Crude shippers boost security after attacks on tankers in Gulf

Fishing boats and oil tankers south of the Strait of Hormuz. (AP Photo)
Updated 20 June 2019

Crude shippers boost security after attacks on tankers in Gulf

  • Some of the 2,000 companies operating ships in the region are on high alert - ordering their vessels to transit the Strait of Hormuz only during daylight hours and at high speed
  • Washington’s accusation that Iran is behind the attacks targeting oil tankers comes as tensions flare between the two countries

DUBAI: Attacks on tankers in the Arabian Gulf have jolted the shipping industry, with some of the 2,000 companies operating ships in the region on high alert and ordering their vessels to transit the Strait of Hormuz only during daylight hours and at high speed.
Washington’s accusation that Iran is behind the attacks targeting oil tankers comes as tensions flare between the two countries. The US has deployed an airstrike carrier and bombers to the region, and announced this week it will send 1,000 more troops. European powers are facing a deadline from Tehran to ease the effects of punishing US sanctions — described by its leaders as “economic warfare” — or Iran will break out of the limits set on its uranium enrichment by the landmark 2015 nuclear deal.
The apparent targeting of tankers is alarming to ship owner, said chief shipping analyst at BIMCO, Peter Sand. The company dubs itself the world’s largest shipping association.
But it’s more or less business as usual for shippers, he said, despite the need for added precautions.
“They are all of course increasingly worried, but many of them are going with business as they would have done without the attacks, but of course with an extra layer of safety and security measures on top of that,” Sand said.
That means going at high speed through the Strait of Hormuz, which at its narrowest point is about 3 kilometers (2 miles) wide. Normally, vessels carrying cargo would slow down to save on fuel costs.
It also means avoiding the strait at night to keep better watch on security around the vessel.
Washington alleges Iranian forces surreptitiously planted limpet mines on two vessels in the Gulf of Oman last week. The attack forced the evacuation of all 44 crewmembers onboard and left one of the ships ablaze at sea.
Washington also blamed Iran for similar attacks on May 12 that targeted four oil tankers anchored off the coast of the UAE. Iran denies being involved. The attacks last week targeted the Norwegian-owned MT Front Altair, which had a cargo of highly flammable naphtha loaded from the UAE, and the Kokuka Courageous, a Japanese tanker carrying Saudi methanol. Both had been traveling through the Gulf of Oman, having passed the Strait of Hormuz.
Of the roughly 2,000 companies that operate ships in the Gulf, only two companies have halted bookings outright. Otherwise, “business has continued more or less undisrupted,” Sand said.
In fact, higher risks could boost the bottom line for some oil shippers, after a lackluster period for the industry. A risk analysis by shipping services company Braemar ACM said owners can ask for higher premiums now. The firm said the Gulf region was declared as a “Listed Area,” meaning it faces enhanced risk, after the May 12 incidents targeting tankers off the UAE coast.
Immediately after last week’s attacks, freight rates for operators in the Gulf rose 10-20 percent.
With increased risks, however, come higher insurance premiums, which are expected to rise 10-15 percent.
It’s typically the buyers and charterers who bear the brunt of the overall higher costs, another reason why security of the Strait of Hormuz is paramount for oil-importers around the world. An estimated 18-20 million barrels of oil — much of it crude — pass through the strait every day. BIMCO says anywhere between 10-40 vessels carrying just crude oil move through daily.
During the so-called Tanker War of the 1980s, when Iran and Iraq targeted vessels carrying one another’s exports, the US Navy escorted oil tankers through the Arabian Gulf to ensure American energy supplies. But the US is no longer as reliant on Arabian producers.
Today, any conflict that threatens tankers would badly disrupt crude supplies for energy-hungry East Asia. Higher prices could hit hardest China, Japan, South Korea, Singapore and Indonesia — among the five biggest buyers of Arabian oil.
Indeed, the MT Front Altair was headed to Japan; the Kokuka Courgaeous reportedly to Singapore.
The Washington Post quoted this week Air Force Gen. Paul J. Selva, vice chairman of the Joint Chiefs of Staff, as saying that because most of the oil passing through the Strait of Hormuz is headed to Asian markets, it would be ill-advised for the US military to take the same role it did in the 1980s.
He said there were plans to reach out to the big Asian oil-importers about a possible international effort to safeguard tanker traffic.
Robert Macleod, CEO of Frontline Management, whose vessel Front Altair was targeted last week, said the general area of the Strait of Hormuz “represents a real and very serious risk to shipping.”
In a statement, he said crews must be on high alert while traversing through the passage. The company, however, said it had re-commenced trading in the region after briefly halting it following the attack. He said the company also tightened security measures, but did not elaborate.
One extraordinary measure ship owners might consider, if the situation deteriorates further, is having armed guards onboard. This is already the case for many vessels transiting the Gulf of Aden, where piracy is a major concern.
“From a shipping industry perspective, we are certainly not in favor of bringing more armed guards onboard international commercial ships because they are
not warships,” said Sand. “They should not be carrying arms. They should be able to transit without being interrupted.”


WEEKLY ENERGY RECAP: Keeping things in balance

Updated 08 December 2019

WEEKLY ENERGY RECAP: Keeping things in balance

  • The over-compliance will result in cuts of 1.7 million bpd

Brent crude rose above $64 per barrel after OPEC+ producers unanimously agreed to deepen output cuts by 503,000 barrels per day (bpd) to a total 1.7 million bpd till the end of the first quarter of 2020.

The breakdown is that OPEC producers are due to cut 372,000 bpd and non-OPEC producers to cut 131,000 bpd.

Current market dynamics led to this decision as oil price-positive news outweighed more bearish developments in the US-China trade narrative that has weighed on oil prices throughout the year, with US crude exports rising to a record 3.4 million bpd in October versus 3.1 million bpd in September.

OPEC November crude oil output levels at 29.8 million bpd show that producers were already overcomplying with its current 1.2 million bpd output cuts deal by around 400,000 bpd. 

The over-compliance will result in cuts of 1.7 million bpd, especially when Saudi Arabia continues to voluntarily cut more than its share.

This makes the agreed 1.7 million bpd output cuts pragmatic since it won’t taken any barrels out of the market.

It isn’t a matter of OPEC making room in the market for other additional supplies from non-OPEC sources, as OPEC barrels can’t be easily replaced.

Instead, this is about avoiding any oversupply that might damage the global supply-demand balance.

Saudi energy minister Prince Abdulaziz bin Salman has effectively kept his promise and managed to smoothly forge a consensus among OPEC and non-OPEC producers.

He has also successfully managed the 24-country coalition of OPEC+ including Russia in reaching an agreement.

Despite suggestions otherwise in recent coverage of the Vienna meeting, the deeper cuts announced on Friday have nothing to do with the Aramco IPO. Let’s remember this meeting was scheduled six months ago and the IPO has been in the works for much longer.

The Aramco share sale did not target a specific oil price. If that was a motivating factor it could easily have chosen another time.