Ayatollah Ali Khamenei was killed in US and Israeli strikes on the Iranian capital on Saturday. File Image / Pixabay

The shipping and bunker industries are in a state of profound uncertainty after three days of chaos resulting from strikes on Iran.

The US and Israel launched a series of strikes on Iran on Saturday morning, killing Ayatollah Ali Khamenei and several other government figures.

This prompted a wide-ranging response from Iran, with attacks launched at US bases across the region, including as far away as Cyprus. 

The targeting of these attacks appears to have evolved to include commercial ships and energy infrastructure in the region, although in some cases these have been damaged incidentally by falling wreckage from intercepted drones rather than being deliberately targeted.

Strait of Hormuz

The main concern around Iran's response has been over the Strait of Hormuz, the narrow waterway passing the country's coastline which 20% of global oil shipments cross to reach their markets.

By Saturday afternoon ships in the strait were receiving VHF broadcasts claiming that the waterway was now closed to marine traffic. 

Closing the strait has been a longstanding threat from Iran on how it might respond to war. There is considerable doubt over whether this would be possible in practice, both from a military perspective with US forces opposing such a move and from the perspective of how long Iran's economy could withstand the loss of revenues from its own energy exports being blocked.

China would also be likely strongly to oppose a prolonged closure of Hormuz, despite its generally sympathetic attitude to the Iranian government, as it is the main recipient of the country's energy exports.

There is also some confusion over whether closing the Strait of Hormuz is Iran's current goal, with Iranian Foreign Minister Abbas Araghchi telling Al Jazeera on Sunday that his country had no intention of doing so. With the country's leadership currently fragmented, for now it is unclear who has the final say on this decision and what their attitude is, and individual commanders in the field may make their own decisions.

Nevertheless, heightened risk alone has been enough to close the strait in practice to the vast majority of shipping. Insurance for vessels crossing the strait has been cancelled in many cases, and significantly raised in price in others.

Leading container lines including Hapag-Lloyd, CMA CGM and Maersk were among the first publicly to announce they were suspending Hormuz transits over the weekend, and most companies now appear to have followed their lead.

Around 100-110 vessels normally cross the Strait of Hormuz per day, but this number is now reported to have dwindled to a handful.

Another key area to watch is the Suez Canal, where the Iran-backed Houthi movement of Yemen has threatened to resume ship attacks in response to the strikes on Iran.

No such attacks have yet been reported, but the heightened risk has been enough to prompt companies including Maersk and CMA CGM to halt Suez transits until the situation becomes calmer. This necessitates longer voyages around Africa, and is likely to deliver a global boost to bunker demand, while certain regions including the Mediterranean would see reduced sales.

Ship Attacks

A large part of what is holding back normal shipping activity in the region has been a series of attacks on commercial ships near Iran since Saturday.

Not all of these attacks may have been deliberate, with some potentially caused by falling wreckage.

The following attacks have been observed so far:

• Hercules Star (March 1, 8:05 AM UTC): Struck by an unknown projectile about 17 nautical miles north-west of Mina Saqr, causing a fire. The ship has since returned to Dubai, with all crew reported safe and only minor damage sustained.
• Skylight (March 1, 9:00 AM UTC): Came under unspecified attack about five nautical miles north of Khasab Port, resulting in the crew being evacuated. The ship's crew included Iranians, and the vessel was added to an Iran-related US sanctions list in December.
• MKD Vyom (March 1, 9:50 AM UTC): Strick by an unknown projectile above the waterline about 50 nautical miles north of Muscat, resulting in a fire that was subsequently brought under control.
• Stena Imperative (March 2, 2:57 AM UTC): Struck by two unknown projectiles at the Port of Bahrain, causing a fire.
• Star Electra (March 2, 4:45 PM UTC): An unknown projectile exploded in very close proximity to the vessel, about 35 nautical miles west of Sharjah.

In addition to the attacks, there is a high level of GPS interference in the region, further heightening risks for ships in the area.

Oil and Gas Infrastructure

As well as the risks to shipping in the Strait of Hormuz, the wide-ranging retaliation by Iran has also raised concerns over energy and logistics infrastructure across the region.

Saudi Aramco reportedly shut down the 550,000 b/d Ras Tanura refinery - the largest in the region - on Monday following a drone attack that caused a fire. 

QatarEnergy - responsible for about 20% of the world's LNG output - halted LNG production on Monday following an attack on its Ras Laffan facility, the world's largest LNG plant.

The Port of Duqm has come under attack twice, first on Sunday and again on Tuesday. The first attack injured one worker but caused little damage, while the second hit a fuel tank at the port's bunkering terminal.

Two drones were intercepted over Salalah Port on Tuesday, while a third crashed near the port. No casualties or material damage were reported.

And a fire broke out in the Fujairah Oil Industry Zone on Tuesday after air defence systems intercepted a drone over the port. Normal operations are reported to have resumed since the incident.

Price Impact

With oil markets closed over the weekend, the market had to wait until the open in Asia on Monday morning to gauge the price reaction.

ICE Brent crude futures surged at Monday's open following the weekend's news, with the May contract initially trading at $81.50/bl, up from $72.87/bl at Friday's close, before dropping to as low as $75.92/bl by mid-morning in Singapore before steadily rising throughout the day to close at $77.74/bl. The futures have risen further on Tuesday, trading at $83.46/bl as of 2:41 PM in London.

Bunker prices followed crude higher. Ship & Bunker's G20-VLSFO Index of prices at 20 leading bunkering ports gained $44/mt to $587.50/mt on Monday, its highest level since June. The G20-HSFO Index climbed by $54/mt to $517/mt, while the G20-MGO Index gained $80/mt to $877.50/mt.

Among the leading hubs, the sharpest price increases were seen at Houston, where VLSFO rose by $58.50/mt, HSFO by $43/mt and MGO by $109.50/mt, but this probably mostly reflects price indications being sent out later in the day when crude futures were higher. The price increases generally were fairly uniform, at somewhere close to 10% on the day for VLSFO, following the move in crude.

Over the longer term, prices are likely to diverge worldwide. As hedging firm GRM pointed out before the start of the conflict, Chinese refineries' use of Iranian crude - with a high fuel oil yield - means HSFO prices there are likely to rise significantly relative to Europe if Iranian oil stops coming to Asia. Conversely, Europe's reliance on middle distillates produced in the Middle East means MGO prices in Europe will be likely to rise relative to Asia as supplies are disrupted.

VLSFO, being a blended product with both residual and distillate  elements, will have more of a mixed reaction, but will in any case rise along with crude prices.

But the sharpest price reaction to the conflict so far has come from LNG, which rose significantly with oil on Monday morning and has since spiked much more sharply in response to the QatarEnergy news. The Dutch TTF benchmark gas price stood at EUR 56.30/MWh as of 3 PM in London on Tuesday, up from EUR 30.95/MWh at Friday's close.

An LNG bunkering source told Ship & Bunker LNG could be bunkered in Rotterdam for about $892/mt on Tuesday morning, up from $825/mt the previous day and from $699/mt a week earlier.