Iran claims Hormuz Strait closure, stoking oil and shipping risk

• Strait closure long threatened
• Oil prices could spike beyond $80
• Insurers could refuse policies

Iran has said that the Strait of Hormuz is closed to vessels, stoking fears of attacks on shipping in the Arabian Gulf and a spike in global oil prices.

The United Kingdom Maritime Trade Operations (UKMTO) said it had received multiple reports from company security officers of ships in the region that VHF (very high frequency) broadcasts were claiming the strait had been closed.

Tehran has not formally confirmed such an order.

The UKMTO said the “closure” is “not legally binding … under international law,” but advised vessels to transit with caution and carry out enhanced risk assessments.

The EU’s naval mission in the region, EUNAVFOR ASPIDES, also said ships received a radio transmission, ostensibly from Iran’s Revolutionary Guards, warning that no vessels would be allowed to pass through the roughly 60-mile shipping chokepoint.

Iran has long threatened a closure of the strait, through which more than 20 percent of the world’s oil and gas exports pass. Traders have warned this could lead to a spike in oil prices beyond $80.

“Nothing will be transiting the Strait of Hormuz… that’s oil and liquefied natural gas … will be stopped [and] global container shipping that transits through the region, that will be delayed and diverted,” Marco Forgione, director general of the Chartered Institute of Export and International Trade, told AGBI. 

He said supply delays, at a time when manufacturing remains highly integrated and “just in time”, would squeeze availability and cause price hikes. 

Further reading:

• Gulf markets brace as US strikes Iran
• Frank Kane: In any Trump strike on Iran, Hormuz is the real prize
• John Manners-Bell: What a US-Iran breakdown would mean for global shipping

Forgione said it could take months for supply chains to reset, with effects lasting through the end of the quarter and potentially into early summer.

Risk premiums hit a six-year high in the lead up to the strikes, and analysts said the most recent developments could mean insurers refuse policies or raise prices.

“We expect insurance rates to increase manyfold [and] ships with business connections to US or Israel approaching the area are probably not going to be able to get insurance,” Jakob Larsen, chief safety and security officer at shipping company Bimco, said. 

Peter Sand, chief analyst at freight analytics firm Xeneta, said Gulf ports would have few practical workarounds if shipping lanes were effectively closed.

“There is no viable alternative to getting containers in or out of ports such as Jebel Ali by ocean if the [Arabian Gulf] is off limits,” he said. 

This will cause severe disruption and port congestion at a regional level, Sand said, but will not have a major impact on a global scale.

The US and Israel launched attacks on Iran on Saturday and the Republic in return fired missiles towards countries in the region with US air bases.

“The aim here is to impact global oil markets and to influence Gulf states into trying to push the US out of the Middle East by impacting their economy,” Martin Kelly, head of advisory at the risk management company EOS Marine, said.

“By Iran attacking Bahrain, the UAE, Qatar, Jordan and Saudi Arabia, they’re demonstrating that they’re willing to use anything within their arsenal,” he said. “And the maritime space is certainly included.”

Brent closed at $72.48 a barrel on Friday.

Sepahnews via Zuma Press Wire

Iranian Revolutionary Guards Corps ran a series of military exercises in the Strait of Hormuz around a fortnight ago.

Early on Saturday, the US Naval Forces Central Command urged vessels to avoid what it calls a “maritime warning zone” – spanning the Gulf, the Gulf of Oman, the North Arabian Sea and the Strait of Hormuz. It warned that it could not guarantee the safety of neutral or commercial traffic.

The advisory, seen by AGBI, also told merchant ships to keep at least 30 nautical miles from naval vessels and said ships and aircraft should remain clear of the designated zone. 

The fighting also threatens the Bab al Mandad Strait at the entrance to the Red Sea on the opposite side of the Arabian Peninsula. Shipping volumes have decreased through Red Sea lanes following Houthi attacks in response to Israel’s war in Gaza.

“The Houthis are allies of Iran and may well decide to ramp up attacks against commercial shipping in the Red Sea and Gulf of Aden,” said Larsen.

“This will constitute a considerable security threat especially to ships with commercial ties to US and/or Israel. Other ships may also be targeted deliberately or incidentally.”

“The repercussions of the joint military operation by the US and Israel against Iran and subsequent retaliatory action will see the further weaponisation of trade and shatter hopes of a large scale return of container shipping to the Red Sea in 2026,” Xeneta’s Sand said.

Larsen, a former Royal Danish Navy commander, said Gulf states seen by Tehran as supporting Washington or Israel – including the UAE, Saudi Arabia, Qatar and Bahrain – would remain exposed to Iranian retaliation, with “acts of sabotage against critical infrastructure, assassinations of prominent figures, [and] terrorist attacks” all viewed as credible risks.

Larsen, however, said in his assessment that, “within [a] few days US air and naval superiority will eventually establish a level of security which will enable commercial shipping to resume transportation”.