Insurer says Iran’s Guards likely to have organized tanker attacks

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Insurer says Iran’s Guards likely to have organized tanker attacks

Iran’s elite Revolutionary Guards (IRGC) are “highly likely” to have facilitated attacks last Sunday on four tankers including two Saudi ships off Fujairah in the United Arab Emirates, according to a Norwegian insurers’ report seen by Reuters.

The UAE, Saudi Arabia and Norway are investigating the attacks, which also hit a UAE- and a Norwegian-flagged vessel.

A confidential assessment issued this week by the Norwegian Shipowners’ Mutual War Risks Insurance Association (DNK) concluded that the attack was likely to have been carried out by a surface vessel operating close by that despatched underwater drones carrying 30-50 kg (65-110 lb) of high-grade explosives to detonate on impact.

The attacks took place against a backdrop of U.S.-Iranian tension following Washington’s decision this month to try to cut Tehran’s oil exports to zero and beef up its military presence in the Gulf in response to what it called Iranian threats.

The DNK based its assessment that the IRGC was likely to have orchestrated the attacks on a number of factors, including:

– A high likelihood that the IRGC had previously supplied its allies, the Houthi militia fighting a Saudi-backed government in Yemen, with explosive-laden surface drone boats capable of homing in on GPS navigational positions for accuracy.

– The similarity of shrapnel found on the Norwegian tanker to shrapnel from drone boats used off Yemen by Houthis, even though the craft previously used by the Houthis were surface boats rather than the underwater drones likely to have been deployed in Fujairah.

– The fact that Iran and particularly the IRGC had recently threatened to use military force and that, against a militarily stronger foe, they were highly likely to choose “asymmetric measures with plausible deniability”. DNK noted that the Fujairah attack had caused “relatively limited damage” and had been carried out at a time when U.S. Navy ships were still en route to the Gulf.

Both the Saudi-flagged crude oil tanker Amjad and the UAE-flagged bunker vessel A.Michel sustained damage in the area of their engine rooms, while the Saudi tanker Al Marzoqah was damaged in the aft section and the Norwegian tanker Andrea Victory suffered extensive damage to the stern, DNK said.

The DNK report said the attacks had been carried out between six and 10 nautical miles off Fujairah, which lies close to the Strait of Hormuz.

SENDING A MESSAGE
Iran has in the past threatened to block all exports through the Strait of Hormuz, through which an estimated fifth of the world’s oil passes.

According to DNK, it was highly likely that the attacks had been intended to send a message to the United States and its allies that Iran did not need to block the Strait to disrupt freedom of navigation in the region.

DNK said Iran was also likely to continue similar low-scale attacks on merchant vessels in the coming period.

Iranian officials and the Revolutionary Guards’ (IRGC) spokesman were not available for comment.

Tehran had already rejected allegations of involvement and Iranian Foreign Minister Mohammad Javad Zarif had said that “extremist individuals” in the U.S. government were pursuing dangerous policies. No one claimed responsibility for the attacks.

DNK’s managing director Svein Ringbakken declined to comment, except to say that “this is an internal and confidential report produced to inform shipowner members of the DNK about the incidents in Fujairah and the most likely explanation”.

The UAE has not blamed anyone for the attack.

Two U.S. government sources said this week that U.S. officials believed Iran had encouraged Houthi militants or Iraq-based Shi’ite militias to carry out the attack.

In a joint letter seen by Reuters and sent to the U.N. Security Council on Wednesday, the UAE, Saudi Arabia and Norway said the attacks had been deliberate and could have resulted in casualties, spillages of oil or harmful chemicals.

“The attacks damaged the hulls of at least three of the vessels, threatened the safety and lives of those on board, and could have led to an environmental disaster,” the letter said.

Last month, the United States designated the entire IRGC as a terrorist organization. Washington had previously designated entities and individuals connected with the IRGC, which controls vast segments of Iran’s economy.

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Tanker Markets In Geopolitical Peril

Tanker owners are having to cope with one of the most tense and complex geopolitical situations of recent times, when it comes to trading their fleet of vessels. Needless to say that uncertainty is prevailing at the moment. In its latest weekly report, shipbroker Gibson said that “not in a long time has the geopolitical situation in many of the worlds largest crude providers been so precarious. At the time of writing, many are still trying to understand the rationale behind the sabotage of vessels at Fujairah and drone attacks on Saudi Arabian pumping stations. With supply concerns in Iran, Libya and Venezuela already causing headaches and continued uncertainty over Russian crude shipments via the Druzhba pipeline, could potential supply disruptions put further pressure on prices?”

According to Gibson, “the latest IEA monthly oil report has suggested that concerns about supply could be offset by other producers who have indicated that they are willing to replace lost barrels (particularly Iranian) now the US waiver program has ended. Iranian seaborne exports in April dropped over 500,000 b/d from the previous month to just over 1.2 million b/d, down over 1.75 million b/d from the same period last year. Latest IEA figures also show that Venezuela is now producing under 850,000 b/d, the lowest figure ever seen on any database recording such figures in the past 20 years. The large drops in production from Iran and Venezuela have briefly been offset by greater output coming from Nigeria and Libya, despite ongoing unrest. However, no coordinated effort has been made to replace Iranian barrels as of yet. Current IEA figures show that OPEC alone has 3.19 million b/d in spare capacity, of which 2.21 million b/d comes from Saudi Arabia. However, despite the turmoil that seems to be escalating globally, crude prices have remained relatively stable, with Brent around $73/bbl. The biggest issue here of course is that the spare supply currently available is located where most of the geopolitical tensions currently lie”, the shipbroker said.

 

Gibson said that “alongside OPEC supply being tight, Non-OPEC production also fell 360,000 b/d in April to 63.6 million b/d. Despite this, Brazilian and US production increased. Brazil’s production was up to record levels at 2.8 million b/d, with China being their main export partner. Estimates are placing their end of year production to hit 3.2 million b/d. Strong growth from the US will also be needed in the 2nd half of the year to ensure the market remains adequately supplied in the absence of any OPEC increases”.

The shipbroker added that “with supply issues coming from some of the OPECs largest producers and non-OPEC supply growth predicted to slow to 1.8 million b/d in Q2 2019, production concerns could continue to drive up prices throughout 2019. Backwardation in crude futures has increased significantly, with front month prices $3.40/bbl higher than for 6 months out according to current ICE Brent contracts. Potential supply disruptions could mean major importers such as China look further afield for crude if traditional routes become too expensive or disturbed. Iranian exports have clearly taken a huge hit but continue to be exported under the radar, global crude supply is predicted to slow, and demand has been estimated to grow at a faster pace than supply. All eyes will be on the next OPEC meeting which is scheduled for June. Regardless of the outcome, current tensions in the Middle East will do little to comfort market participants. As it stands, markets seem to be teetering on a knife edge”, Gibson concluded.

Meanwhile, according to the shipbroker, in the crude tanker market this week, in the Middle East, “with May VLCC cargoes being finalized, and fresh June programmes entering the marketplace, there was just enough volume to allow Owners to nudge rates a little higher. It remains a marginal gain; however, and Owners will need sustained, and concentrated, activity to engineer a more meaningful improvement next week. Currently, rates to the East operate at up to ws 41, with rare movements to the USGulf at little better than ws 18 via Cape. Suezmax availability continued to swamp modest demand and rates again stayed flatline at around ws 62.5 to the East and to ws 26 to the West. Aframaxes had hoped to continue last week’s upward move but demand faltered and rates quickly retreated to 80,000mt by ws 112.5, with further slippage likely”.