The Strait of Hormuz is the world’s most important oil transit chokepoint

The Strait of Hormuz is the world’s most important oil transit chokepoint

 

The Strait of Hormuz, located between Oman and Iran, connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. The Strait of Hormuz is the world’s most important oil chokepoint because of the large volumes of oil that flow through the strait. In 2018, its daily oil flow averaged 21 million barrels per day (b/d), or the equivalent of about 21% of global petroleum liquids consumption.

Chokepoints are narrow channels along widely used global sea routes that are critical to global energy security. The inability of oil to transit a major chokepoint, even temporarily, can lead to substantial supply delays and higher shipping costs, resulting in higher world energy prices. Although most chokepoints can be circumvented by using other routes that add significantly to transit time, some chokepoints have no practical alternatives.

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Source: U.S. Energy Information Administration and ClipperData, Inc.

Volumes of crude oil, condensate, and petroleum products transiting the Strait of Hormuz have been fairly stable since 2016, when international sanctions on Iran were lifted and Iran’s oil production and exports returned to pre-sanctions levels. Flows through the Strait of Hormuz in 2018 made up about one-third of total global seaborne traded oil. More than one-quarter of global liquefied natural gas trade also transited the Strait of Hormuz in 2018.

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Source: U.S. Energy Information Administration, based on Short-Term Energy Outlook (June 2019), ClipperData, Saudi Aramco bond prospectus, Saudi Aramco annual reports, Saudi Ports Authority, International Group of Liquefied Natural Gas Importers, and U.N. Conference on Trade and Development
Note: LNG is liquefied natural gas; Tcf is trillion cubic feet

There are limited options to bypass the Strait of Hormuz. Only Saudi Arabia and the United Arab Emirates have pipelines that can ship crude oil outside the Persian Gulf and have the additional pipeline capacity to circumvent the Strait of Hormuz. At the end of 2018, the total available crude oil pipeline capacity from the two countries combined was estimated at 6.5 million b/d. In that year, 2.7 million b/d of crude oil moved through the pipelines, leaving about 3.8 million b/d of unused capacity that could have bypassed the strait.

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Source: U.S. Energy Information Administration, based on ClipperData, Saudi Aramco bond prospectus (April 2019)
Note: Unused capacity is defined as pipeline capacity that is not currently used but can be readily available.

Based on tanker tracking data published by ClipperData, Saudi Arabia moves the most crude oil and condensate through the Strait of Hormuz, most of which is exported to other countries (less than 0.5 million b/d transited the strait in 2018 from Saudi ports in the Persian Gulf to Saudi ports in the Red Sea).

EIA estimates that 76% of the crude oil and condensate that moved through the Strait of Hormuz went to Asian markets in 2018. China, India, Japan, South Korea, and Singapore were the largest destinations for crude oil moving through the Strait of Hormuz to Asia, accounting for 65% of all Hormuz crude oil and condensate flows in 2018.

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Source: U.S. Energy Information Administration, based on tanker tracking data published by ClipperData, Inc.

In 2018, the United States imported about 1.4 million b/d of crude oil and condensate from Persian Gulf countries through the Strait of Hormuz, accounting for about 18% of total U.S. crude oil and condensate imports and 7% of total U.S. petroleum liquids consumption.
Source: EIA

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‘They want to hit where it hurts’: Here’s why Iran could want to attack foreign tankers

 

 

Iran’s economy is crumbling. It’s in a region bristling with U.S. military hardware, and it’s staring down an American administration that has made clear all military options are on the table.

So why would elements within Iran risk blowing up foreign merchant tankers in their own backyard?

It’s a question many people were asking even before a U.S. official told NBC on Thursday that an American drone was shot down over the Strait of Hormuz. Iran claimed responsibility for that attack, according to the Associated Press.

It’s crucial to note that the culprit behind attacks on two commercial tankers last week has not been conclusively proven. On June 13, explosions crippled the Japanese Kokuka Courageous and the Norwegian Front Altair, and forced their crews to abandon ship.

The U.S. and the Saudis say Iran is behind the attacks, while the U.K. says they’re “almost certain” of the same; Iran vociferously denies it. But video footage and photographs from U.S. CENTCOM provides what a range of security experts say is credible evidence of Iranian responsibility.

Here’s a look at what might’ve driven elements within Iran, particularly its Revolutionary Guard Corps, to carry out the tanker attacks.

1. Iran ‘has nothing to lose’
“Iran has probably arrived at the conclusion that it has less to lose from acting this way than from doing nothing,” Aniseh Tabrizi, a research fellow and Iran expert at London’s Royal United Services Institute, told CNBC via phone Tuesday.

“There is a gamble behind it that wasn’t there before, which is: ‘If other countries retaliate, we are willing to take the risk because we have really nothing to lose at this point’,” Tabrizi described. “And that is a dangerous way to feel.”

Iran’s economy is expected to shrink by 6% this year, after having contracted 3.9% last year, the International Monetary Fund says. By contrast, it clocked 3.8% growth in 2017, before the Trump administration re-imposed economic sanctions after withdrawing from the 2015 nuclear deal that offered the Islamic Republic relief from prior sanctions.

The combination of hard-hitting sanctions, particularly on the country’s oil exports, and years of economic mismanagement have led to skyrocketing unemployment and inflation headed toward 40%.

“The more the U.S. maximum pressure policy succeeds in driving the Iranian economy into the ground,” Ali Vaez, Iran Project Director at Crisis Group, told CNBC, “the less risk averse the Iranians will become and the more aggressive they’re likely to be.”

2. Calling Trump’s ‘bluff’
“It’s all about careful calibration and plausible deniability,” Hussein Ibish, a senior resident scholar at the Arab Gulf States Institute in Washington, told CNBC.

Iran’s tactics, experts say, are designed to disrupt but not provoke a military response. So far, attacks have specifically avoided civilian deaths and environmental damage like an oil spill.

Instead, the Revolutionary Guard or its naval equivalent may be sending the message that it’s capable of undermining U.S. and Arab Gulf states’ interests in the region. And if they feel they can get away with it, it’s because they’re banking on President Donald Trump not wanting to actually start a war.

“Ultimately, Iran’s intention is to call President Trump’s bluff,” says Ibish.

And indeed, Trump told Time Magazine in an interview this week that he views the tanker incidents as “very minor,” suggesting that attacks of this nature are not worth going to war over.

The administration has already gone almost all out on economic sanctions, “So the repercussions are virtually nil,” says Ibish.

“That’s one reason why Iran is taking these actions: they have nothing to lose except getting into a war they don’t want, but which Trump does not want either. And that’s what they’re testing right now,” he said.

3. ‘Hit them where it hurts’ — oil and shipping security
Iranian leaders have often threatened that if they can’t export their oil, neither will anyone else. And last week’s suspected attacks took place near the Strait of Hormuz, the narrow waterway for 30% of the world’s seaborne oil traffic.

Combined with the four tankers allegedly sabotaged off the United Arab Emirates’ coast of Fujairah on May 12, last week’s attacks “appear to be part of a systematic Iranian effort to demonstrate that peace and security in the Gulf is contingent on its own economic stability,” political consultancy Eurasia Group said in a June 13 briefing.

Iran’s Supreme Leader Ayatollah Ali Khamenei “has made threats to the Americans saying we’re going to hit where it hurts — and the hydrocarbon lifeline of the Strait of Hormuz is what hurts,” Andreas Krieg, a lecturer at the School of Security Studies at King’s College London, told CNBC.

Targeting commercial tankers and oil traffic hurts Iran as well, Krieg says — “but the Iranians have their backs against the wall, and there’s very little they can lose because they’re already in a state of absolute loss after the imposition of the maximum pressure sanctions regime.”

4. Deterrence and leverage
“If the Iranians were indeed behind this then I think the main motive is to deter the U.S. from further ratcheting up pressure on Iranian oil exports,” says Crisis Group’s Vaez.

“But this also has the added benefit of ransoming the oil market which will jack up the price on shipping insurance premiums, and this will allow the Iranians to compensate to a certain extent for the loss of their oil exports as a result of U.S. sanctions.”

And for Iran, this type of unconventional warfare also demonstrates that it can wreak significant damage on Western interests at a fairly low financial cost, something that can’t be said for the U.S. military.

“The Iranians have a lot more flexibility and political will to operate in this area than the Americans,” says Krieg. “The problem with the Americans is there is no political will, there’s limited capability to strike back, and the costs are exponentially higher.”

5. History
Iran’s offensive military actions have been defined by asymmetry for decades, and its alleged use of sea mines on June 13 has precedent.

In the final years of the Iran-Iraq war of the 1980s, the U.S. military captured footage of Iran’s navy laying sea mines — and when some of them hit an American missile frigate in the Persian Gulf, the U.S. military subsequently wiped out half the Iranian navy. The 1988 offensive, dubbed Operation Praying Mantis, was the largest surface naval engagement since World War Two. The U.S. swiftly destroyed multiple Iranian oil platforms, sea bases and ships, sending oil prices upward.

“The Iranians have spent the last 15 years planning how to use unconventional means to either seize or attack a tanker or other naval ships,” said Krieg. “They’re absolute pros at this, they’re probably better than any other navy.”

Many analysts maintain that it’s still possible the attacks were carried out by a rogue element of the Iranian system, or even a third party. But for Ibish and others, including the U.S. intelligence community, the culprit is obvious, and they say that’s either the Revolutionary Guard — which the U.S. designated a terrorist group in April — or one of its naval equivalents. Two weeks after the U.S. designation, Khamenei appointed Major General Hossein Salami as the Revolutionary Guard’s new commander, a war-hardened veteran of the Iran-Iraq war with particularly hardline and anti-Western views.

“The status quo is not sustainable for Iran,” says Ibish. “So they have the means, the motives and the opportunity… They do not seek a war, exactly, but they are obviously willing to risk one in order to get out of an impossible conundrum.”

 

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Piracy in West Africa: The world’s most dangerous seas?

 

he seas off West Africa’s oil-rich coastline are now the most dangerous in the world for shipping, according to a new report.

One Earth Future, which produces an annual State of Maritime Piracy, says that while attacks have been falling substantially in some regions of the world, in West Africa they’ve been on the rise and are now more frequent than anywhere else.

So why the increase in West Africa, and what shipping is being targeted?

What is piracy?
A strict definition of maritime piracy only includes attacks on shipping on the high seas – that is, more than 12 nautical miles off the coastline and not under the jurisdiction of any state.

Inside a country’s territorial waters and within port facilities, these attacks are defined as armed robberies at sea.

However, the data we’ve used from this latest report combines these two sets of data to give an overall picture of incidents at sea both inshore and offshore.

In 2018, there were 112 such incidents in West African waters.

It’s not just the huge tankers exporting oil and gas from Nigeria and Ghana that are targeted.

Commercial ships from smaller countries are also in the sights of the pirates.

At a recent event in London, President Faure Gnassingbé of Togo – a country sandwiched between these two regional giants – highlighted his own concerns at the rise in attacks on regional shipping.

“Our region is distinguished by the resurgence of transnational criminality on the high seas in the Gulf of Guinea,” said Mr Gnassingbé.

Why are attacks rising?
Most of the attacks have been against ships involved in oil and gas transportation, such as tankers, bulk carriers and tugs. Fishing vessels have also been targeted.

The coastline off Nigeria saw the most attacks in 2018. This is partly because of “petro-piracy”, targeting tankers from Nigeria’s rich oil and gas fields.

There were also incidents reported at the loading and anchorage facilities in the Nigerian port of Lagos.

Piracy in the form of hijacking and kidnapping for ransom payments was also common off the coasts of Benin, Ghana, Nigeria, Congo-Brazzaville and Cameroon.

Rich pickings at sea, political instability, the lack of law enforcement and poverty on land are all factors which have contributed to the increase in piracy.

Most of the seafarers affected are not from the region. Around half are from the Philippines, followed by India, Ukraine and Nigeria.

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One of the reasons West Africa is now the number one spot for piracy is because of the downward trends recorded elsewhere.

The East African shipping routes along the Somali coastline have been notorious for hijackings and robberies.

But since peaking in 2011, rates of piracy there have fallen off dramatically in recent years.

This is in large measure as a result of a successful multi-national effort to patrol these waters and take firm action action against acts of piracy.

Local efforts on land in Somalia to change attitudes towards permitting piracy and building legal capacity to prosecute criminals have also helped improve the situation.

In Asia, the Malacca Strait, a busy, commercially important stretch of water between Malaysia and Indonesia, experienced a high number of attacks in 2015.

Concerted action by regional naval forces has reduced the problem there, but piracy still persists.

Attacks against shipping in the Caribbean and off the coast of Latin American have, however, risen.

Venezuela in particular has become a hotspot for piracy.

“Political and economic instability is a big factor there,” says Lydelle Joubert, an expert on piracy at One Earth Future.

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https://www.wsj.com/articles/u-s-oil-exports-rising-amid-middle-eastern-turmoil-11561404481

U.S. Oil Exports Rising Amid Middle Eastern Turmoil

Hostilities have lifted crude prices, sent tanker rates surging and opened a window for U.S. producers to sell more barrels abroad

 

U.S. crude exports are surging, reflecting strife along the Strait of Hormuz that has given oil buyers second thoughts about the Persian Gulf.

The hostilities, including attacks on oil tankers passing through the important supply route, have lifted crude prices, sent tanker rates surging and opened a window for U.S. producers to sell more barrels abroad, taking market share from the Organization of the Petroleum Exporting Countries in the process

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Aramco Can Keep Crude Flowing if Hormuz Hit

(Bloomberg) -- Saudi Arabian Oil Co. has the experience and infrastructure it needs to keep crude flowing should supply through the Strait of Hormuz be disrupted, according to the chief executive officer of the state-run producer.

“We are increasing our readiness,” Amin Nasser said in an interview in Seoul on Tuesday. “We can supply through the Red Sea and we have the necessary pipelines and terminals.”

Brent crude has jumped about 8% since mid-June as worsening relations between the U.S. and Iran have magnified fears that shipments could be disrupted through the Strait of Hormuz, a narrow choke-point through which about one-third of all seaborne crude flows. There have been a series of attacks on tankers over the past few weeks and the downing of an U.S. Navy drone, which American officials have blamed on Iran.

“It’s a concern for the whole world because that is an important supply route for a lot of crude, not only from Saudi Arabia,” Nasser said.

Saudi Aramco operates a pipeline with a capacity of 5 million barrels a day that carries crude 1,200 kilometers (746 miles) between the Gulf and Red Sea, enabling it to ship oil from both sides of the country. But that compares with the company’s total exports of around 7 million barrels a day, meaning it would need to find other ways of getting any remaining oil to the market.

In mid-May, flows through the cross-country link were halted after two pumping stations were hit by a drone attack by Yemen’s Iranian-backed Houthi rebels.

The state-run company, which is the world’s biggest oil exporter, traces its beginnings to the 1930s and kept pumping crude through the Iran-Iraq war and the two Gulf Wars. Aramco would draw on that experience to keep supplies flowing, Nasser said.

“We had experience through the Gulf conflict but we have always met our commitments to our customers,” he said. “So we have a track record of building enough flexibility in the system to manage a situation or a crisis.”

Stakes in Korea

Nasser is visiting South Korea this week along with a Saudi delegation including Crown Prince Mohammed bin Salman. Saudi Aramco has been the biggest shareholder of South Korea’s S-Oil Corp. since 1991 and it bought a 17% stake in Hyundai Oilbank Co. for $1.2 billion in April.

Hyundai Oilbank’s purchases of Saudi crude are set to rise from the current level, Nasser said. The company bought about 15.5 million barrels of oil from the kingdom last year, according to Korea National Oil Corp. data. Separately, S-Oil will announce Wednesday plans to start another feasibility study on further expanding its refining capacity, which will be bigger than the latest capacity addition at its Ulsan plant, he said, without giving further details.

While Saudi Arabia was South Korea’s biggest oil supplier last year, with shipments of 885,000 barrels a day accounting for about 29% of total imports, crude from the U.S. jumped more than fourfold during the same period, KNOC data showed.

With rising geopolitical risks in the Gulf region and the Organization of Petroleum Exporting Countries and its allies trimming output, Korean processors may further boost purchases from America. Still, Nasser said he’s not worried about the competition from the U.S.

“We are not concerned,” he said. “We have the lowest cost position with an excellent infrastructure to supply to our customers. In the past, we have never failed to supply and meet our deliveries. We also have different types of crude, which is critical.”

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US floats effort to share burden of protecting Strait of Hormuz oil flows

New Pentagon chief considers coalition for ship escorts

Trump wants end of 'free riders' through oil chokepoint

Trade wars, sanctions may hinder cooperation: Navy admiral

 

 

A US military plan to seek more international support to protect oil shipments through the Strait of Hormuz will be challenging, especially with President Donald Trump calling into question the US presence in the region, according to two former Navy admirals and an energy security expert.

 

Mark Esper, the new acting Pentagon chief, said last week he is trying to build a coalition of "like-minded countries" to protect freedom of navigation through the world's busiest oil chokepoint. He suggested broader maritime and air surveillance and stronger naval protections such as a "picket line of ships" or military escorts of oil tankers.

Such an operation would likely require a formation of ships at each end of the strait and multiple surveillance aircraft, according to former US Navy Admiral Jonathan Greenert, who served as chief of naval operations from 2011 to 2015.

"It would be a big undertaking," Greenert said in an interview with S&P Global Platts. "It can be done, it's just a matter of commitment from the other nations and a commitment to the amount of time that might be necessary."

But getting that commitment from allies may be a challenge after the Trump administration has spent the past two years criticizing long-standing alliances, launching trade disputes and reimposing sanctions on Iranian crude exports, said Dennis Blair, former US national intelligence director and a retired US Navy admiral who commanded US forces in the Pacific.

"That's sort of the political tone-deafness that this administration seems to specialize in," Blair said in an interview with Platts. "I think it's going to be real hard for them to get those commitments."

Blair said an escort campaign in the strait would be a challenge, even with full cooperation from allies and the advancements in tactical surveillance that have been developed since the tanker wars of the 1980s.

"It will get to be a very complicated situation very quickly," he said.

ASIAN IMPORTERS AS 'FREE RIDERS'

In a pair of tweets on June 24, Trump questioned the US military's role in the Strait of Hormuz, singling out China and Japan for benefiting from shipping protections for "zero compensation" while claiming the growth of US oil and gas production has lessened the need for a US presence in the shipping lane.

Countries, particularly China and India, have long depended on free passage of oil through the strait, said Richard Kauzlarich, co-director of the Center for Energy Science and Policy at George Mason University and a former US ambassador to Azerbaijan.

"They basically have been free riders now for a decade or more, as their demand for oil has gone up," Kauzlarich said. "So it's not unreasonable to say, 'What are you guys going to be prepared to do to protect the flow of energy?'"

About 20.7 million b/d of oil, or about 21% of global petroleum liquids demand, flows through the Strait of Hormuz, according to the US Energy Information Administration.

Trump's tweets came as administration officials are working to reassure allies that they were working to minimize supply risks to global supply after allowing sanctions waivers, given to some of Iran's top oil buyers, to expire in early May.

"We're doing everything we can to ensure you have adequate crude imports," Secretary of State Mike Pompeo said during a speech in India last Wednesday.

State's top official on Iran policy met Friday with the secretary general of the International Maritime Organization to discuss "the importance of safeguarding freedom of navigation and promoting maritime security," according to a State Department statement.

Esper, the acting US defense secretary, said some countries have come to him and expressed interest in pursuing collaborative security efforts in the Persian Gulf.

"And I think over time we will develop that," he said.

Greenert said similar international maritime security coalitions have been formed over the past two decades, including counter-terrorism task forces formed following the September 11 attacks, a counter-piracy task force, and an international mine task force formed after Iran last threatened to mine the Strait of Hormuz in late 2011.

"We've done this before -- the commitment of nations has been out there before, but each has their particulars on what they're willing to do in this coalition," Greenert said.

Amy Myers Jaffe, director of the Council on Foreign Relations' energy security and climate program, said it may be easier to build an international security coalition against Iran now than it was a decade or more ago due to the global oil and gas glut, since Asian and European companies may be less concerned about losing their energy investments in Iran due to current market conditions.

"Basically, they can look at their investments now, and say 'Who cares?'" Jaffe said.

US imports of crude oil from Persian Gulf countries averaged less than 1.05 million b/d in March, down from a peak of nearly 3.08 million b/d in April 2003, according to the US EIA. US oil output has grown to more than 11.9 million b/d from about 5.73 million b/d over the same time period, according to EIA data.

But both Greenert and Blair dismissed Trump's idea that the US could lessen its maritime security role in the Middle East since it is producing record amounts of oil and importing less.

"These are countries and, in many cases allies, [moving oil through the strait] that we need to have healthy economies... so those straits are key to that," Greenert said. "We have not tailored our commitment to the Arabian Gulf specifically in proportion to our need for oil, or our import of oil. It's really a matter of keeping that strait open for the benefit of the global economy."

And Kauzlarich with George Mason said it would be impossible for a country to only protect the oil it plans to import, as Trump's tweets suggested.

"Well, that isn't the way oil gets shipped," he said. "It gets on tankers that have flags of places as far removed as Liberia and Malta that have nothing to do with the country receiving the energy."

1984

Iraq-Iran war enters 'tanker phase' with regular bombings of ships and oil export facilities and mining of Persian Gulf waters

1987

US responds to escalating tanker attacks by deploying fleet of frigates, destroyers and minesweepers

March 1987

US agrees to transfer Kuwaiti oil and gas tankers to US flag

July 1987

US Navy starts escorting tankers through Persian Gulf in Operation Earnest Will

April 2004

Shippers ask for US Navy escorts through Persian Gulf after attacks on Iraq's export terminals

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Strait of Hormuz, Oil Prices and Marine Insurance Premiums

 

Tanker owners are having to deal with a multitude of external factors having an impact on rates and trading. In its latest weekly report, shipbroker Intermodal said that “the global shipping industry is facing numerous challenges at a time when geopolitical turmoil has escalated in view of the recent tension in the Middle East. The latest attacks on vessels and the downing of a US drone have profoundly advanced the cost of shipping oil from the Middle East. The Joint War Committee of Lloyd’s Market Association insurance body has reported in May, the addition of Persian Gulf and surrounding waters along with the Gulf of Oman to the list of areas under risk of “Hull War, Piracy, Terrorism and related perils”. The risks on stake have urged insurance companies posing high insurance premiums on maritime companies that operate through the Strait of Hormuz. Accordingly, war risk underwriters are charging additional premiums for vessels trading in the Middle East Gulf and the Gulf of Oman”.

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She also noted that “the oil markets have overall remained relatively calm, although the fact that there was a second series of incidents since May, has definitely intensified concerns. During the days of the incident prices for Brent crude rose almost 4% to $61 a barrel, a level still much lower though compared to the $72 a barrel in mid-May. Thus, we did not view great increase in oil-prices and one of the reasons is that traders are possibly betting that the fiery tensions will not burst into a full-scale conflict. Additionally, worries on global growth on the back of the trade war together with US shale oil production growing at a fast pace have also kept the oil price increase in check. The OPEC meeting at the beginning of this week came at a significant and unstable time for the oil market and as a further extension of the cuts did take place as it was anticipated by most investors, it will be interesting to see how strong the support on prices will be going forward”, Restis concluded.

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A.P. Moller-Maersk have joined other major container shipping companies in increasing prices for sending containers into the Persian Gulf in response to the heightened risk of military conflict in the area.

Attacks on two oil tankers in the Gulf of Oman last month drove up oil prices and raised concerns about a U.S.-Iranian confrontation.

The United States has blamed Iran for the attacks, although Tehran has denied the accusation.

“Due to recent unexpected and very significant increases in key factors impacting shipping operational costs in the Arabian Persian Gulf, Maersk is implementing an emergency risk charge globally that applies to all cargo to and from the Arabian Persian Gulf,” Copenhagen-based Maersk said in a statement late on Thursday.

Maersk, the world’s biggest container shipper, said it would charge an extra $42 per 20-foot container for shipments to some ports in Saudi Arabia, Bahrain, Qatar, United Arab Emirates, Kuwait, Iraq and Oman.

Swiss-based Mediterranean Shipping Co (MSC), French-based CMA CGM, APL, the container shipping unit of Singapore’s Neptune Orient Lines (NOL) and German container group Hapag-Lloyd, all informed customers earlier this week that they would raises prices.
Source: Reuters

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China increases threat level – Straits of Malacca

 

Dryad has received reporting indicating that China has raised the security level for Chinese-flagged vessels heading through the Strait of Malacca to the highest threat warning available, MARSEC Level 3. This reporting has been verified, and was released in an official statement from the Chinese Ministry of Transport. The threat warning advice was applied as at 2 Jul 19, 2200 hrs UTC. A deadline for the heightened threat level has not yet been released.

The raising of the threat level for Chinese-flagged vessels has been unexpected, particularly as the regional dynamics within and surrounding the Malacca Strait are stable. Within the region, the nature of piracy has often been low level, and has involved the boarding of small barge craft for items such as scrap metal. It would therefore be a dramatic escalation were a Chinese vessel to be targeted, and there is currently no reporting to indicate that local groups involved in piracy possess the intent or capability to employ a new MO in this manner. The last significant incident within the region was the Johor Port dispute between Malaysia and Singapore, however there are no significant geopolitical tensions which would link logically with the increased Chinese threat level. Sources have indicated that China may have raised threat levels due to a specific threat of criminality, in this instance linked to cargo theft, but there is no indication that this poses a wider threat to commercial vessels. Further reporting from local media sources has indicated that the threat posed to Chinese vessels may be Indonesian in origin. Currently no details has been given as to the type of threat emanating from Indonesia and/or piratical groups operating within Indonesia, therefore this line of assessment is currently believed to be unlikely until corroborated by further reporting.

Dryad currently assesses that there are no regional narratives or emerging threats which would support the Chinese decision. It is likely that China is reacting to a specific threat known only to China. It must also be noted that China holds international responsibility, as with other maritime partner nations, to communicate and disseminate any specific threat information it holds, which in this instance it appears to not have done. There is currently no reporting stream which indicates a specific threat to Chinese vessels, and Dryad is currently content to recommend that we do no believe that MARSEC Level 3 is a necessary requirement for other vessels transiting the Strait of Malacca. Dryad will continue to monitor the situation, and will report any further details which emerge when necessary.

 

 

Translation:
All international shipping companies and their respective maritime bureaus: In accordance with the provisions of the International Ship Security Rules of the People’s Republic of China, with the consent of the Ministry of Transport, it was decided to increase the security level of Chinese ships sailing on and to the Straits of Malacca to Level 3, from July 2, 2019. From 22:00 onwards, the deadline will be announced separately. All relevant international shipping companies shall immediately upgrade the relevant ship security level in accordance with the requirements of this notice, and implement the security plan requirements and take corresponding security measures. Each directly under the Maritime Safety Administration shall immediately communicate this notice to the international shipping companies in the jurisdiction, and provide security information for the vessels of Chinese nationality sailing in the jurisdiction in accordance with the requirements of the International Ship Security Regulations of the People’s Republic of China, and supervise the relevant international ships to do security work. . General Office of the Ministry of Transport July 2, 2019″
Source: Dryad

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How to Sink the Pirates Plaguing West Africa

 

Remember those Somali pirates? Earlier this decade, they brazenly hijacked giant oil tankers, demanded ransoms in the millions of dollars, and gave Tom Hanks yet another chance to play the everyman overcoming a life-defining crisis. Now, thanks to a multinational naval crackdown and tighter security measures by shippers, they’ve been forced back to dry land.

But as often happens with crime waves, the problem wasn’t really eliminated; it just popped up in a more vulnerable location. And for pirates, the treasure hunt now takes place in the Gulf of Guinea, which stretches off West Africa from Senegal to Angola, nearly 4,000 miles of shoreline.

Last year, 40 percent the world’s reported incidents of seaborne attacks occurred there, including every ship hijacking and 78 of the 83 crew members taken for ransom. In reality, things are probably much worse: The International Maritime Bureau, which tallies these statistics, also estimates that half of incidents go unreported. The waters off Somalia, meanwhile, had two attacks total reported.

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The background causes for this West African crime spree are largely the same as what spurred the Somali pirates off East Africa – lack of jobs, food shortages, armed conflict, corrupt or failed governance – but the crimes themselves are very different. While the Somalis often asked for millions of dollars to release their hostages or hijacked ships, the Gulf of Guinea culprits more typically seek only a few thousand, which many oil and shipping companies simply pay and write off as a cost of doing business.

And while the Somalis made daring attacks in wooden fishing boats on huge oil tankers or luxury yachts in deep sea, the West Africans more typically use inflatables towed by trawlers and attack softer targets. These include the ships that ferry men and equipment to and from the gulf’s offshore oil rigs, as well as slow-moving tankers and cargo ships as they enter and leave major ports such as Cotonou in Benin, Abidjan in Ivory Coast and the Niger Delta of Nigeria.

But even these smaller-scale crimes add up: According to the nonprofit Oceans Beyond Piracy, the economic cost of seaborne crime off West Africa – including such things as lost goods, contracted security, insurance and “captivity pay” to crew members held hostage – totaled $818 million in 2017. (It’s suspected that in many cases the ships’ crews are in cahoots with the pirates, in exchange for a cut of the loot.)

And, as my Bloomberg Opinion colleague Admiral James Stavridis likes to say, the oceans are “the world’s largest crime scene,” in large part because many gangs involved in hijacking and kidnapping are often engaged in other illicit activities: illegal fishing, human trafficking, and smuggling of arms, precious gems and drugs. Two-thirds of South American cocaine that ends up in Europe transits through West Africa, according to the 2017 United Nations World Drug Report.

Given the importance of maritime commerce to these nations – oil accounts for about 10 percent of Nigeria’s economy and 90 percent of its foreign exchange – one would think they would clamp down harder. But there are a number of catches, including that each of the roughly 15 nations on the coast has its own claim to sovereignty or a sphere of influence over the waters of its shores, many of which overlap. The nations also have varying legal systems based on the traditions of the European colonial powers that once controlled them. The result is a logistical and law-enforcement mess.

The best effort to overcome these hurdles was the Yaounde Code of Conduct, a 2013 pact that introduced a common code for fighting piracy and established a regional coordination center for maritime safety in Yaounde, Cameroon. Another big step has been a series of naval exercises involving the gulf’s nations, European countries and, most importantly, the U.S. Navy and Coast Guard. The biggest, held annually since 2010, is called Obangame Express. This year’s, co-hosted by U.S. Naval Forces Africa and the Nigerian navy, involved 33 nations, 2,500 personnel, 95 ships and 12 aircraft.

“Comparing the exercise from 2010 to now is night and day,” said Admiral James G. Foggo III, commander of all U.S. naval forces in Europe and Africa. In his words, those nations had suffered from “sea blindness.”

“When we began the exercise in 2010, many African countries lacked the facilities, capacity, ships or maritime operation centers to monitor what was occurring within their coastal domains,” Foggo told me in a recent telephone call. “Today, the West African nations have a series of facilities and radars that enable them to coordinate and collaborate.”

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Foggo also emphasized that while ending the attacks is vital, it needs to be a “proportionate response”: This isn’t about Navy Seal sharpshooters picking off pirates like the Somalia effort, but calm negotiation, capture and prevention. One goal should be no deaths.

Still, given the vast size of the gulf and relative poverty of many of the countries on it, all these efforts can go only so far. What more could be done?

Many of the gulf countries are game to take on the pirates – the tiny, impoverished island nation of Sao Tome and Principe is a prime example – but don’t have the money for ships, sailors or even gasoline. Nigeria is the only state with a powerful military, but it can’t be expected to shoulder the burden alone. In May the navy of Togo showed its stuff, quickly recovering the hijacked petroleum tanker Djetona 1 and apprehending eight pirates who had boarded from a rented canoe.

The European Union has helped out, most recently allotting $10 million on a project to improve port security and $7 million to improve cooperation in combating drug smuggling, among other long-term initiatives. Some Western nations have donated decommissioned military vessels, but this isn’t effective unless they can provide continuing training for crews, money for fuel and a supply chain for replacement parts. It would also help if the oil, shipping and fishing companies would report all incidents so antipiracy groups could have an accurate picture of the scope of the problem.

But in the end, as with so many of Africa’s ills, there will be no end to it without economic development. Nine of the Gulf of Guinea’s countries rank among the poorest 30 in the world, according to the World Bank. If you want to get the pirates off the high seas, you’ll have to get them jobs on the dry land.

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I meant to post This link a couple weeks ago but got sidetracked. Bottom line, while MOST of America could care less about tanker traffic in the Strait of Hormuz, that most hypocritical of hypocritical states, yes I'm talking about you California, imports about half its ever increasing crude consumption from that neighborhood. 

  • Haha 1

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"If you want to get the pirates off of the high seas, you'll have to give them jobs on the dry land."

Why do WE need to give them ANYTHING! For decades foreign aid has been pumped into West Africa, it has accomplished nothing and those countries have not developed one iota. If they choose to live in poverty, and not help themselves, why is it someone else's job to give them jobs?

Keep in mind that the region has multiple growing seasons each year, timber, minerals and oil. When does the rest of the world simply say 'enough is enough'?

Corrupt governments are an internal issue unless they present a global threat.

The countries providing this foreign aid each have domestic issues which they could better spend the money on.

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17 minutes ago, Ward Smith said:

I meant to post This link a couple weeks ago but got sidetracked. Bottom line, while MOST of America could care less about tanker traffic in the Strait of Hormuz, that most hypocritical of hypocritical states, yes I'm talking about you California, imports about half its ever increasing crude consumption from that neighborhood. 

https://www.linkedin.com/feed/update/urn:li:activity:6552711609536614400

Hey California, go for it, walk your talk.  Ban all oil production in California and see what happens.

Heck, better ban imports of all oil and gas into California too, otherwise it is just NIMBY hypocrisy.

Please do go ahead with your "keep oil & gas in the ground forever" agenda and proceed immediately with using only wind, solar and hydro power for the entire state.

And no fair using Natural Gas because the "keep oil & gas in the ground forever" crowd assert that Natural Gas is not "renewable" energy.  

Have fun!

Proposed ban on state oil production would jeopardize Californians’ way of life

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@ceo_energemsier

If Iran begins to hit foreign tankers they will simply solidify a coalition against themselves and ostracize themselves in the 'court of world opinion'.

This is probably not a good strategy for them at the moment.

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On 7/8/2019 at 8:50 PM, Douglas Buckland said:

@ceo_energemsier

If Iran begins to hit foreign tankers they will simply solidify a coalition against themselves and ostracize themselves in the 'court of world opinion'.

This is probably not a good strategy for them at the moment.

Anything Iran does, makes no sense, right now they are like a rabid dog, foaming @ the mouth and grasping @ straws. They thought the US would bend over like it did before and they failed. Just like a lot of countries that miscalculated their prowess against a different type of world leader and US President who means business.

 

They will fail on their loser strategy , and the Iranian people dont want to go down that road much longer but they have no choice.

 

Now UK will step up and so will France, maybe spineless Germany too finally against Iranian BS.

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(Bloomberg) -- The British navy intervened to stop Iran from blocking a commercial oil tanker leaving the Persian Gulf, heightening friction just as European nations scramble to salvage a landmark nuclear accord with the Islamic Republic.

The BP Plc-operated British Heritage, which can carry as much as 1 million barrels of oil, was attempting to pass through the Strait of Hormuz, a shipping chokepoint at the mouth of the world’s largest oil-producing region, when three Iranian vessels tried to impede it, according to a U.K. government statement. Iran denied the charge.

The incident marks an escalation in a row that started after U.K. forces seized a tanker off Gibraltar earlier this month that was suspected of carrying Iranian oil to Syria. Iran denied the vessel was heading to Syria and vowed to retaliate. Britain’s action opened up a wrangle that could drag on for months and complicate efforts to contain a brewing crisis over Iran’s compliance with a 2015 deal meant to prevent it from developing a nuclear weapon.

The Royal Navy’s HMS Montrose, which was escorting the tanker, “was forced to position herself between the Iranian vessels and British Heritage and issue verbal warnings to the Iranian vessels, which then turned away.”

“We are concerned by this action and continue to urge the Iranian authorities to de-escalate the situation in the region,” the statement said.

Iran’s Revolutionary Guard Corps denied trying to impede the British tanker but said its forces could act fast if ordered to do so. “If it receives an order to seize foreign ships, naval forces can act fast, with determination and without hesitation within the geographic scope of its mission,” the semi-official Fars news agency reported.

Benchmark Brent crude was 13 cents higher at $67.14 a barrel in London trading at 7:07 a.m. local time. Oil has been rallying since the middle of last week as tensions surrounding Iran stoke concerns crude flows may be disrupted.

The British Heritage was able to pass safely through the Strait of Hormuz and was now sailing along the Omani coast, according to tanker tracking data compiled by Bloomberg.

Thursday’s developments spotlight, however, the mounting risks to shipping in a region that exports about a third of all seaborne petroleum. BP had been keeping the British Heritage empty inside the Gulf, near Saudi Arabia, rather than risk its seizure by Iran in a tit-for-tat retaliation, a person familiar with the matter said Monday.

Six tankers have been attacked outside the Gulf since early May, with the U.S. blaming Iran for the incidents, a charge Tehran denies. Insurance costs for covering tankers and their cargoes jumped as much as tenfold in the wake of the incidents. Some owners were initially wary of sending vessels to the region, although that reticence appears to have subsided.

The prospects of a showdown between the U.S. and Iran have spiked since the Trump administration quit the multiparty nuclear accord with Iran a year ago and re-imposed sanctions. In early May, the U.S. tightened penalties on buyers of Iranian oil prompting Iran to begin scaling back its commitments under the deal.

Iran said this week it’s enriching uranium beyond the agreed cap and would gradually roll back compliance unless European signatories find ways to ensure it can sell its oil and access the global financial system.

Iran is producing oil at the slowest clip since 1986, making U.S. sanctions as effective as the devastating Iraq-Iran war that ended more than 30 years ago. The measures have hit the currency, fueled inflation and hobbled growth.

UK Friction

The stand-off also comes at an awkward time for Britain which, along with its European allies, is trying to keep the nuclear deal alive, but is also relying on Trump’s White House to clinch a trade deal after Brexit.

U.K. special forces assisted the authorities in Gibraltar, an independently governed U.K. territory south of Spain, when they seized a super tanker on July 4 over allegations that it was carrying Iranian oil to Syria in breach of EU sanctions.

The British Heritage was meant to load crude from Iraq before sailing onto Europe but a person with knowledge of the matter said BP elected not to lift the cargo because of concerns about the wider political situation. The ship didn’t have oil on board when it left the region, the person said.

There are six vessels operating in the Gulf registered to Britain, or a British Overseas Territory, and five operating under the British flag. In total, they have the capacity to transport almost 9 million barrels of crude.

The incident was originally reported by CNN, which cited two U.S. officials saying Iran had tried to seize, rather than impede, the tanker and order it to change course.

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Japan weighs joining US coalition to protect Strait of Hormuz oil shipments

June tanker attacks threaten Japan's peace, prosperity: top official

Refiners consider alternatives to Strait of Hormuz shipments

Japan's self-defense force may respond from Djibouti base

 

Japan will likely keep its options open for whether to join the US-led coalition to defend the Strait of Hormuz, through which around 80% of its crude supply flows, with refiners weighing various options to ensure stable supplies, industry experts and officials told S&P Global Platts.

The US is going forward with plans to build an international coalition to protect freedom of navigation through the Strait of Hormuz and the Bab el-Mandeb waterway offshore Yemen, and it will become clear within weeks which nations are willing to join the effort, General Joseph Dunford, chairman of the joint chiefs of staff, said Tuesday.

Acting US Defense Secretary Mark Esper first raised the idea in late June of a broader coalition to share the burden of protecting the key oil chokepoints. He suggested additional maritime and air surveillance and stronger naval protections such as a "picket line of ships" or military escorts of oil tankers.

 

Kotaro Nogami, deputy chief cabinet secretary, declined to comment on Dunford's remarks at a press conference Wednesday but said Japan is in close communication with the US on the Iran situation, declining to elaborate further.

For Japan, deciding whether to join the US-led coalition will be politically sensitive as it involves various legal clearances to send the Self-Defense Forces, coupled with the looming July 21 upper house elections.

MIDDLE EAST OIL DEPENDENCY

Japan's oil supply security came under the spotlight in the wake of the June 13 oil tanker attacks, when two vessels, including one operated by a Japanese shipping company, were attacked just outside of the Strait of Hormuz.

"The government sees the attack on a ship operated by our country's shipping company near the Strait of Hormuz as a grave incident that threatens our country's peace and prosperity," Nogami said at a separate press conference Thursday. "We take it seriously and strongly condemn such attack, which endangers ships."

"From this perspective, we intend to continue playing as great a role as possible in easing tensions in the Middle East by cooperating with the US and other relevant countries," he added.

Japanese refiners Idemitsu Kosan and Cosmo Oil said Thursday they are considering various options including diversifying their crude supply sources, when asked whether they were looking to expand their imports from areas that do not have to transit the Strait of Hormuz.

"Our principle is to actively diversify [crude supply sources] based on economics, while maintaining a core Middle East crude oil [supply]," a spokesman for Japan's largest refiner JXTG Nippon Oil & Energy said Thursday.

The Middle East accounted for 88.9% of Japan's crude imports, or an average of 3.13 million b/d, over January-May, according to the Ministry of Economy, Trade and Industry data.

 

 

 

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US SEEKS JAPAN'S COOPERATION

US President Donald Trump's administration has asked the Japanese government to join its coalition to protect commercial shipments in areas including offshore Iran, the Nikkei newspaper reported Thursday, without citing sources.

"Probably the US is assuming that sending the Self-Defense Forces is the only option for Japan," said Koichiro Tanaka, professor at Keio University and Japan's leading expert on Iran. "It is difficult to imagine Trump would agree to any other option."

But Tanaka added that Japan will be in a dilemma over keeping the balance of its relationships with the US as well as with Iran, where Tokyo has maintained good relations, in addition to domestic considerations.

Lawrence Brennan, who teaches maritime law at Fordham University and is a retired Navy captain who served in the Judge Advocate General's Corps, said: "I would not be surprised to see a Japanese presence."

"Japan is probably the dominant or leading party interested in transit through the Strait of Hormuz -- they and the Chinese are most dependent on Middle East oil," Brennan said.

Brennan added that Japan provided support to anti-piracy coalitions in the past, "but they didn't provide as much active assistance as they were capable of doing," given the limits of the Self-Defense Forces' mission as required by the country's constitution.

"I don't think there's going to be a constitutional change in the near future to have a military, but the reality is the Japanese [Maritime] Self-Defense Force looks and acts in many cases as if it were a military -- and has a capacity that few militaries in the world have," Brennan said.

Japan's Maritime Self-Defense Force has been in operation in the Gulf of Aden offshore Somalia to protect vessels with Japanese interests since 2009 in the wake of piracy attacks.

Brennan said Japan's base in Djibouti could supply Japanese logistics ships if it joins the security coalition in the Strait of Hormuz and the Bab al-Mandab.

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