Israeli missile strikes on Iran in the early hours of Friday have heightened the risk of disruption to clean tanker shipping from the Mideast Gulf, particularly for diesel heading to Europe and naphtha bound for east Asia.
Around a fifth of Long Range (LR) vessels and 7pc of the Medium Range and Handysize trading fleet are located in the Mideast Gulf at any given time. The region is the main supplier of diesel to Europe and a key source of naphtha for east Asia.
Several shipowners said they will be more cautious about booking cargoes from the region, especially if the conflict deepens. Some market participants suggested regional freight rates could spike to levels seen after the start of the war in Ukraine in 2022 or the first Houthi attacks in the Red Sea in 2023.
During a similar flare-up between Iran and Israel in April last year, freight rates rose as fewer shipowners were willing to transit the strait of Hormuz. Long Range 2 (LR2) rates from the Mideast Gulf to the UK Continent peaked at a lump sum of $6.4mn on 18 April, up from $4.8mn a week earlier. Long Range 1 (LR1) rates also climbed, reaching $4.9mn by 26 April from $4.2mn on 12 April. Medium Range rates surged to $3.75mn on 26 April, up from $3.1mn on 5 April
The usual summer slowdown in freight rates may temper a similar spike this time. But if hostilities intensify, more shipowners are likely to avoid loading in the Mideast Gulf.
The region is one of the world's largest exporters of refined products, with around 3mn b/d of the global 25mn b/d of seaborne oil product exports passing through the strait of Hormuz.
A loss of oil product supply from the Mideast Gulf would push key importers to seek alternative sources, increasing tonne-miles. But this could be offset by a drop in trade volumes, which would weigh on vessel demand.
Another key risk is the potential introduction of an additional war risk premium (AWRP) for the region. This would complicate clean product exports from the Mideast Gulf, although Iranian volumes would be unaffected, as Iranian exporters do not rely on western marine insurance and would not be subject to the premium.
Tensions between Iran and Israel have flared several times in recent years but have not caused prolonged disruption to trade flows. Market participants noted that while the closure of the strait of Hormuz — through which 20pc of global oil trade passes — remains a possibility, it is seen as unlikely, as it would severely hamper Iran's own exports.
