Like the world breathed his last on Tuesday night, news of a ceasefire and the possible reopening of the Strait of Hormuz brought a collective sigh. But with shipments stuck for more than a month, the international shipping disruption won’t be resolved overnight.
“Traffic through Hormuz dropped by about 95 percent (during this conflict). As a result, prices rose, not only for crude oil but also for refined products such as jet fuel, diesel and gas fuel,” says Carsten Ladekjær, CEO of Glander International Bunkering, which specializes in supplying fuels and lubricants to the international shipping industry.
The impact has been uneven across regions. The energy-dependent countries of the Middle East—especially in Asia—are the most affected. India gets about 55 percent of its energy imports from the region, China about 50 percent, Japan 93 percent, South Korea 67 percent, and Singapore 70 percent, according to Ladekjær.
Although the ceasefire signals a possible re-opening, key details remain unclear. “Even with a ceasefire, reopening will not be immediate,” Ladekjær says. “There is a backlog, ships are waiting to leave, and there is likely a controlled process of who gets out first. Iran still seems to be managing that.”
Energy markets responded quickly. Brent crude it dropped to around $94 from $110 earlier in the week—a drop of about 15 percent.
“Refined commodities like diesel and jet fuel have fallen even more, because markets are forward-looking—they’re priced in line with expectations,” says Arne Lohmann Rasmussen, senior analyst and head of research at Global Risk Management. “But we’re still above pre-war levels, which were around $60 to $70.”
The System Behind
About 1,000 ships remain in the Gulf, including hundreds of oil tankers waiting to pass.
As written, more than 800 cargo ships and tankers are stuck in the Persian Gulf, with more than 1,000 additional ships waiting on either side of the Strait of Hormuz.
Under normal conditions, approx 150 vessels pass stress every day. Experts say removing the record will take time, as ships must be overhauled, refueled and repositioned.
“That is a nightmare. We still don’t know what the current capacity will be, especially in terms of security,” says Lohmann Rasmussen. “It’s not something that can be solved overnight. There are logistical issues, security issues, and even communication challenges.”
Although the market has already seen a correction, that does not mean that the price at the pump or storage will drop immediately.
