Iran closes the Strait of Hormuz, oil and gas transport costs rise

Global sea freight rates for oil and gas have surged significantly, with the cost of supertankers in the Middle East reaching historic levels, as the US-Iran conflict intensified after Tehran attacked vessels passing through the Strait of Hormuz, according to shipping data and industry sources.

Shipping through the Strait of Hormuz between Iran and Oman through which around one-fifth of the world’s oil is transported, along with large volumes of liquefied natural gas has almost completely halted following attacks on vessels in the area, as Iran retaliated against US and Israeli strikes.

The unrest and fears of a prolonged closure have pushed oil and gas prices higher in Europe, with Brent crude futures rising nearly 10% this week, as the conflict has caused multiple disruptions at oil and gas facilities in the Middle East.

The benchmark crude freight rate for Very Large Crude Carriers (VLCCs), used to transport 2 million barrels of oil from the Middle East to China also known as TD3 rose to a record 419 Worldscale points on Monday, equivalent to $423,736 per day, according to LSEG data.

The cost of shipping oil from the Middle East to Asia has reached record levels due to the US-Iran conflict. Prices have doubled since Friday, extending gains from a six-year high last week after the US and Israel struck Iran and killed its Supreme Leader, Ayatollah Khamenei, on Saturday.

In retaliation, Iran struck Gulf sites, prompting precautionary shutdowns of oil and gas facilities across the Middle East. A senior official of Iran’s Revolutionary Guard said Monday that the Strait of Hormuz is closed and that Iran would target any vessel attempting to pass through it, Iranian media reported. However, US Central Command said the strait is not closed despite Iranian statements, Fox News reported.

Meanwhile, daily freight rates for LNG tankers jumped more than 40% on Monday after Qatar halted production. Spot rates for liquefied natural gas (LNG) carriers in the Atlantic rose to $61,500 per day on Monday, up 43% or $18,750 from Friday, according to Spark Commodities, an LNG shipping pricing firm.

LNG freight rates in the Pacific climbed to $41,000 per day, rising 45%, or $12,750, from Friday.

Fraser Carson, head of global LNG analysis at energy consultancy Wood Mackenzie, said daily LNG shipping rates could reach $100,000 this week due to tight vessel supply.

“Vessel availability for the remainder of March is seen as low, as operators attempt to work through the backlog created by weather-related disruptions in February,” he said.

Until safe passage through the Strait of Hormuz is secured, shipping will remain largely idle, Carson added.

South Korea’s Ministry of Oceans and Fisheries has issued a notice to South Korean carriers with vessels sailing toward the Middle East, urging them to refrain from conducting business in the region, an official told Reuters on Tuesday.

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