Declaring the Strait of Hormuz open is easy. Restarting shipping traffic is not
Evan Halper
Washington: US President Donald Trump has signed a preliminary deal to end the war in Iran, but the world may suffer high petrol prices and shortages of fertiliser and other crucial cargo for months to come.
Shipping industry officials and maritime experts say that is the time it will take for normal commerce to resume through the Strait of Hormuz, which before the war began in late February ferried a fifth of the world’s oil and gas supplies.
The strait remains littered with mines laid by Iran since the conflict began and is jammed with hundreds of vessels stranded by the war that will take weeks to clear. Shipping companies are also concerned the peace deal could fracture, putting vessels and crew at risk of attack.
“We still consider it very risky for ships to commence transit,” Jakob Larsen, chief safety and security officer at BIMCO, one of the world’s largest shipping associations, said in an emailed statement before the signing.
Shipping giant Maersk said in an email that it welcomed the initial peace deal announced by Trump on Sunday (Washington time), but that it was too soon to start moving ships through the key trade corridor. “At this stage, there are no changes to our operations in the region,” the email said.
Trump said at a news briefing in France at the Group of Seven summit that the strait would be open by the end of the week. “The ships are starting to move now,” he said. “We’re going to have it fully opened by Friday … oil is starting to go and prices are coming down rapidly.”
The global oil benchmark Brent crude was down 1.6 per cent to $US78.33 after midday on Thursday AEST, still almost 8 per cent above its level before the US and Israel attacked Iran in February.
White House spokeswoman Taylor Rogers said: “The Trump administration expects the flow of energy will return to normal levels seen prior to the start of Operation Epic Fury in short order.”
The war in Iran has caused hip-pocket pain for consumers and shaken businesses around the world, driving up the cost of petrol, groceries and other necessities of life, while squeezing industries including agriculture and manufacturing.
More than 500 ships remain stranded in the Strait of Hormuz, according to ship tracking company Kpler, and shipping executives are eager to move them. But the cargo traffic could not return to normal without concrete assurances that vessels would be able to operate without their crews and owners worrying they would be attacked or sunk, shipping experts said.
The sea mines Iran dropped into the waterway during the conflict as it asserted control of the strait are one of the largest concerns for shipping companies. Finding and detonating the floating explosive devices is a laborious process.
“Mine warfare is inherently a game of unknowns,” said Scott Savitz, a senior engineer at research organisation Rand who previously worked as a mine warfare analyst in the US Navy.
“You don’t know how many mines are in the water,” he said. “You don’t know where they were placed. You don’t know the settings used that may govern behaviour. And you don’t know how effective your countermeasures will be against those mines.”
Clearing the mines would probably involve wood and fibreglass boats trolling the strait, along with helicopters dragging mine-clearing equipment, Savitz said.
He added that mine-hunting dolphins could also be flown in from the United States to help. The animals were not at risk of harm from such work because the mines detonated when they sensed the magnetic signature of a metal boat, he said.
It could take just days to open a narrow corridor that could carry limited shipping traffic, but possibly months to clear the strait fully, Savitz said. Even in the relatively narrow waterway, there would not be assurance that every last mine was gone, he said.
The Washington Post reported in April that US Congress had received a classified defence department briefing that estimated it could take six months to clear mines from the strait.
Once companies are confident there is a passageway clear of mines and the ceasefire is not going to collapse, the challenge will remain getting ships that have been stuck in the strait for months out of the area.
“After more than 100 days of disruption, the strait does not reopen to normal trade: it reopens onto a backlog,” a Kpler report published on Tuesday said. The company estimated it would take weeks to move stranded ships out of the strait, during which time few empty vessels were likely to come in to pick up cargo.
Companies are expected to be slow to move vessels into the area in large numbers until they can see evidence that it is not dangerous. “Many will prefer to wait and see how the deal holds before committing tonnage, and the market is understandably sceptical,” the firm’s analysis said.
David Jetter, a partner at Baker Botts, a law firm that represents large energy companies that ship fuel through the strait, said larger multinational corporations that could afford to wait were likely to initially hold back from operating in the strait and watch to see how others fared as they began to move cargo through the area.
“The players who have no other options will figure out how to make sure they can deliver their product to market as quickly as possible,” he said. “Someone who is a more global player will be more cautious.”
Jetter said it might take weeks of shipping traffic through the strait without incident for bigger players to risk restarting their operations. Ship tracking data shows that only a few vessels have made the journey since the peace deal was announced.
Even once tankers start moving, oil inventories around the world have been drawn so low that much of the initial shipments will go towards replenishing them rather than being sold, meaning fuel prices will be slow to drop.
If the peace deal held, it could take until December for oil shipments through the strait to return to 80 per cent of the level seen before the war, Morgan Stanley oil strategist Martijn Rats said in a note to clients on Monday. He expects the price of a barrel of oil to creep up in the northern autumn before settling to around where it is now by next year.
Much is still uncertain about the terms of the deal and how final negotiations between the US and Iran will proceed in the 60-day negotiating period that started once the memorandum of understanding was signed.
Research firm Rystad Energy said in a note to clients on Tuesday that it considered a stalemate during that period more likely than a full resolution to the conflict, with the US and Iran unable to resolve key issues.
In such a scenario, traffic through the strait might resume only tentatively amid fears that fighting could erupt anew, perhaps sending only 5 million barrels through the strait each day instead of the 20 million barrels that passed through before the war.
“The US-Iran [memorandum of understanding] is an important de-escalation,” Rystad wrote, “but it is not a resolution.”
The Washington Post
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