Straits of Hormuz Closed, Tankers Struggle Through

The Struggle for Control in the Strait of Hormuz

The Strait of Hormuz, a critical maritime chokepoint, has become a focal point of international tension. On March 2, Iran’s military declared the strait closed, leading to a sharp decline in traffic. However, the situation is not as dire as it seems. At least five ships have managed to pass through since the blockade began, and there are indications that more may follow if commercial deals with Tehran materialize.

China and Greek shipowner George Prokopiou continue efforts to send their oil tankers through the straits from Iran Kharga Island, the main oil loading port. According to Bridget Diakun, Senior Risk and Compliance Analyst at Lloyd’s List Intelligence, the movement of these vessels is significant. “If they’re able to go through without incident, this might encourage some other owners and operators to change their calculation and perhaps take the risk of moving,” she said. However, the success of such operations depends on how long the ships are left waiting and how the situation evolves.

Prokopiou’s company, Dynacom, has already successfully sent at least five tankers through since Operation Epic Fury began. John Konrad, a former US Merchant Marine Ship Captain, noted this in a social media comment. Despite the challenges, a trickle of oil continues to flow through the straits to international markets. Several sanctioned tankers linked to Iran were damaged in attacks this week, but traffic persists. Lloyd’s List Intelligence reports that in addition to the Iranian shadow fleet, Greek affiliated ships are outnumbering the number of vessels traversing the Strait.

Traffic Collapse and Economic Impact

Oil cargo transits through Hormuz collapsed from around 100 ships a day to near zero after missile strikes. War risk insurance premiums jumped from 0.1% to 1.0% of vessel value, with 3% for US or Israel-affiliated vessels. “Premiums that high create a de facto blockade for most commercial operators, even if the waterway is technically open,” says Konrad.

As a result, tanker rates are at record highs. Very Large Crude Carriers (VLCCs) are earning $400,000-500,000/day on short-term floating storage contracts. Ships are stuck in the Arabian Gulf and others are stacking up in the Gulf of Oman waiting for cargoes that may never come. The stoppages have led to a surge in Brent crude prices, which have jumped from $65 in January to over $90 at the time of writing and are still climbing.

The US responded with a 30-day waiver allowing Indian refiners to buy Russian crude from sanctioned tankers, if loaded before March 5, to keep the world’s markets supplied. India has been allowed to buy Russian oil stored on ships that have built up since the sanctions on Russia were tightened, and India cut back on Russian imports under US pressure.

Greek Shippers and the Shadow Fleet

Greek shippers have ignored the EU’s oil price cap sanctions imposed in 2022 and continued to work with Russia, earning fat premiums in the process. Together, Greek ships make up at least a fifth of Russia’s shadow fleet. The attempt to pass the twentieth sanctions package on the anniversary of the start of the Ukraine war failed, partly because it was blocked by Greek and Maltese shipping companies lobbying their governments. The package would have nixed the new variable oil price cap regime entirely and simply banned EU-registered ships from working with Russia.

Backchannel Talks with China

China, the world’s largest importer of oil and gas, is in talks with Iran to allow crude oil and Qatari liquefied natural gas vessels safe passage through the Strait of Hormuz as the US-Israeli war on Tehran intensifies. Three diplomatic sources told Reuters on March 5 that these discussions are ongoing.

China has friendly relations with Iran and relies heavily on Middle Eastern supplies, getting about 45% of its oil from the Strait. Ship tracking data showed a vessel called the Iron Maiden passed through the Strait overnight after changing its signaling to ‘China-owner,’ Reuters reported. Iran’s government said last week that no vessels belonging to the US, Israel, European countries or their allies would be allowed to pass through the Strait of Hormuz, but the statement made no mention of China. The Chinese government has called for vessels passing through the strait of Hormuz to be protected by all sides.

Unconfirmed reports suggest that Beijing is holding backchannel talks via Oman or Qatar with Tehran in an effort to cut a commercial deal that would allow the passage of Chinese flagged ships and create informal guarantees for shipping. Iran rarely publicly acknowledges exemptions during maritime confrontations, but is keen to avoid alienating China, one of its few major economic partners under sanctions.

IRGC Calls Trump’s Bluff

Iran’s Revolutionary Guards called Trump’s bluff last week and said they are waiting for US forces to try and escort ships through the Straits. “We are waiting for their presence,” says Guards spokesman Ali Mohammad Naini, after the US energy secretary announced the US Navy was getting ready to escort oil tankers through the Straits “as soon as it’s reasonable to do it.”

The IRGC made it clear that any attempt to transit the narrow waterway would be met with an attack. “We recommend that before making any decision, the Americans remember the fire of the American supertanker Bridgeton in 1987 and the oil tankers that were recently targeted,” Naini said, according to Fars news agency, referring to the Bridgeton tanker that was mined by IRGC as it was being escorted through the Persian Gulf by the US Navy during the last conflict.