Attacks on ships squeeze fuel routes from Hormuz to Black Sea

A widening series of attacks on merchant vessels across the Strait of Hormuz, the Red Sea and the Black Sea is squeezing energy exports and raising the cost of moving fuel, leaving consumers exposed to higher petrol and diesel prices even as crude markets respond to hopes of diplomacy. Brent crude fell 1.2 per cent to $78.44 a barrel early on Wednesday, August 5, extending its weekly decline beyond 12 per cent. The drop followed reports that the US and Iran had held day-long negotiations over a possible end to their five-month conflict and the reopening of Hormuz. US president Donald Trump said the strait would open “very soon”, while Iran described its discussions with Oman over safe shipping lanes as positive. However, Tehran also said an agreement would be delayed for as long as Washington continued to issue threats, leaving the outcome far from certain, according to the latest talks update. More importantly, the physical movement of ships has barely recovered. Only eight vessels crossed Hormuz on Tuesday, including five tankers and three bulk carriers, compared with the 130 to 140 ships that used the route each day before the war began on February 28. The pressure is now being felt across three major energy-exporting regions. Gulf oil shipments have fallen to around 36 per cent of pre-war levels, loaded tanker capacity in the Red Sea is down 22 per cent and Russian crude and condensate exports have dropped by 1.3 million barrels per day over the past two weeks, Goldman Sachs estimated. That helps explain why the fall in crude prices may offer less relief at petrol stations than motorists expect. Fewer cargoes are reaching refineries, some refining operations have been disrupted and tankers are burning more fuel on longer voyages to avoid areas where merchant ships have come under attack. Consequently, refining costs and margins have risen sharply. During the first three weeks of July, they contributed €0.35 per litre to the eurozone diesel price and €0.23 per litre to petrol, according to the European Central Bank (ECB) analysis. The contribution from refining margins is expected to peak during August before gradually declining. For Cyprus, where fuel supplies arrive almost entirely by sea, the exposure is particularly clear. Fuel and lubricant prices were 18.6 per cent higher in June than a year earlier, compared with an EU increase of 13.7 per cent. Cyprus and Italy were also the only member states where petrol prices rose between May and June. The latest available nationwide figures placed unleaded 95 at an average of €1.467 per litre and diesel at €1.570 on July 9. Although prices had eased from their spring highs, the Consumer Protection Service warned that renewed trouble around Hormuz could quickly reverse the decline. Moreover, international price changes normally take around ten days to reach Cypriot petrol stations because of the time required for new shipments to arrive. That means this week’s fall in Brent will not be reflected immediately at the pump, while another breakdown in negotiations could push import costs higher before consumers see any benefit from cheaper crude. The market’s nervousness is understandable. On July 31, the Greek-operated LNG carrier GasLog Shanghai was struck by an unidentified projectile while leaving Hormuz with a cargo loaded in Qatar. GasLog said the vessel remained stable and its crew was safe, but the attack came after Iran claimed it had stopped two other ships from leaving the strait and forced another four to turn back. For Cyprus, the incident revived memories of the GFS Galaxy. The Cyprus-flagged container ship was struck in July, suffering extensive engine-room damage and forcing 23 crew members into a lifeboat. Indian marine engineer Heramb Karmarkar was killed. At the time, the Shipping Deputy Ministry said 23 Cyprus-flagged vessels were operating in the Persian Gulf and Gulf of Oman. The International Maritime Organisation has since recorded 64 incidents and at least 17 seafarer deaths in Hormuz since the war began. International Chamber of Shipping (ICS) Secretary General Thomas Kazakos has therefore rejected proposals that could make passage dependent on tolls, security charges or clearance from Iran. The Cypriot shipping executive raised the matter with Bahrain’s Foreign Minister Abdullatif bin Rashid Al Zayani in London last week. “There is no legal mechanism by which a toll or restrictions can be placed on vessels passing through the strait,” Kazakos said in an ICS statement, calling for ships to travel “unimpeded without paying a toll or other clearance mechanism”. However, the Red Sea can no longer be treated as the safer alternative. On Tuesday, August 4, the Indian-flagged MSV Faize Noore Oliya was struck by a projectile near Yemen, causing it to capsize and sink. All 14 seafarers, including 13 Indian nationals, were rescued by the Yemeni Coast Guard and taken to the port of Mokha, India’s shipping minister said. Yemen’s internationally recognised government blamed the Houthis for the latest sinking, although the group had not claimed responsibility. The attack came only days after the Houthis denied reports that they intended to charge ships passing through Bab el-Mandeb, insisting that their registration service was voluntary and free. The denial did little to reassure the insurance market. War-risk premiums for voyages through parts of the southern Red Sea have risen from around 0.3 per cent to as much as 2 per cent of a ship’s value, while London insurers have expanded the high-risk area along the Saudi coast. For a vessel worth €100 million, the additional premium could therefore reach €2 million for a single voyage. Rerouting carries its own heavy bill. Sending Saudi crude to Asian buyers through the Suez Canal, across the Mediterranean and around the Cape of Good Hope can extend the journey from 19 to 48 days. Fuel costs alone rise from about $1.26 million to $2.87 million, before around $1 million in Suez charges is added. At the same time, the Black Sea has seen an intense series of attacks within only a few days. On August 1, Ukrainian naval drones sank the Russian-flagged container ship Yanina around 130 nautical miles from Novorossiysk. All 17 crew members survived. Russia’s state nuclear corporation Rosatom, which owns the vessel through FESCO, said it had been transporting frozen food and construction materials. Ukrainian president Volodymyr Zelenskiy confirmed the Yanina strike, describing it as a sanctioned Russian ship. Then, on August 3, a drone struck the Turkish-owned roll-on/roll-off vessel Nadezhda around 20 nautical miles from Novorossiysk. Three crew members were seriously injured and all 22 people aboard were evacuated as a fire continued to burn in the bow. It remains unclear who carried out the drone attack. Turkey responded on Tuesday by calling on both Russia and Ukraine to protect civilian navigation, saying it was seriously concerned that commercial ships continued to be targeted despite repeated warnings. The attacks followed strikes on the Greek-operated tankers Nissos Sifnos and Marathi near the Caspian Pipeline Consortium terminal on July 30. The Nissos Sifnos caught fire while loading Kazakh crude, although the blaze was extinguished without injuries or pollution. Several other tankers subsequently changed course. Russia, meanwhile, said on August 4 that it had struck three vessels in Mykolaiv, another ship off Odesa and a container terminal and drone warehouse at Chornomorsk. Moscow said the targets were supporting Ukrainian military operations, although Reuters could not independently verify the Russian claims. The consequences extend beyond oil. No vessel has entered the Odesa-area ports for almost two weeks, threatening the export of more than 30 million tonnes of Ukrainian grain and oilseeds. Alternative routes by rail, road and the Danube could handle only 50 to 55 per cent of normal Black Sea volumes and would add between $45 and $50 to the cost of each tonne, Ukraine’s agriculture minister told Reuters. Away from the attacks themselves, Europe is also tightening its grip on tankers suspected of carrying sanctioned Russian oil. On August 2, personnel from the EU’s Operation IRINI descended from a helicopter onto the Toa Payoh west of Sicily after its captain initially failed to cooperate. The Cameroon-flagged tanker was allowed to continue because IRINI does not have the authority to seize ships during such inspections. However, its documents remained under examination and could be used by national authorities in later action. It was the second shadow-fleet boarding in less than two weeks, following the inspection of the MV South Star on July 20. Concern is rising farther east as well. China conducted joint air and naval combat drills around the disputed Scarborough Shoal in the South China Sea on August 1 and announced stronger coast guard controls in the surrounding waters. The shoal is also claimed by the Philippines and lies close to one of Asia’s most important commercial shipping areas. The drills came as the US-led RIMPAC exercise concluded in Hawaii after bringing together 30 countries, 30 ships, five submarines, more than 197 aircraft and 30,000 personnel. Although neither development caused an immediate disruption to trade, the increased military activity placed another heavily used maritime region under closer scrutiny.