Chinese Shipping Companies Rethink Oil Transport Routes

Chinese state shipping firms, COSCO and CMES, have reportedly decided to stop routing oil tankers through the Strait of Hormuz and the Bab el-Mandeb Strait due to security threats from Iranian terrorism and Houthi proxies in Yemen, respectively.

According to various industry executives and ship tracking services, major shipping companies have ceased their operations in these areas after discussions with China’s central government regarding security concerns. A report from Reuters on Tuesday highlighted these developments.

Sources indicate that CMES made the initial move to avoid the Strait of Hormuz in late July, although this decision hasn’t been officially disclosed. Anonymous Chinese executives mentioned that CMES had informed investors that other shipping companies were also steering clear of the Bab el-Mandeb Strait, although it seems CMES hasn’t definitively ruled out this route yet.

Both CMES and COSCO control over 100 very large crude carriers (VLCCs) with a combined capacity exceeding 200 million barrels. An executive from one of these companies told Reuters that while their ships remain operational, they are opting for longer routes to steer clear of disputed regions, which isn’t ideal for refineries that depend on timely oil supplies.

A new transportation strategy is gaining traction, as noted by ship tracking service Kpler. This involves conducting ship-to-ship oil transfers in the Gulf of Oman, which is outside the range of potential Iranian attacks, and then transporting the oil back to China. A Chinese shipping executive remarked that this approach has yielded “good returns with low risks” so far.

On Tuesday, Saudi Arabia’s national oil company, Saudi Aramco, was seen utilizing the Strait of Hormuz to supply Asian buyers through these ship-to-ship transfers, with activities expected to take place in the Gulf of Oman near the UAE port of Fujairah.

Saudi Arabia’s actions imply a level of confidence in its ability to transport oil safely through the Strait of Hormuz, either without facing attacks from Iran or perhaps already managing to do so. Regardless, this strategy allows buyers in China and Southeast Asia to receive heavy Saudi crude without the looming threat of Iranian aggression.

Additionally, ship tracking service Vortexa reported that in July, four of COSCO’s VLCCs and one from CMES loaded oil via ship-to-ship transfers off Fujairah’s coast. It’s expected that over a dozen other companies will follow suit by mid-September.