(Oil Price) – Oil prices have continued to whipsaw since the U.S. and Iran announced last week signed a deal to make a deal as traffic through the Strait of Hormuz is anything but straight and not expected to normalize within days.
Contradictory messaging from Iran and the United States on the navigability of the chokepoint have intensified during the weekend amid a difficult start to the (delayed) talks in Switzerland. Shippers and insurers, who were already very cautious about returning to the Persian Gulf and its key trade lane, are wary of an operating environment they have described as an “hour to hour” risk assessment in a war zone.
Merely hours after the U.S. and Iran agreed to reopen the Strait of Hormuz, Iran on Saturday declared the chokepoint closed again, due to the continued Israeli strikes in Lebanon. The result was traffic thinning to assess the new threats to navigation.
The U.S., however, claims that the Strait of Hormuz remains open and millions of barrels of oil are exiting the Persian Gulf.
Hours after Iran said it is closing the Strait, U.S. Central Command said on Saturday that “Safe passage through the international waterway remained intact today as 55 merchant ships transited, moving large amounts of cargo and more than 17 million barrels of oil to global markets.”
On Sunday, maritime intelligence firm Windward said that “Iran’s re-closure of Hormuz is already measurable in the data.”
Transits dropped to 12 vessels on Sunday, down from more than 21 on Saturday, according to the firm, which noted that neutral and European commercial tonnage was absent from the traffic and that five out of eight inbound vessels were traveling in a dark mode.
“The MOU-driven recovery that began June 18 has stalled within 24 hours of the announcement,” Windward said.
“The current traffic profile: dark, sanctioned, Iranian-linked, resembling the late-blockade baseline more than a functioning open strait.”
Traffic at Hormuz continues by fits and starts with risk remaining elevated and uncertainty how much oil is actually leaving the Persian Gulf.
This uncertainty is not reassuring for the oil market, where bears had hoped last week that the imminent reopening of the Strait of Hormuz will be the beginning of the normalization of oil trade.
It appears that any normalization is weeks away, at best, and shippers and insurers are not racing to test the fragile ceasefire and contradicting messages about how open the Strait really is.
As early as last week, Jakob Larsen, Chief Safety and Security Officer at BIMCO, the largest international shipowners’ association, warned that the U.S.-Iran Memorandum of Understanding “raises several questions and does not offer sufficient information regarding key aspects such as safe routes, measures to separate traffic, sequencing of ships leaving the Gulf, reporting procedures, ship security procedures, procedures for naval protection and emergency response.”
Larsen noted that “The next step is for shipowners to be reassured that transiting the Strait of Hormuz is not only permitted but also safe.”
Security around the Strait is volatile, and “It’s from day to day, hour to hour,” Evan Greenberg, chief executive at shipping insurer Chubb Ltd, told Fox News on Sunday.
“We’re talking more about a war zone environment,” Greenberg said, noting that not all of the channels to pass through Hormuz are open.
“Only a narrow channel is really being used to transit, and so it limits the number of ships that can actually go in and out,” the executive added.
“The Navy has been working to open up a broader set of channels, and as that happens, then shipping will increase.”
Everyone has hoped for more than three months for shipping to increase, but the precarious security situation in the Middle East and the high risks to tanker traffic continue to keep the oil markets on edge.
By Tsvetana Paraskova for Oilprice.com
