Middle East polymer producers face higher risk premiums

Middle East polymer producers face potential higher risk premiums for their exports with shipping companies concerned about security amid heightened regional tensions.

On 12 May, four vessels, including two Saudi very large crude carriers (VLCCs), were victims of "sabotage" off the coast of Fujairah, a UAE bunkering hub.

The attacks raised tensions immediately between the US and Iran, with Tehran denying responsibility for the incidents. Iran in the past has threatened to block vessel traffic at the strait of Hormuz, a major shipping and trading lane in the Middle East.

Shipping companies are sounding out Middle East producers about the possibility of additional risk premiums should tensions rise further in the region, in the wake of the Fujairah incidents.

The potential increase in freight rates proposed by the shipping companies is seen as opportunistic. Regional traders said the 12 May incidents involved VLCCs, not traditional container vessels typically used to carry polymers. Middle East polymer producers are sellers to Europe and Asia-Pacific, which utilize container vessels that pass through the Gulf of Oman.

Middle East producers are already competing in an oversupplied polymer market. They would absorb any risk premiums to maintain market share in export markets, with no additional costs expected to be passed on to their buyers.

Tensions in the Middle East continue to remain high. The US military has deployed an aircraft carrier group to the region, but both Iran and US said they are not looking to engage in a war.