Shipping costs for routes potentially impacted by the Israeli-Iranian tensions surged by as much as 76% in June.
It’s still early to tell how much they might drop if a ceasefire is announced. This is particularly uncertain since Tehran continues to uphold its military commitments, particularly regarding threats from President Donald Trump, with major cargo ships and tankers becoming prime targets.
Reports indicate that the key port of Khor Fakkan in the United Arab Emirates (UAE) is on high alert.
If Iran were to disrupt the straits or conduct attacks on ships, similar to previous actions by the regime, shipping costs across routes connecting the Middle East, India, and Africa could be significantly impacted.
Consequently, shipping rates from Shanghai to Khor Fakkan reached $3,341 per 40-foot equivalent unit (FEU) recently, a staggering 76% increase compared to May. The FEU, as you might know, refers to a standard unit in the shipping industry representing the space in a 40-foot container.
“As the risks rose, regional shippers have been more cautious in their operations,” Peter Sand remarked. He mentioned that they’ve been prioritizing loading cargo to ensure a seamless flow of goods.
Sand elaborated that the rush to ship items before the potential conflict has led to increased speeds for giant cargo vessels—this drives up fuel consumption, subsequently boosting shipping fees.
Interestingly, oil prices are currently on the decline, which contradicts earlier predictions of a significant conflict with Iran. Yet, Sand cautions that elevated shipping rates are often a telltale sign of risk and uncertainty, leaving the market on edge about future developments.
An oil tanker company named Frontline has opted not to accept contracts for ships navigating through the Hormuz Strait. If more companies decide to do the same, this could inflate costs for oil transportation globally.
Meanwhile, two major shipping players, Maersk and Hapag Lloyd, have chosen to maintain their routes through the Strait of Hormuz, even after Iranian lawmakers voted in favor of a lockdown. This move could potentially set a precedent for others, helping to keep shipment rates from escalating excessively—assuming, of course, that Iran adheres to its lockdown plans.
According to India’s Ministry of Commerce, while shipping rates from India appear stable, there is unease over potential disruptions if the Strait of Hormuz were to close. They indicated that fees could skyrocket under such circumstances.
Analysts emphasized that as much as 65% of India’s crude oil imports pass through the Strait of Hormuz. Any blockade or militant activities here could drive up energy prices and lead to inflationary pressures on consumer goods. This situation might also jeopardize India’s $8.6 billion worth of exports to various Middle Eastern countries like Iraq, Jordan, and Lebanon.
So far, the repercussions for both oil and shipping have been relatively contained, especially following President Trump’s airstrike on an Iranian nuclear site. A turning point seemed to occur when Iran chose a restrained, staged response rather than escalating tensions further. When news hit about this limited retaliation, stock indices like the Dow Jones, S&P 500, and Nasdaq all rose by about 0.5%.
