by Responsible Editor, SeaNewsEditor
2 August (Lloyd's List) - THE situation in the Middle East constantly puts shipping nerves on edge, and will likely determine the trajectory of many shipping markets.
The duration of the Red Sea disruption will decide how long freight rates — especially in container shipping — can remain propped up by reroutings. And replicating such attacks on merchant vessels in the Strait of Hormuz could deliver an even greater shockwave to the industry.
So what new variables could the latest incidents — highlighted by the assassination of Hamas leader Ismail Haniyeh in Tehran and the killing of Hezbollah commander Fouad Shukur in Beirut — introduce into an already turbulent outlook?
Security intelligence provider Janes believes the killings of the leaders indicate escalation rather than compromise from the attacked parties, expecting Iran and its proxies to retaliate.
“In the short to medium term, it remains likely that Iran will intensify projectile and unmanned aerial vehicle attacks by its proxies including Hezbollah, Hamas, Ansar Allah, and Iran-aligned Iraqi militias against Israel in retaliation for Haniyeh’s assassination,” it said.
Janes said a major co-ordinated response would likely require at least 48 hours of preparations to overwhelm Israeli defences.
The New York Times already reported supreme leader Ayatollah Ali Khamenei has ordered preparations for direct strikes on Israel, with similar signals from Iran’s state media.
A key question is whether imminent attacks will mirror April’s calibrated operation, or be more intense. Then, Iran fired over 300 projectiles at Israel in retaliation for strikes on its Syria embassy, seen as a restrained, pre-communicated action to prevent escalation.
Could the killing of the Hamas leader in Tehran, following the inauguration of Iran’s new president, spur a fiercer response? If so, what would be the implications?
“There will definitely be a more intensified version of the operation,” said Anant Venkatesh, senior analyst for the Middle East and North Africa at Janes.
For instance, while still targeting military sites, Iran may pick Israeli facilities closer to dense population centres compared to April.
That said, Tehran will likely still avoid provoking outright war, although miscalculation risks abound, he added. “A lot of the developments will be dependent on what happens along the northern front in Israel amid the skirmishes with Hezbollah and what happens in Gaza.”
What’s next for Red Sea
In any case, the Red Sea’s security is unlikely to be reversed in the short run as the current situation has once again dimmed the prospects of a truce in Gaza.
Janes assesses that even if the prospects for peace talks take an unexpectedly positive turn, Houthi attacks against international shipping are unlikely to cease.
While Iran-backed, the Houthis have complex motivations beyond solidarity with Gaza. These include consolidating their regime and justifying military actions against their domestic rivals in Yemen, by conflating the Yemeni conflict with their confrontation with the US, UK, and Israel, said James Trigg, another senior analyst at Janes.
Box shipping giant Maersk, in its quarterly earnings forecast released on Thursday, also mentioned that the continued supply chain disruption caused by the situation in the Red Sea is now expected to continue until at least the end of 2024.
Drewry’s weekly World Container Index, published on August 1, decreased by 1% to $5,736 per feu. It is 45% below the pandemic-lockdown peak of $10,377 in September 2021, yet still four times the pre-pandemic average in 2019.
“Rates are still quite elevated and this level will probably remain with continued disruptions to shipping,” said Drewry Maritime Advisors deputy head Jayendu Krishna.
Strait of Hormuz in danger?
Meanwhile, concerns are being rekindled that Middle East tensions could spur greater trade and shipping turbulence.
The Strait of Hormuz is seen as a potential site for attacks targeting Israeli-related vessels, which could have a similar effect to those in the Red Sea, leading to a significant number of untargeted ships choosing to avoid the route due to the risk of collateral damage.
Constrained supply of oil and gas would not only cut off tanker demand, but also push up energy prices, eroding Western inflation progress and denting overall shipping demand.
“Oil markets are justifiably worried that the assassination pushes Iran into a more direct confrontation with Israel,” said Andrew Wilson, head of research at BRS Shipbrokers.
He noted a potential conflict risks Iran’s oil supply and infrastructure, while Iran can also escalate tension via its control of the Strait of Hormuz, threatening transport of about 20% of global oil supply through that vital waterway.
“There is limited spare pipeline capacity to bypass such a blockade.”
Xclusiv Shipbrokers’ Eirini Diamantara voiced similar concerns.
If the recent attack triggers a cycle of retaliation and counter-retaliation, the consequences for global shipping could be catastrophic, especially if the Strait of Hormuz is closed,” Diamantara said.
However, Venkatesh from Janes sees no immediate triggers that could prompt Iran to block the strait.
“Since the October last year when the conflict began, we have not observed a disproportionate rise in security incidents in the Persian Gulf or the Strait of Hormuz, involving Iranian forces.
“The retaliation that we are expecting against Israel is part of tit for tat dynamic that we’ve observed in the past other than Iran wholeheartedly committing its own forces to the war.”
Venkatesh added that estimates indicate Tehran can inflict fewer repercussions on Israel in the Persian Gulf, unlike in the Red Sea situation.
Krishna also believes Iran is unlikely to act against the Strait of Hormuz since that would go against the country’s interests. It could also substantially hurt other major economies in the region, risking their intervention.
Key Middle Eastern oil importers in Asia, such as China and India, would also probably object to such actions. As Krishna stated, “That is not going to be in the interest of anyone.”
Lars Jensen, founder of Vespucci Maritime, argued that a full-scale war between Israel and Iran, if it occurs, would expand the risk zone to include not just the Strait of Hormuz, but essentially any Gulf shipping interests seen as Israeli-affiliated.
“It should in such a case also be expected that the Iranian proxies, notably the Houthis and Hezbollah, could step up their actions, further increasing the risk area to the very eastern parts of the Mediterranean within Hezbollah’s reach.
“Keep in mind that direct actions using aerial assets between Israel and Iran overflies Syria and Iraq and potentially Jordan as well. This increases the risk for a further spread of a potential conflict.”
