Tankers are seen off the coast of the Fujairah, as Iran vows to close the Strait of Hormuz.Amr Alfiky/Reuters
President Donald Trump’s pledge to ensure safe passage of oil and natural gas through the Strait of Hormuz shipping chokepoint calmed markets somewhat on Wednesday even though Israeli and U.S. attacks on Iran continued in full force, Israel vowed to assassinate the next Iranian leader and a container ship in Hormuz was hit.
The ship was struck Wednesday by a projectile “just above the water line, causing a fire in the engine room,” the U.K.’s Maritime Trade Operations centre said. A U.S. submarine sank an Iranian frigate in international waters in the Indian Ocean, U.S. defence secretary Pete Hegseth confirmed. Various reports said 150 crew members were missing.
In mid-afternoon trading, European gas prices were more or less flat after climbing more than 70 per cent since Monday, when ships carrying liquefied natural gas (LNG) to Europe and Asia stopped crossing Hormuz.
What to know about the Strait of Hormuz
Oil climbed early in the day, then lost its gains. In afternoon trading in London, Brent crude, the international benchmark, was down slightly to about US$81 a barrel. Before the Israeli and U.S. attacks on Iran started on Saturday, Brent was trading at US$73.
The FTSE-100 index was up almost 1 per cent in the afternoon; Germany’s DAX index, whose selloff on Monday and Tuesday was severe, climbed 1.5 per cent.
Asian markets continued to see steep declines, reflecting the region’s dependency on the Middle East for oil and LNG. South Korea’s benchmark Kopsi lost 12 per cent after shedding 7.2 per cent on Tuesday – the index’s worst two-day performance since the 2008 financial crisis. Markets in Japan and Taiwan each fell about 4 per cent
Mr. Trump, evidently sensitive to rising gasoline prices in the U.S. during an election year – the congressional mid-term poll is set for November – on Tuesday said that the U.S. International Development Finance Corp. would offer shipping insurance to tankers “at a very reasonable” price to ensure the flow of energy through Hormuz.
He also said the U.S. Navy would escort ships through Hormuz “as soon as possible,” if necessary.
Critical choke point
Islamic Revolutionary Guard Corps bases
Maritime
boundary
Tehran
IRAN
Bandar-e-Abbas
Larak Island
Bahrain:
HQ of U.S.
5th Fleet
Qeshm
Deepwater
shipping lane
IRAQ
IRAN
KUW.
OMAN
SAUDI
ARABIA
Strait of
Hormuz
U.A.E
Sirri
OMAN
Abu
Musa*
Jask
IRAN
U.A.E
Persian Gulf
Fujairah
Abu
Dhabi
UNITED
ARAB
EMIRATES
Shipping lanes are
2,700m wide, separated
by buffer zone
OMAN
40 km
*Occupied by Iran, claimed by U.A.E.
the globe and mail, Source: graphic news; iran
international; reuters
Critical choke point
Islamic Revolutionary Guard Corps bases
Maritime
boundary
Tehran
IRAN
Bandar-e-Abbas
Larak Island
Bahrain:
HQ of U.S.
5th Fleet
Qeshm
Deepwater
shipping lane
IRAQ
IRAN
KUW.
IRAN
SAUDI
ARABIA
Strait of
Hormuz
U.A.E
Sirri
OMAN
Abu
Musa*
Jask
IRAN
U.A.E
Persian Gulf
Fujairah
Abu
Dhabi
UNITED
ARAB
EMIRATES
Shipping lanes are
2,700m wide, separated
by buffer zone
OMAN
40 km
*Occupied by Iran, claimed by U.A.E.
the globe and mail, Source: graphic news; iran
international; reuters
Critical choke point
Islamic Revolutionary Guard Corps naval bases
Tehran
Maritime
boundary
Bandar-e-Abbas
Larak Island
IRAN
Qeshm
Deepwater
shipping lane
Bahrain:
HQ of U.S.
5th Fleet
IRAQ
IRAN
KUW.
SAUDI
ARABIA
Strait of
Hormuz
U.A.E
Sirri
OMAN
Abu
Musa*
Jask
IRAN
U.A.E
Persian Gulf
Fujairah
Abu
Dhabi
UNITED
ARAB
EMIRATES
Shipping lanes are
2,700m wide, separated
by buffer zone
OMAN
40 km
*Occupied by Iran, claimed by U.A.E.
the globe and mail, Source: graphic news; iran international; reuters
Details were scant and it was not immediately clear when the insurance plan would be in place, or even if U.S. laws allow navy ships to escort merchant ships that are not U.S.-flagged or American-owned.
Hormuz is the narrow channel – 33 kilometres across at its narrowest point – that separates the Persian Gulf from the Gulf of Oman on the Indian Ocean. About 20 per cent of global oil and LNG travels through Hormuz on the way to global markets, especially those in Asia and Europe.
Hormuz has been closed since Saturday due to the cancellation of shipping insurance policies and the possibility of drone and missile attacks from Iran, which effectively controls the strait.
The closing of the strait has triggered oil and LNG productions cuts, since their output can’t be loaded on ships.
QatarEnergy, the world’s biggest LNG company, suspended production on Monday after a drone attack. While the damage was minor, its LNG facility has not reopened because gas ships have been unable to travel through Hormuz. On Wednesday, the company declared force majeure, allowing it to cease supplying customers because of unforeseen extreme invents – war, in this case.
Analysts on Wednesday had doubts whether the U.S. Navy’s presence in the strait would be enough to protect oil and LNG ships from attack.
“Advances in drone warfare make defending the world’s most critical energy chokepoint extremely onerous, even for the most powerful military on the planet,” Montreal’s BCA Research said in its latest investor note.
Bimco, the world’s biggest trade group for shipowners, said that providing protection for all tankers passing through Hormuz “is unrealistic” due to the number and range of military assets that would be needed to keep them safe.
Throughout Wednesday, there was no sign that the Israeli and U.S. attacks on Iran would ease anytime soon.
Israel said it had launched “extensive strikes” against Iranian missile sites, infrastructure and defence systems. Its Defence Minister, Israel Katz, vowed to assassinate the leader chosen to replace Ayatollah Ali Khamenei, who was killed in his office in Tehran during the initial attacks early on Saturday.
The threats came as reports surfaced that Mojtaba Khamenei would succeed his father as supreme leader as early as Wednesday. He is 56, reclusive and known to have close ties to Iran’s Revolutionary Guards.
Mr. Katz said in a statement that “any leader appointed by the Iranian terrorist regime to continue leading the plan to destroy Israel … will be an unequivocal target for elimination.”