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Iran-Israel clash may further disrupt the shipping industry

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LONDON : The ongoing conflict between Iran and Israel has the potential to further disrupt the shipping industry, raising global concerns about maritime security and increasing the war-risk premium for ships operating in the region.

That’s what Dryad Global stated in its latest Maritime Security Threat Advisory (MSTA), which was published this week. “The recent escalation in tensions comes after an Israeli airstrike earlier this month on an Iranian consulate building in Syria, which killed twelve people,” Dryad said in the MSTA.

“Iran and its proxies launched 330 missiles and drones at Israel on 12 April 2024. Iran, Jordan, Iraq, Lebanon, and Israel temporarily closed their airspaces for precautionary reasons before reopening them with restrictions on April 14,” it added.

“The risk profile for commercial vessels operating in the region remains at severe/critical. Ship traffic through the Bab al-Mandab Strait has decreased significantly since November 2023 due to Houthi attacks and high war risk insurance rates,” it continued.

In its latest MSTA, Dryad warned that vessels operating in the Persian Gulf, Gulf of Oman, and Arabian Sea are at a higher risk of being targeted and hijacked by the IRGC.

“Although Israeli retaliation on Iranian soil targeting military bases, civilian centers, or nuclear facilities appears unlikely at this time, it could spark a regional escalation that paralyzes regional commercial shipping,” Dryad said.

A gas and LNG market update from Rystad Energy Senior Analyst Lu Ming Pang, which was sent to Rigzone this week, noted that tensions between Israel and Iran have escalated recently following an attack on the Iranian consulate in Damascus.

“Iran has accused Israel of orchestrating the attack and, in response, launched a drone and missile attack on Israel,” it said.

“This has garnered global attention, particularly among market participants who are closely monitoring the potential impact on oil and gas prices worldwide,” it added.

“The geopolitical climate in the region is being closely monitored as a wider conflict could potentially disrupt trade flows through the Strait of Hormuz, which could remove significant amounts of gas and oil from the global market,” the update continued.

“While gas and liquefied natural gas (LNG) fundamentals remain unchanged, the situation is still evolving and could have severe consequences for the global market,” it went on to state.

Crucial Artery

In the update, Pang described the Strait of Hormuz as a “crucial artery for Qatar and the UAE to reach both European and Asian markets”.

“As tensions simmer, global energy dynamics have a lot at stake, knowing that any added disruption could send energy prices shooting upward,” Pang added.

“At the moment, fundamentals in the gas and LNG markets have not changed despite the retaliatory strike by Iran on Israel and prices in the global markets continue to reflect that,” Pang continued.

“Nevertheless, the situation is fluid. The strategic significance of the Straits of Hormuz cannot be overstated and market participants will be closely monitoring developments in the region,” the Rystad analyst went on to note.

The update stated that current uncertainty over gas and LNG prices can be likened to 2022, “when Russia’s invasion of Ukraine removed some 90 billion cubic meters (Bcm) of pipeline supply from European markets between 2021 and 2022, and a further 20 Bcm between 2022 and 2023”.

The prompt increase in demand for LNG briefly led to prices approaching the $100 per million British thermal units (MMBtu) mark on August 26, 2022, the update highlighted.

“A wider conflict affecting trade flows through the Strait of Hormuz could result in 82.4 million tons (Mt) or 112 Bcm of LNG from Qatar and UAE being removed from the global market,” it added.

“In the unlikely event this happens, prices could exceed $100 per MMBtu in an already tight market caused by the ongoing Russia-Ukraine conflict,” it continued.

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