sea as both being situated near zones of influence, are controlled by Iran or its allied parties, and serve as critical paths for global petroleum shipments and containerized trade.
It is hard to assess all future impacts of the conflict on shipping and oil flows, but it is clear that the situation will hurt global trade considering that roughly 20% of petroleum liquids are moved through Strait of Hormuz. The effect of the conflict depends on if it stays in one area or spreads to other parts of the region. The initial effects are likely to be seen in global crude oil prices. Along with the possibilities of higher oil prices, unavoidable port congestion may be expected to result in higher ocean freight rates, as carriers may also be seeking to introduce a security surcharge on these routes in the near future.
We examine the potential disruptions in three main ways.
1. Threats to Strategic Bottlenecks
Two of the world’s most significant sea lanes — the Strait of Hormuz and the Red Sea — are near regions of influence or in control of Iran and its aligned groups. These bottlenecks are vital lanes to move oil, gas, and containerized consumer goods.
- Strait of Hormuz: Approximately 20% of global oil moved through this waterway. Although it is not the case for now, Iran previously threatened to close the strait down in an answer to foreign pressure, and any further military act could turn it into reality, leading oil prices to surge and transshipment ports in the area to be affected severely spoiling export/import cargo flows.
- Red Sea: Iran-supported Houthis have already shown their capacity to disrupt sea traffic in the area by targeting commercial vessels. If the tension gets higher, further attacks could be encouraged.
2. Risks to Commercial Shipping
As mentioned, currently there is no sign that commercial shipping is being intentionally targeted. However, as previous incidents suggest, the shipping industry would become a target and this may bring some further risks.
Some risks may be:
- Higher insurance costs for vessels operating in the region.
- Re-routing of ships, causing delays and increased fuel costs.
- Carriers being uncertain to operate in high-risk zones, leading to reduce vessel capacities.
3. Disruption of Energy Supply Chains
The global oil and gas market are particularly sensitive to lack of stability in the Middle East. The conflict between Iran and Israel could:
- Impact production and exports from the area.
- Cause sudden spikes in oil prices, increasing fuel costs for the entire shipping industry.
A geopolitical conflict with potential global effects
While the Iran–Israel conflict itself is a military and geopolitical conflict, its potential consequences have the risk for broad implications for the maritime industry. From possible danger to main shipping lanes and rising operational costs to potentially affecting the energy market, the sector should be prepared for several scenarios as a potential disruption at either point would necessitate the rerouting of ships, resulting in increased transit times, fuel expenses, and etc.
Keeping that in perspective, everything continues to operate as usual in shipping for the time being as far as shipping is concerned.
