TThe current blockade of the Strait of Hormuz could be far-reaching and have long-lasting effects on the tanker market, essentially increasing ton-mile demand. In its latest weekly report, shipbroker Intermodal said that “in the VLCC market, Basra exports are one of the key short-term variables. Iraq is one of the largest suppliers of Gulf crude oil to Asia, and Basra is one of the main loading points for long-haul VLCC business on the Middle East Gulf to China route, which is reflected in the Baltic Sea TD3C standard framework. The key development in the market is that southern Iraqi production will fall sharply once exports via Hormuz are blocked.” The southern fields fell by about 80% to about 800,000 barrels per day by late March, compared to about 4.3 million barrels per day before the conflict. Stockpiles were filled, field operations were reduced, and it was not possible to maintain the normal flow of exports from Basra. By early April, the Basra Oil Company was saying that exports could return to approximately 3.4 million barrels per day within a week if the Strait of Hormuz was reopened, which shows the extent of the decline in volumes. Already below normal.
Source: Multimedia
According to Intermodal’s head of research, Mr. Yannis Parganas, “For oil majors, the first impact is simple. Lower Iraqi exports mean fewer Gulf cargoes. This reduces the number of installations in one of the main crude oil loading areas. At the same time, shipping could still rise as the market trades on transit risks, delays, insurance pressures and weak ship flow rather than the normal flow of cargo. The rate movement in March was extreme. VLCC rates from the Middle East to Asia reached their highest level since at least November The latest reports of Baltic carriers in 2005 also show that freight levels in the region are still very high, and this is the point of interest in reading the market, as high freight in this case does not automatically mean an increase in the underlying demand for goods from the Gulf about possible systematic changes to the indicators of the Middle East and Gulf region because direct route pricing has become difficult to monitor under these conditions.
“The second impact is outside the Gulf. Asian refiners still need crude oil, so part of the lost Middle East supply is being replaced with barrels from the Atlantic Basin as buyers shift to the United States, Brazil and West Africa, tightening tanker availability on the US Gulf Coast. Total vessel availability there is down 41%, and available VLCCs are down to about 10 ships. Asian refiners have increased arbitrage buying, and the result has been increased ton-mile demand as oil moves Crude is on longer routes than standard routes from Iraq to Asia, which is why weaker Basra exports do not automatically impact the VLCC market on a broader level. The lower number of Iraqi ships means less volume in the Gulf and less installations in the Arabian Gulf, and part of this lost demand is due to long-distance substitutions undertaken by the United States from the Gulf to Asia or from Brazil to Asia, which results in the market losing volume of Gulf cargo while maintaining overall tonnage demand, Parganas added.
Source: Multimedia
“The near-term balance depends on two things. The first is how quickly Iraqi exports recover. The second is how much replacement volume continues to move out of the Atlantic Basin. If Basra remains below normal loading levels, the Gulf will remain short of cargoes and the number of regional installations will remain weak. If replacement flows remain active, the broader VLCC market could remain supported despite weak Iraqi volumes. If Iraqi exports recover while transatlantic replacement demand remains strong, the market will tighten further Because the bay size returns before the load is fully reset so the practical “conclusion is straightforward. The decline in Basra’s exports reduces the volume of Gulf oil tanker shipments. Compensation comes from replacing long-range barrels. “For the next phase of the market, the key question is not whether prices have actually risen, but rather whether Iraqi exports recover quickly enough to rebuild the depth of Gulf shipments before replacement demand starts to decline.”
Nikos Rousanoglou, Global Hellenic Shipping News
