Mideast Shipping Crisis Widens With More Tankers Hit in Gulf

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Mideast Shipping Crisis Widens With More Tankers Hit in Gulf.

watchlist :: 9hrs ago :: source - bloomberg

By Yongchang Chin

(Bloomberg) — Iran launched a fresh wave of attacks on shipping in the Persian Gulf, briefly pushing crude back above $100 a barrel and intensifying what the world’s energy watchdog called the biggest oil market disruption in history.

Strikes on two vessels off the coast of Iraq prompted the nation’s oil terminals to suspend operations, in an escalation that’s likely to leave global shipowners even less willing to consider crossing the vital Strait of Hormuz.

WATCH: Oil surged on the evacuation of ships from an Oman facility and a halt of operations at Iraqi terminals.Source: Bloomberg

Attacks on vessels have intensified in recent days. The UK Maritime Trade Operations said on Thursday that a ship was struck by an unknown projectile just north of Jebel Ali in the United Arab Emirates, while there were three attacks on Wednesday.

Global benchmark Brent crude (BZ=F) surged as much as 10% on Thursday as the crisis deepened, with even news of a historic 400-million-barrel release of reserves coordinated by the International Energy Agency unable to cool the rally. Traders were still awaiting details of exactly how quickly those barrels can be released.

Iraq’s State Organization for Marketing of Oil, or SOMO, said the tankers hit in its territorial waters were the Marshall Islands-flagged Safesea Vishnu and the Malta-flagged Zefyros. The country stopped operations at its oil terminals, according to comments from the director of the General Company for Ports of Iraq, carried by Iraqi News agency.

“This event negatively impacts Iraq’s security and economy, and poses a threat to the safety of maritime navigation and oil activities in Iraqi territorial waters,” SOMO said in a statement.

Ships were also ordered to leave the Mina Al Fahal oil terminal in Oman as a precautionary measure. The port was reopened after several hours, with operations and loadings now continuing as usual. Still, the evacuation at Mina Al Fahal, which sits outside of the Strait of Hormuz, shows how the conflict is expanding to threaten the few ports from which Middle Eastern oil can still be shipped.

Disruptions in Oman raise “fears over broader regional supply,” said Warren Patterson, head of commodities strategy at ING Groep NV. “The market will have to start worrying about more than just Strait of Hormuz oil flows.”

The evacuation order for Mina Al Fahal came after drone attacks at other ports in the country on Wednesday.

Drones also struck fuel tanks at the country’s Salalah Port, while others were intercepted. Salalah has since suspended operations at its container and general cargo terminals, while other Omani ports like Duqm are working normally, according to a report from Inchcape Shipping Services.

“We would have thought the worst-case scenario had already materialized, with the de facto closure of the Strait of Hormuz lasting for almost two weeks,” said Xu Muyu, senior crude oil analyst at data intelligence firm Kpler Ltd. But the naval evacuation in Oman “suggests the situation could deteriorate further,” she said.

Around 1 million barrels a day of Omani oil are exported from Mina Al Fahal, according to Kpler. The grade was priced at around $ a barrel on Thursday, well above global benchmark Brent, which is currently near $ a barrel.

Disruptions at Oman’s crude export terminals are also significant as the grade is one of two that can still go into setting the Middle East’s Dubai price benchmark, which in turn determines the value of most of the region’s supply. Varieties loading from within the Persian Gulf were excluded from the pricing mechanism by S&P Global Energy last week.

S&P Global Energy didn’t respond to a request for comment.

The effective closure of Hormuz has led Iraq, Kuwait and Saudi Arabia to cut output. Loadings are continuing from Fujairah, the main export terminal for the UAE that sits outside the strait, but some shipowners are avoiding the port due to the risk of attacks. Saudi Arabia, meanwhile, is sending oil via a pipeline to Yanbu on its Red Sea coast.

But those workarounds don’t have the capacity to reach anywhere near the roughly 20 million barrels a day that typically flowed through the strait. The impact of the IEA’s emergency release will also be limited.

“While we are set to see a record coordinated release of emergency stockpiles, the pace that these supplies will hit the market only covers a fraction of the supply losses we are seeing,” ING’s Patterson said.

—With assistance from Rong Wei Neo, Sherif Tarek and Anthony Di Paola.