Oil Prices Continue to Fluctuate Amid US-Iran Negotiations Over Strait of Hormuz
Oil prices have continued to experience significant volatility following last week's announcement by the United States and Iran regarding an agreement to reopen the Strait of Hormuz. However, there are no immediate signs of normalization in traffic through this critical waterway. Contradictory messages from both Iran and the United States regarding the possibility of passage through this strategic chokepoint have intensified throughout the weekend, against the backdrop of delayed negotiations in Switzerland.
Shipping and Insurance Industry Cautions
Shipping and insurance companies, which had already been extremely cautious about returning to the Persian Gulf and this vital trade route, are now expressing concerns about what they describe as an "hourly risk assessment" environment in a warzone. Just hours after the US and Iran agreed to reopen the Strait of Hormuz, Iran declared it was closing the passage again due to continuous Israeli airstrikes in Lebanon. The result has been reduced vessel traffic as new threats to maritime navigation are assessed.
Contradictory Information from US and Iran
The United States, however, has affirmed that the Strait of Hormuz remains open, with millions of barrels of oil continuing to be exported from the Persian Gulf. Just hours after Iran's announcement of closing the strait, US Central Command stated: "Safe transit through the international waterway was assured today with 55 commercial vessels transiting, carrying large volumes of cargo and over 17 million barrels of oil to global markets."
Traffic Trends in the Strait of Hormuz
On Sunday, maritime intelligence firm Windward reported: "Iran's closure of Hormuz is now measurable in the data." The number of vessels transiting had dropped to 12 on Sunday, down from more than 21 on Saturday, according to the firm, while noting that commercial tonnage from neutral and European countries was absent from the traffic and five of the eight inbound vessels were moving in dark mode.
| Date | Number of Vessels | Special Information |
|---|---|---|
| Saturday | 21 | No neutral and European vessels |
| Sunday | 12 | 5/8 inbound vessels moving in dark mode |
Security Situation and Risks in the Region
Traffic through Hormuz remains unstable, with risks remaining high and uncertainty about the actual amount of oil leaving the Persian Gulf. This uncertainty does not provide reassurance to the oil market, where speculators had hoped that the reopening of the Strait of Hormuz would mark the beginning of normalization in oil trade.
It appears that any normalization is still weeks away, and shipping and insurance companies are not rushing to test the fragile ceasefire and contradictory messages about the openness of this strait.
Expert Warnings
As early as last week, Jakob Larsen, Director of Safety and Security at BIMCO, the world's largest shipping association, had warned that the memorandum of understanding between the US and Iran "raises many questions and does not provide full information on important aspects such as safe routes, traffic separation measures, vessel order leaving the Gulf, reporting procedures, ship security procedures, naval protection procedures, and emergency response."
Larsen emphasized that: "The next step is that shipowners must be assured that passage through the Strait of Hormuz is not only permitted but also safe."
Fluctuating Security Situation
Security around the strait remains in a state of flux. Evan Greenberg, CEO of marine insurance company Chubb Ltd, stated: "We're talking about an environment like a war zone." He emphasized that not all channels passing through Hormuz are open. "Only one narrow channel is actually being used for transit, and that limits the number of vessels that can get in and out."
He also noted: "The navy is working to open up a series of channels, and as that happens, shipping will increase."
Everyone had hoped for increased shipping over the past three months, but the fragile security situation in the Middle East and the high risk to oil tanker traffic continue to keep the oil market in a state of tension.
This information was provided by Tsvetana Paraskova for Oilprice.com.