Strait of Hormuz Faces Blockade Risk... Middle East Crude Oil Freight Rates Triple in Fifteen Days

Amid growing concerns over the rise in liquefied natural gas (LNG) prices due to the blockade of the Strait of Hormuz by Iran following airstrikes by the United States and Israel, an LNG carrier is docked on the 4th at the Korea Gas Corporation's Incheon Production Base Terminal in Songdo, Yeonsu-gu, Incheon. Photo by Yonhap News.

원본보기 아이콘

Amid military clashes in the Middle East that have put the Strait of Hormuz-a vital maritime route for global energy supplies-on the brink of a blockade, freight rates for major crude oil shipping routes have more than tripled in just two weeks, and cargo volumes passing through the strait have dropped by nearly 80% compared to normal levels.

On March 4, Korea Ocean Business Corporation published a report titled "Analysis of the Shipping and Logistics Impact of the Strait of Hormuz Transit Restrictions," which examines the recent escalation of military conflict in the Middle East and the resulting limitations on passage through the Strait of Hormuz.

According to the report, escalating geopolitical tensions in the Middle East have led to a sharp increase in tanker freight rates. As of March 3, freight rates for Very Large Crude Carriers (VLCCs) on the Middle East-to-China route had surged approximately 3.3 times compared to February 13.

This trend is attributed to intensified competition among vessels to secure alternative loading ports to avoid geopolitical risks, as well as a rise in 'ton-mile' figures due to increased detour distances, both of which have heightened freight rate volatility.

Cargo volumes have also fallen significantly. As of March 2, the volume of cargo passing through the Strait of Hormuz had dropped by about 80% compared to normal levels. This has been attributed to a decrease in the number of passing vessels, particularly oil tankers, along with the expansion of war risk insurance restrictions and cancellations, and a sharp rise in insurance premiums.

Korea Ocean Business Corporation projected that if transit restrictions persist for one month, globally there could be disruptions to approximately 300 crude oil shipments and about 100 liquefied natural gas (LNG) shipments. For South Korea, disruptions are expected for about 40 crude oil shipments and approximately 8 LNG shipments.

Heightened tensions are also being felt in the container shipping market. According to shipping analytics firm Linerlytica, approximately 3.4 million TEU (twenty-foot equivalent units) of container vessel capacity is deployed on routes passing through the Strait of Hormuz, accounting for about 10% of the world’s total container vessel capacity.

If transit restrictions are prolonged, there is a possibility of short-term shortages in vessel space and container equipment, as well as increased congestion at major Asian ports.

Signs of rising freight rates are also beginning to emerge. On March 2 alone, the July futures price for the Asia-North Europe route on the Shanghai International Energy Exchange rose by about 15%. As the main container freight indices are released on a weekly basis, the current crisis has not yet been fully reflected, but concerns are mounting over the potential for further increases in freight rates going forward.

Meanwhile, the Strait of Hormuz is a key maritime corridor connecting the Middle East to the global energy market. Approximately 34% of the world’s seaborne crude oil trade and about 20% of global LNG trade pass through this strait. In particular, since roughly 70% of South Korea’s crude oil imports depend on Middle Eastern routes, concerns are growing that any potential blockade could directly impact the country’s energy security.

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.