Trump’s Bid to Secure Hormuz Flails As Iran War Continues and Cargo Piles Up
Cargo ships and tankers off coast city of Fujairah in United Arab Emirates on Feb. 25.
Photographer: Giuseppe Cacace/AFP/Getty Images
The price to insure a vessel sailing through the Strait of Hormuz has surged to about 5% of a ship’s value — meaning it would now cost about $5 million to cover a $100 million oil tanker, according to people involved in the market.
That’s roughly five times the level seen in the earliest days of the Iran war, and an even larger multiple of the fractions of a percentage point seen in periods when there’s relatively little conflict. (Read the full story here by Alex Longley.)
While it’s still possible to insure the handful of vessels looking to cross the waterway, at least 20 ships have been involved in security incidents since March 1 in and around the Persian Gulf, and there remains a big question over shipowners’ willingness given the safety risks.
As the war continues to roil oil markets and global shipping, President Donald Trump has also voiced frustration with nations that have been noncommittal about helping ensure vessels can transit the waterway. At the same time, details of his US-government backed, $20-billion reinsurance program aimed at reopening the vital passageway remain unclear.
On Monday, Trump said he had requested China — among those countries he’s asked for help securing transit through the strait — to delay a March 31-April 2 summit planned with his counterpart Xi Jinping for about a month, saying it was important for him to remain in Washington to oversee the war.
Read more: Trump Demands Help With Hormuz, Threatens More Kharg Strikes
Meanwhile, MSC, Maersk, CMA CGM and other ocean liners have suspended service to the conflict zone or are diverting vessels away from the Mideast, and vessels that were already in or near Persian Gulf when the conflict started have been forced to discharge containers at the nearest safe port.
“For these shippers with displaced cargo, the challenges now include customs clearance at unplanned ports, arranging inland transport from unfamiliar locations and competing for berths at facilities overwhelmed by unexpected volumes,” said Xeneta’s Destine Ozuygur in a blog post Monday.
That’s an especially urgent problem for the refrigerated containers loaded with fresh food, now at risk of spoiling as they pile up at ports in the region.
Read More: Trump’s China Delay Echoes Pattern of World Stage Leverage Plays
“Around 1,000 reefer containers of fresh produce are currently held up at Jawaharlal Nehru Port Authority, primarily destined for the UAE, Saudi Arabia, Iran, and neighboring countries,” according to Dirk Stammnitz, a supply chain and logistics consultant at Catalant.
Options for getting higher value goods into and out of the region are also limited, and getting more expensive as delays mount and fuel costs climb.
“Over 25,000 flights have been canceled by major Middle East carriers, contributing to ongoing backlogs and a sharp decline in global air cargo capacity,” SEKO Logistics said Monday in a notice to clients. Air freight rates are stable but elevated — Asia-Europe has seen an increase of 45-80%, and Asia-North America rates are up 15-35%.