Despite ongoing negotiations over a permanent peace deal, U.S. and Iranian forces traded missile strikes again for several days after an Iranian projectile hit a container ship in the Strait of Hormuz on June 25.
While the latest missile strikes did not cause any notable damage to the region’s crucial oil and gas industry, they led to flight disruptions in parts of the Middle East again. Authorities in Kuwait and Bahrain announced temporary airspace closures after Iranian forces attacked U.S. military sites in both countries over the weekend.
Iran and the U.S. have since agreed to halt hostilities in favor of continuing talks about a permanent peace deal. A round of indirect technical talks involving mainly lower-level representatives have reportedly started in Qatar’s capital Doha on June 30. Unresolved issues include the future administration of the Strait of Hormuz, the future of Iran’s nuclear program and the potential release of billions of dollars in frozen Iranian assets.
Latest round of military strikes disrupts shipping traffic through Strait of Hormuz again
Following the latest round of military strikes, the most severe disruptions were reported in the ocean shipping sector. Prior to the military flare up on the weekend, shipping traffic through the Strait of Hormuz had started to show signs of improvement, with the highest number of vessels transiting the waterway since the start of the war.
Notably, CMA CGM confirmed that it successfully moved one of its container ships out of the strait in late June. Ten of the company’s ships remain stranded in the Persian Gulf but it remains unclear whether CMA CGM is planning to evacuate any of them.
Other major ocean carriers, including Hapag-Lloyd AG, A. P. Møller-Mærsk, and Evergreen Marine Corp. Ltd. have also managed to move some of their vessels out of the Persian Gulf in recent weeks, albeit mostly smaller feeder-type ships.
After the U.S. and Iran signed a Memorandum of Understanding (MoU) on June 18, the International Maritime Organization (IMO) announced the start of a rescue operation intended to evacuate the more than 600 ships and 11,000 seafarers stranded in the Persian Gulf because of the conflict. The IMO evacuated 115 vessels carrying around 2,500 seafarers before it was forced to suspend the operation after a vessel was struck by a projectile while trying to transit the strait. The vessel, a container ship called Ever Lovely operated by Evergreen Marine Corp. Ltd., was not part of the UN-led rescue mission.
More than two weeks after the MoU was signed, no agreement has been reached over the future administration of the Strait of Hormuz. In the run-up to the latest hostilities, authorities in Iran had reiterated their key demand that ships obtain permits to transit the strait and use Iranian waters to do so.
Oman and Iran, which border the waterway on both sides, held talks about the strait’s future administration, reportedly discussing services relating to vessel navigation, as well as the costs associated with these services. While Iran has repeatedly voiced its intension to charge transit fees, Oman initially assured other countries that it does not plan to impose any fees once the strait reopens fully.
However, Oman has reportedly submitted a proposal to the U.S. and other western allies recently, describing a plan to charge vessels that want to transit the Strait of Hormuz an unspecified service fee. A regional source suggested that the fees under the Omani proposal would be voluntary, similar to an arrangement in place at the Straits of Malacca and Singapore, where a private foundation is in charge of collecting voluntary contributions for safe navigation. Despite likely opposition from other countries in the region and beyond, Iran is expected to insist that transit fees to use the strait will have to be mandatory.
Tensions between the U.S. and Iran could derail recovery of exports through the Strait of Hormuz
Despite several rounds of retaliatory strikes throughout May and June, some of the exports shipped through the Strait of Hormuz have started to show signs of a rebound.
Oil exports from the United Arab Emirates increased to around 85% of pre-war levels by June, jumping from 1.9 million barrels per day in March to 4.3 million barrels per day in June. Saudi Arabia, the world’s biggest oil exporting country, restarted crude loadings from its Ra’s Tanura terminal in the Persian Gulf in late June for the first time in four months. Prior to the war, the terminal had an export capacity of more than 5 million barrels per day.
Fertilizer shipments, another key export from the Middle East, also picked up in mid-June, increasing to around 530,000 tons during the same week the MoU was signed. In the seven days after the agreement was signed, at least 16 ships carrying fertilizer managed to leave the strait, with most reportedly heading for countries in Asia such as India, Sri Lanka and China.
Just days before tensions between the U.S. and Iran escalated again, Qatar’s Prime Minister had announced that production levels at the undamaged parts of QatarEnergy’s liquefied natural gas (LNG) plant in Ras Laffan would return to normal levels within weeks. Iranian missile attacks damaged two LNG-producing trains, the world’s biggest LNG export facility, in March. It wasn’t immediately clear whether the latest missile strikes and the subsequent disruptions to shipping traffic in the Strait of Hormuz would delay the company’s resumption timeline.
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