Hormuz and surrounding waters: Energy Threats to the World: Oil, LNG, shipping markets digest new risks after Strait of Hormuz attack

Oil, LNG, shipping markets digest new risks after Strait of Hormuz attack

Risk levels associated with shipping crude oil and LNG via the Strait of Hormuz, the Middle East's key shipping artery, have escalated sharply, inflating tanker costs in the region.

 

US Secretary of State Mike Pompeo said Thursday that the Front Altair and the Kokuka Courageous tankers were hit by "unprovoked attacks" from Iran just a month after similar attacks on pipelines in Saudi Arabia and on ships in nearby waters off Fujairah.

Pompeo said the US -- which has deployed warships and military aircraft to the region to counter Iranian threats to close the Strait of Hormuz -- would raise the attack with the United Nations' Security Council.

Fatih Birol, the head of the International Energy Agency, said Friday the attacks represent a major concern for global energy security, adding that the agency stands ready to respond if oil supplies are disrupted.

TRADE FLOWS

**A large number of shipowners were not accepting bookings for Middle East cargoes on Friday, citing a lack of clarity on safety after Thursday's attacks in the Gulf of Oman, Singapore-based shipbrokers and Asian market sources said.

**Shipowners said war risk premiums must be charged to the charterer, indicating that risk appetite for Middle East loadings varied widely.

 

**China, India and South Korea are the biggest buyers of the heavier, sourer crudes that Middle East producers tend to supply.

**Some shipowners were hesitant to call at the strategic oil port of Fujairah, while others said that calling at Persian Gulf ports had not been ruled out and there were always some vessels willing to take the risk.

**Singapore-based shipbrokers said the move will likely not have an immediate impact on crude flows as charterers are not in urgent need of vessels and crude supply was ample.

**The strait is also crucial for LNG shipments from Qatar, which exported about 6.6 million mt in April, about 23.5% of global LNG supply, according to Platts Analytics.

**Qatar supplied some 2.8 million mt to Europe, representing about 40% of its total exports, with most of the remaining 3.8 million mt heading to Asia.

**Current LNG demand is subdued on limited appetite in Europe and Asia for power generation and restocking following a mild winter which has left healthy storage inventories.

PRICES

**Brent crude futures initially spiked over 4% immediately after the attacks on Thursday. ICE Brent retreated later in the day, however, eventually settling $1.34 higher at $61.31/b. The benchmark crude contract was trading 1.3% higher at $62.14/b at 1605 GMT Friday.

**The absence of a sustained oil price impact from the latest attack reflects a market refusing "to take the tanker attacks seriously, at least until a fully laden crude oil VLCC is hit," Petromatrix said in a note.

**Insurance rates for crude oil cargoes loading in the Middle East, however, are now up to 20 times higher following the latest attacks. A shipping insurance source said shipowners now have to pay 0.1%-0.4% of the cargo value in insurance, compared with 0.02% prior to the attacks.

**Freight rates for very large gas carriers on the Persian Gulf-to-Japan route jumped to near four-year highs, supported by Persian Gulf tensions and strong lifting volumes of spot and term LPG cargoes from the Middle East.

**The LNG market was not affected by the incident on Thursday or Friday. The Platts JKM was assessed at $4.440/MMBtu at the Friday close in Singapore, down $0.014/MMBtu from Wednesday's close in London.

INFRASTRUCTURE

 

**The 21-mile wide Strait of Hormuz is the key maritime transit route for Persian Gulf oil exporters. The EIA estimates 18.5 million b/d of seaborne oil exports passed through the strait in 2016, mainly to customers in Asia.

**Only Iran and Saudi Arabia have alternative access routes to maritime shipping lanes. Saudi Arabia has access to the Red Sea via Yanbu port, where its King Fahd crude export terminal has a loading capacity of 6.6 million b/d.

**Yanbu port is served by the 4.8 million b/d Petroline (East-West Pipeline), which has been pumping around 1.9 million b/d, leaving spare capacity of 2.9 million b/d, according to the EIA.

**The UAE operates the 1.5 million b/d Abu Dhabi Crude Oil Pipeline (Habshan-Fujairah), which has been pumping around 500,000 b/d, leaving spare capacity of 1 million b/d, the EIA said.

According to Paul Sheldon, chief geopolitical adviser at S&P Global Platts Analytics: "As US oil sanctions intensify the economic pressure on Iran in the months ahead, we would be unsurprised to see aggressive actions from groups with alleged links to Iran in Yemen, Iraq, Syria, or elsewhere in the Middle East. The geopolitical uncertainty will support demand for inventory as oil balances tighten in 2H19, at a time that OPEC spare capacity just north of 1.0 million b/d will be insufficient to offset a major supply disruption."

 

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Attacks on Middle East oil tankers and infrastructure

Risk is rising for oil markets after another alleged attack on shipping near the strategic Strait of Hormuz.

Oil prices surged Thursday by more than 3% to trade above $62/b after two tankers were damaged in the Gulf of Oman.

The Strait of Hormuz is a critical chokepoint through which 30% of the world's seaborne oil transits.

Global refiners rely heavily on crude imports from the Middle East, most of which pass through the strait.

 

 

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Risks rise in key oil chokepoint Strait of Hormuz

An alleged attack Thursday on two oil tankers near the Strait of Hormuz may increase levels of risk in the Middle East's key crude supply and shipping artery.

The Front Altair and the Kokuka Courageous were carrying cargoes including naphtha when the incident occurred. Television footage later showed one of the tankers engulfed in flames.

The incident follows last month's attack on four tankers near the bunkering port of Fujairah on May 12.

US Secretary of State Mike Pompeo blamed Iran Thursday for the attack on the two tankers, as well as attacks a month earlier on pipelines in Saudi Arabia and on ships in nearby waters off Fujairah. Pompeo said the US would raise the attack to the United Nations' Security Council.

"The details remain unclear at the time of writing, but the attacks fit Iran's recent pattern of reacting to tightening US sanctions," said Paul Sheldon, chief geopolitical adviser

"A direct US/Iran conflict (or shutdown of the Strait of Hormuz) both remain long shots, due to Iran's fear of US military action and the US administration's clear aversion to foreign entanglements. But the risk of miscalculation in the Middle East is clearly rising, which will increase the demand for inventory as oil balances tighten in 2H19," he added.

TRADE FLOWS

**The 21-mile wide Strait of Hormuz is the key maritime transit route for Persian Gulf oil exporters.

**The EIA estimates 18.5 million b/d of all seaborne oil exports passed through the strait in 2016, mainly to customers in Asia. Japan, China, India and South Korea are the biggest buyers of the heavier sourer -- or high sulfur -- crudes that Middle East producers tend to supply.

**Iran has issued threats to close the strait in recent months, prompting the US to deploy warships and military aircraft.

**Only Iran and Saudi Arabia have alternative access routes to maritime shipping lanes. Saudi also has access to the Red Sea via the Yanbu Port. Saudi's King Fahd crude export terminal has a loading capacity of 6.6 million b/d.

**Saudi Arabia operates the Petroline (East-West Pipeline) which has a capacity of 4.8 million b/d, a throughput of 1.9 million b/d and an unused capacity of 2.9 million b/d, according to the EIA. This services Yanbu Port. The UAE operates the Abu Dhabi Crude Oil Pipeline, which has a capacity of 1.5 million b/d, a throughput of 0.5 million b/d and an unused capacity of 1 million b/d, the EIA notes.

**The strait is crucial for LNG shipments from Qatar.

**Qatar exported about 6.6 million mt in April, equivalent to about 23.5% of global LNG supply, according to Platts Analytics.

**Qatar supplied some 2.8 million mt to Europe, representing about 40% of its total exports, while the bulk of the remaining 3.8 million mt was exported to Asia.

**Current LNG demand is subdued on limited demand from Europe and Asia for power generation and restocking, following a mild winter which has left healthy storage inventories.

PRICES

**Brent crude futures climbed almost 4% immediately after the attacks on Thursday. ICE Brent eventually settled $1.34 higher at $61.31/b.

**The LNG market was not affected by the incident on Thursday. The Platts JKM was assessed at $4.412/MMBtu at the Thursday close in Singapore, down $0.002/MMBtu from Wednesday's close in London. LNG ships were going through the maritime transit route as usual on Thursday, according to Platts trade flow software cFlow.

**Ship owners are watching the situation closely, but none have reported any changes in daily operations or freight rates yet.

INFRASTRUCTURE

**The Front Altair was scheduled to carry a naphtha cargo from the Persian Gulf to Japan, shipping sources said. Taiwan's CPC Corporation said the 75,000 mt naphtha feedstock cargo was loaded at the UAE's Ruwais port on June 11 and that the company bought it from state-run ADNOC. The cargo was on a CFR basis, according to CPC. ADNOC couldn't be reached for immediate comment.

**BSM Ship Management said the Kokuka Courageous was carrying methanol and had been damaged in the incident, 70 nautical miles from Fujairah in the Gulf of Oman and about 14 nautical miles from the coast of Iran but was not in the danger of sinking.

**Due to the Fujairah attacks in May and the latest attacks Thursday, the Norwegian Maritime Authority has urged Norwegian ships to exercise extreme caution in the region.

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Gulf of Oman's attack brings LNG trade into focus

Shipping costs could increase on higher insurance rates

The LNG market is unlikely to be affected in the short and medium term by rising tension in the Middle East highlighted by Thursday's attack on two tankers near the strategic the 21-mile wide Strait of Hormuz, analysts polled by S&P Global Platts said on Friday.

 

While the event pushed up oil prices and raised concerns regarding further tensions in the Middle East, LNG is much less exposed to risk, they said.

"I think it's unlikely to have a huge impact on [LNG] prices, unless there are restrictions on cargos using the Strait of Hormuz, which would obviously impact a lot of supply mostly coming from Qatar," said Jeff Moore, manager, Asian LNG Analytics.

The strait is crucial for LNG shipments from Qatar which exported about 6.6 million mt in May, equivalent to about 23.5% of global LNG supply, according to Platts Analytics. Qatar supplied some 2.8 million mt to Europe, representing about 40% of its total exports, while the bulk of the remaining 3.8 million mt was exported to Asia. The neighboring UAE and Oman exported some 1.4 million mt of LNG in May.

Risks of miscalculation in the Middle East are quickly rising, although a shutdown of the Strait of Hormuz remains unlikely at this point, due to Iran's fear of US military action and US President Donald Trump's "clear aversion to foreign entanglements," according to Paul Sheldon, chief geopolitical adviser at S&P Global Platts Analytics.

"There is another risk that it could impact shipping rates but I also think it's kind of unlikely," Moore said. "Overall I don't think there are huge immediate impacts, but it definitely adds some additional intrigue and risk."

A shipping insurance source said oil shipowners now have to pay 0.1%-0.4% of the vessel value in insurance, compared with 0.02% prior to the attacks.

LNG cargoes are less vulnerable than oil tankers to piracy attacks because of LNG tankers are sitting high on the water, according to Jean-Christian Heintz, SCB Brokers head of LNG broking.

"Given cryogenic properties of LNG, any serious attack towards an LNG tanker is unlikely to cause damages as bad as for an oil tanker," Heintz said. "That being said, shipowners and charterers might want to take additional measures."

Shipowners are watching the situation closely, but none have reported any changes in daily operations or freight rates yet.

Some trading sources pointed to the potential indirect impact on freight rates if insurance rates go up.

However, the direct impact is difficult to evaluate since insurance rates are executed on a percentage of the ship's total cost, not on the trips, they also said.

"The vessel insurance hike has an impact on shipowners, whereas LNG traders pay for cargo insurance," Heintz added, pointing to lower impact of cargo insurance on shipping cost.

Atlantic shipping rates ticked down on Thursday to $57,000/day, from $60,000/day on Wednesday at the close. The Asia-Pacific rate remained unchanged at $48,000/day.

The LNG market was not affected by the incident on Thursday and Friday. The Platts JKM was assessed at $4.440/MMBtu at the Friday close in Singapore, down 1.4 cents/MMBtu from Wednesday's close in London.

LNG ships have been going through the maritime transit route as usual, according to Platts trade flow software cFlow.

Current LNG demand is subdued on limited demand from Europe and Asia for power generation and restocking, following a mild winter which has left healthy storage inventories.

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Middle East tanker attacks send ship insurance soaring

 

Rates demanded up to 20 times higher

Underwriters reluctant to offer coverage

Muted impact on freight rates

The recent spike in attacks on tankers near the Persian Gulf is inflating insurance premiums for ships transiting through the wider Middle East, increasing the cost of transporting oil from the region.

Insurance rates for crude oil tankers loading in the Middle East are now up to 20 times higher following the latest attacks.

A shipping insurance source said shipowners now have to pay 0.1%-0.4% of the vessel value in insurance, compared with 0.02% prior to the attacks.

"Underwriters are terrified it will happen again over the next few days," the source said.

In some cases, marine insurance underwriters are reluctant to even offer coverage for oil tankers loading in region, shipping sources said.

Two tankers were attacked in the Gulf of Oman on Thursday, next to the Strait of Hormuz, a critical chokepoint through which 30% of the world's seaborne oil transits. These incidents came almost a month after four oil tankers were sabotaged near Fujairah, UAE.

WAR RISK PREMIUM

Any further attacks in the region are expected to lead to a revision in insurance premiums for ships transiting through the region, sources said.

"At the moment with these additional attacks, it has become likely that the situation may deteriorate further. Underwriters are trying not to offer coverage if possible, especially for tankers in this region," a London-based broker from the Edge Group, which provides marine, finance and trade insurance.

"However, when pushed we are seeing rates of between 0.1%-0.4% of the vessel value," he said. "This situation may calm down over the coming weeks, but it really depends on how the situation develops."

The Joint War Committee of insurance body Lloyd's Market Association on May 17 issued a circular adding the Persian Gulf and adjacent waters including parts of Gulf of Oman to the list of areas under risk of "Hull War, Piracy, Terrorism and related perils" following the Fujairah attacks.

Insurer Hellenic War Risks said in a June 13 notice on its website that insurance rates are likely to increase due to "a greatly increased threat to ships trading in the region."

"It is likely that Additional Premium rates will increase with immediate effect and the Association is in discussions with its re-insurers to assist in it continuing to be able to provide Members with the best possible terms," the notice said.

FREIGHT RATE IMPACT MUTED

Despite the significant impact on insurance, freight rates have not yet seen a significant rise.

A lack of demand from charterers and an oversupplied tanker market has kept a lid on freight rates in the region.

"There is not enough inquiry at the moment and tonnage is still willing to go there," a shipbroker said. "I don't think rates will jump just yet, the market will hold off till next week anyway."

But sources have acknowledged that if such attacks persist or become more frequent, a sharp spike in rates cannot be ruled out.

More than 135 VLCCs loaded crude in the Persian Gulf and Red Sea region in April in spot market deals and another 118 in May, according to brokers' estimates. There have been 132 of such spot market fixtures so far in June, the estimates show.

US Secretary of State Mike Pompeo blamed Iran for the attack on the two tankers, as well as attacks a month earlier on pipelines in Saudi Arabia and on ships in nearby waters off Fujairah. Pompeo said the US would raise the attack at the United Nations Security Council.

A spokesman for the Iranian foreign ministry called that the US claim "ludicrous," according to Iran's semi-official Fars news agency.

Iranian President Hassan Rouhani recently suggested Iran could disrupt oil flows through the strait in response to US calls to bring down Iran's oil exports to "zero" under its latest sanctions on the OPEC producer.

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The Title Police are going to crucify you!😂

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1 hour ago, Douglas Buckland said:

The Title Police are going to crucify you!😂

Stealth edit, fixed it

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Nothing like a twenty-fold increase in insurance rates to take the bloom off shipping via the Strait. 

Then you have those totally risk-averse insurance underwriters sitting in comfy offices in London now telling shipowners:  "Nah, we don't want to write it  [insurance]."   What they are thinking is:  "Too many lunatics with too much munitions for our taste, over there."  

And, no surprise, they are right.....

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2 hours ago, Tom Kirkman said:

Stealth edit, fixed it

I think the first word in the title needs a 'stealth edit' as well.... before the Title Cops catch on.....

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2 hours ago, Jan van Eck said:

Nothing like a twenty-fold increase in insurance rates to take the bloom off shipping via the Strait. 

Then you have those totally risk-averse insurance underwriters sitting in comfy offices in London now telling shipowners:  "Nah, we don't want to write it  [insurance]."   What they are thinking is:  "Too many lunatics with too much munitions for our taste, over there."  

And, no surprise, they are right..... 

Twenty-fold increase in insurance rates, with many insurance providers dropping out of the market entirely.  Does that change the quantity/type/ownership of gulf shipping, or does everyone simply pay the rates and carry on as usual?

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3 hours ago, Tom Kirkman said:

Stealth edit, fixed it

The slip on the s and the z will do it while floating around.

Thanks for the one fix, I will try to figure out the other one LOL

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2 hours ago, Jan van Eck said:

Nothing like a twenty-fold increase in insurance rates to take the bloom off shipping via the Strait. 

Then you have those totally risk-averse insurance underwriters sitting in comfy offices in London now telling shipowners:  "Nah, we don't want to write it  [insurance]."   What they are thinking is:  "Too many lunatics with too much munitions for our taste, over there."  

And, no surprise, they are right.....

 

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26 minutes ago, BenFranklin'sSpectacles said:

Twenty-fold increase in insurance rates, with many insurance providers dropping out of the market entirely.  Does that change the quantity/type/ownership of gulf shipping, or does everyone simply pay the rates and carry on as usual?

If you are running a tight ship (pun intended) then you will be able to weather this insurance hike, you have good charter parties in place, if you have spot charter fixes, that have good margins and so on, the tanker companies and other vessel transport companies will be able to weather it, a dent in the take home money. You could also buy insurance for that insurance, hedging against such risk premiums being increased. Yes essentially if you are able to pay the increase , and want to stay in business , then you pay these hikes and go on about doing your business as usual. With the US shale boom, Some of the oil shipping fleet has been busy moving crude through much safer waters in comparison.

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24 minutes ago, ceo_energemsier said:

If you are running a tight ship (pun intended) then you will be able to weather this insurance hike, you have good charter parties in place, if you have spot charter fixes, that have good margins and so on, the tanker companies and other vessel transport companies will be able to weather it, a dent in the take home money. You could also buy insurance for that insurance, hedging against such risk premiums being increased. Yes essentially if you are able to pay the increase , and want to stay in business , then you pay these hikes and go on about doing your business as usual. With the US shale boom, Some of the oil shipping fleet has been busy moving crude through much safer waters in comparison. 

Huh.  Is it possible there will be a shortage of ships willing to traverse Strait of Hormuz?  I.e. is there a scenario in which the gulf nations can't get their product to market and are forced to reduce production? 

Alternatively, will they simply reduce their asking price until they clear the market*?

*Am I using that term correctly?

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6 minutes ago, BenFranklin'sSpectacles said:

Huh.  Is it possible there will be a shortage of ships willing to traverse Strait of Hormuz?  I.e. is there a scenario in which the gulf nations can't get their product to market and are forced to reduce production? 

Alternatively, will they simply reduce their asking price until they clear the market*?

*Am I using that term correctly?

In my opinion (but what do I know?) , the sea trade will keep on going, some companies may choose to re-route their shipping business to "safer" waters, some will continue to sail the same routes, they may increase their rates to cover for the additional costs for the premium and pass it along to their customers, if they want to pay the extra to get the goods they need. The only scenario when  that could happen (producers shutting in and products not getting to the markets) would be a shut down of the Strait of Hormuz because of a blockade or a naval warfare and reckless rampant mining of the waters. That is the doomsday scenario, which has happened before.

The lowering of the asking price is relevant to what the demands of the buyers are , the oil is needed desperately and there is no other place that can cover the slow down in the flow of it out of that region. So whatever oil and related products can trickle out of the region will be commanding premium prices.

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1 hour ago, BenFranklin'sSpectacles said:

Twenty-fold increase in insurance rates, with many insurance providers dropping out of the market entirely.  Does that change the quantity/type/ownership of gulf shipping, or does everyone simply pay the rates and carry on as usual?

If the shipowner cannot get insurance coverage, his ship is not going in that Gulf and is not doing the run.  Period.  Nobody is going to risk his $50 million tanker and another $100 million cargo trying to sail past the lunatic fringe of the world, considering that the place is swamped with weaponry and people routinely do suicide blasting at each other.  

You might get some older, much smaller tankers that will try to sneak through; the problem is, the owners of the oil are reluctant to ship in those old tubs, due to liability issues if the oil cargo spills.  Those lawsuits result is serious hurt. 

I had stated in this Forum earlier that when the first tankers got his with light damage, it was obvious (to me) that the purpose was to send a signal to the underwriters at Lloyd's London:  we can and will sink your insured's tankers whenever we want to.  The insurers are taking that very seriously. 

When the insurers stop writing policies, that is the end of that oil trade. 

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18 minutes ago, ceo_energemsier said:

the oil is needed desperately and there is no other place that can cover the slow down in the flow of it out of that region.

If the oil flow gets shut off then the world simply adjusts accordingly.  

And the world will adjust.  The world can and would work without Middle East oil.  Entirely possible.  OK, so some countries end up going back to donkey carts, but hey, they were there before, and survived.  Slower pace of life, for sure. 

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Just now, Jan van Eck said:

If the shipowner cannot get insurance coverage, his ship is not going in that Gulf and is not doing the run.  Period.  Nobody is going to risk his $50 million tanker and another $100 million cargo trying to sail past the lunatic fringe of the world, considering that the place is swamped with weaponry and people routinely do suicide blasting at each other.  

You might get some older, much smaller tankers that will try to sneak through; the problem is, the owners of the oil are reluctant to ship in those old tubs, due to liability issues if the oil cargo spills.  Those lawsuits result is serious hurt. 

I had stated in this Forum earlier that when the first tankers got his with light damage, it was obvious (to me) that the purpose was to send a signal to the underwriters at Lloyd's London:  we can and will sink your insured's tankers whenever we want to.  The insurers are taking that very seriously. 

When the insurers stop writing policies, that is the end of that oil trade. 

The insurers will keep on issuing high risk premiums for a war zone as long as they can and as long as they can get their customers to pay and their willingness to take the risks, but so far there hasnt been a major disaster , but when you have one major disaster, that is when Lloyd's will be waving the flag and others will follow suit.

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1 minute ago, Jan van Eck said:

If the oil flow gets shut off then the world simply adjusts accordingly.  

And the world will adjust.  The world can and would work without Middle East oil.  Entirely possible.  OK, so some countries end up going back to donkey carts, but hey, they were there before, and survived.  Slower pace of life, for sure. 

For some countries going back to donkeys and camels from lambos, bentleys and benz's will be dangerous for survival of the gov.

Others will manage , people will adjust to spending less on luxuries or hopping in their cars and driving around for whatever, luxury sailing and yachting etc , but people with the 'xtra' $$ wouldnt care.

It wont matter a whole lot in a lot of 3rd world and developing nations but their economies will be hurting badly

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1 minute ago, ceo_energemsier said:

The insurers will keep on issuing high risk premiums for a war zone as long as they can and as long as they can get their customers to pay and their willingness to take the risks, but so far there hasnt been a major disaster , but when you have one major disaster, that is when Lloyd's will be waving the flag and others will follow suit.

There are already insurers refusing to write policies.  No insurer wants to write for war risk premium, nobody wants to write that big check for a sinking.  They don't know how to set the premium as they do not have enough cumulative loss experience, and being risk-averse people, they would rather forego the premium earnings.  It is the nature of insurers to be cautious.  If they cannot price it, they don't want to risk it.  

Most hefty policies operate with "re-insurance," where the bulk of the risk is sold to yet another carrier, which specializes in reinsurance.  And again, nobody wants to hold the bulk of the risk as the premiums cannot be accurately priced.  So that insurance shut=-down is coming a lot faster than you might think. 

Iran solves this problem by becoming a sovereign insurer.  SO one of the ironies of all this is that the only way to move oil out of the Persian Gulf would be by Iranian tankers!

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2 minutes ago, ceo_energemsier said:

It wont matter a whole lot in a lot of 3rd world and developing nations but their economies will be hurting badly

All true. Yup, there will be pain to spread around.  That said, the world will get by. 

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(edited)

10 minutes ago, Jan van Eck said:

There are already insurers refusing to write policies.  No insurer wants to write for war risk premium, nobody wants to write that big check for a sinking.  They don't know how to set the premium as they do not have enough cumulative loss experience, and being risk-averse people, they would rather forego the premium earnings.  It is the nature of insurers to be cautious.  If they cannot price it, they don't want to risk it.  

Most hefty policies operate with "re-insurance," where the bulk of the risk is sold to yet another carrier, which specializes in reinsurance.  And again, nobody wants to hold the bulk of the risk as the premiums cannot be accurately priced.  So that insurance shut=-down is coming a lot faster than you might think. 

Iran solves this problem by becoming a sovereign insurer.  SO one of the ironies of all this is that the only way to move oil out of the Persian Gulf would be by Iranian tankers!

But then the Iranians and their tankers and their own reinsurance are under sanctions, so they wont go too far for too many buyers of crude oil, as it is Iranian exports are near to nothing due to the sanctions.

From what i know as of right now Lloyd's and others and the EU based and Singapore and other reinsurer's have not refused to issue war risk premiums , that may come along sooner than later . Everyone is "evaluating and closely observing" the regional developments.

What it will boil down to in that event is that EU, the US maybe Canadian? eh? (doubt it because of Trudeau), maybe even the CHinese, Indian navies will step up and start patrolling and pulling operational security for shipping in the Gulf and the Strait and ofcourse the USN as it has done in the past during the "tanker wars" of the 80s.

Those tankers were still sailing and carrying crude and the insurers and re-insurers were doing their parts guided and protected by the USN in those treacherous mined and threatened waters.

Edited by ceo_energemsier

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26 minutes ago, Jan van Eck said:

There are already insurers refusing to write policies.  No insurer wants to write for war risk premium, nobody wants to write that big check for a sinking.  They don't know how to set the premium as they do not have enough cumulative loss experience, and being risk-averse people, they would rather forego the premium earnings.  It is the nature of insurers to be cautious.  If they cannot price it, they don't want to risk it.  

Most hefty policies operate with "re-insurance," where the bulk of the risk is sold to yet another carrier, which specializes in reinsurance.  And again, nobody wants to hold the bulk of the risk as the premiums cannot be accurately priced.  So that insurance shut=-down is coming a lot faster than you might think. 

Iran solves this problem by becoming a sovereign insurer.  SO one of the ironies of all this is that the only way to move oil out of the Persian Gulf would be by Iranian tankers! 

 

17 minutes ago, ceo_energemsier said:

But then the Iranians and their tankers and their own reinsurance are under sanctions, so they wont go too far for too many buyers of crude oil, as it is Iranian exports are near to nothing due to the sanctions.

From what i know as of right now Lloyd's and others and the EU based and Singapore and other reinsurer's have not refused to issue war risk premiums , that may come along sooner than later . Everyone is "evaluating and closely observing" the regional developments.

What it will boil down to in that event is that EU, the US maybe Canadian? eh? (doubt it because of Trudeau), maybe even the CHinese, Indian navies will step up and start patrolling and pulling operational security for shipping in the Gulf and the Strait and ofcourse the USN as it has done in the past during the "tanker wars" of the 80s.

Those tankers were still sailing and carrying crude and the insurers and re-insurers were doing their parts guided and protected by the USN in those treacherous mined and threatened waters.

So there's the question of whether the world polices the strait.  In the past, the world policed it because the oil was needed.  Today, the world is within spitting distance of not needing that oil.  Could the world choose to police only some of the tankers, effectively limiting how much oil these nations can bring to market?  That would be a convenient way to steal their market share. 

Pipelines and railroads could also be used to haul out what's needed.  Could these events inspire some Saudi/Iraqi pipeline/railroad construction, eliminating their need for the Strait?

If enough oil can be brought to market without the Strait, would the US allow the Persian Gulf to devolve into warfare?  Would the US actively incite that warfare? 

Would Iran declare war, just to spite other OPEC members for leaving them behind? 

 

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2 minutes ago, BenFranklin'sSpectacles said:

 

So there's the question of whether the world polices the strait.  In the past, the world policed it because the oil was needed.  Today, the world is within spitting distance of not needing that oil.  Could the world choose to police only some of the tankers, effectively limiting how much oil these nations can bring to market?  That would be a convenient way to steal their market share. 

Pipelines and railroads could also be used to haul out what's needed.  Could these events inspire some Saudi/Iraqi pipeline/railroad construction, eliminating their need for the Strait?

If enough oil can be brought to market without the Strait, would the US allow the Persian Gulf to devolve into warfare?  Would the US actively incite that warfare? 

Would Iran declare war, just to spite other OPEC members for leaving them behind? 

 

I dont believe Iran is going to declare an outright war at this time or anywhere in the near future. They will continue with their proxy schitt and incidents here and there. The USN is already there but things are developing fast and others may show up soon.

The Saudi's have a pipeline to haul crude across the desert from the East coast to the West Coast, there is also a UAE pipeline that bypasses the Strait.

https://www.bloomberg.com/news/articles/2019-05-14/saudi-pipeline-attack-highlights-risk-to-middle-east-oil-exports

 

https://www.arabianbusiness.com/saudi-aramco-expand-capacity-of-east-west-pipeline-by-end-2018-633580.html

 

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The Saudi pipeline and pumping stations were droned last month. But it can move substantial amount of crude oil to the West coast. KSA also have "reserve emergency" barrels stored at .................................

The West coast will need a lot of protection and the Red Sea waters will be needing a lot of patrolling as well.

I think the best way to do the "policing" is by having the countries who have their flags on the vessels getting involved and or the countries whose buyers are the bulk importers of said goods provide naval protection for their buyers goods ad chartered and or owned vessels.

30% of the world's energy (fossil) needs come out of that Strait, today the world is lot more intertwined into the oil need than it was in the 80s, even with the push and desire to get away from it and to go along with renewables. If there was a total shut down of the Strait , it was have disastrous consequences for the economies of the West and the growth of economies in 3rd world and developing nations. Most of the people in the 3rd world and developing nations wont be as affected by the modern luxuries and goodies afforded by all the oil derivatives, they are lucky if they have an actual toilet and clean water. I am not saying they wont be affected but it wont be in the same context that other nations will feel the changes or cuts needed to make it through.

 

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