Shipping industry set for tougher times ahead due to Israel-Iran tensions: Experts

Supply chain disruption is certain though hope is being maintained that both Iran and Israel will not blow up the situation

April 15, 2024 01:51 pm | Updated 02:43 pm IST - Singapore

A file photo of oil tankers passing through the Strait of Hormuz

A file photo of oil tankers passing through the Strait of Hormuz | Photo Credit: Reuters

The global maritime industry is set for tougher and more challenging times due to the increasing tensions in the Middle East, causing supply chain disruption and increasing the probability of choking shipping routes, experts in Singapore said.

Iran launched 330 missiles and drones on Israel on April 13 in retaliation to an attack by Israel on a diplomatic mission of the Islamic Republic in Damascus on April 1 in which several people, including two top commanders, were killed.

There is a concern about the probability of a Persian Gulf shutdown though many maintain hope of defusing fierce tension in the region, a delegate at the opening of Singapore Maritime Week on Monday, told PTI. The Persian Gulf is a Mediterranean Sea in West Asia. It is connected to the Gulf of Oman in the east by the Strait of Hormuz, one of the world's most strategically important choke points.

Economic, environmental costs

The diversion of each ship is estimated to cost $30 million through the Cape of Good Hope from the Suez Canal, according to Danish Sultan, managing director of PacMarine Services in Singapore.

The Suez Canal is an artificial sea-level waterway in Egypt, connecting the Mediterranean Sea to the Red Sea through the Isthmus of Suez and dividing Africa and Asia.

“With 80-85% of the global cargo transported by ships, the shipping industry will have to go on in any environment,” he pointed out.

Shipping costs have already gone up by three to four times compared to pre-Covid level, Colin Er Wen-Jie, director of the transport department at the Sumitomo Mitsui Banking Corp said at the Singapore Maritime conference being held April 15-19 and is attended by over 10,000 delegates.

Supply chain disruption is certain though hope is being maintained that both Iran and Israel will not blow up the situation.

Diverting a ship via Cape of Good Hope adds 12-13 days of additional journey compared with sailing through the Suez Canal, according to Sanjay Verma, director of Decarbonisation Solutions for Marine at Wartsila.

The “tonne mile increase will lead to a spike in shipping costs,” he said, adding that it would add to pollution and deflate all efforts being made for managing the climate as more and more fuel will be burned.

“Commodity prices, including oil, will be spiked,” Sanjiv Mishra, head of section, Date Centre Asia – Maritime at the DNV. The global shipping industry is playing an important role in transporting 80-85 per cent of the global trade, he stressed. “I hope the situation in the Middle East is controlled, and the supply chain is maintained,” he said.

“Sourcing of commodities would change,” added Punit Oza, Founder of Maritime NXT Pte Ltd in Singapore. Supply importing countries will switch to buying from nearer home markets even though it would be expensive, he added.

Trade from Asia will benefit due to the delivery of expensive goods and a spike in prices of essential food products and items. But the seafarers will suffer and the industry will face a manpower squeeze as sailors will not want to board ships and new recruits will be discouraged from joining the shipping industry, according to Captain Pradeep Chawla, CEO and Founder of MarinePALS.

“There will be fear of being captured,” he said, pointing to the 17 Indian seafarers held on board MSC Aries that had been captured by the Iranians.

Ship owners are more worried about their vessels out there and their board rooms are busy working out rescue efforts, diverting attention from the decarbonisation of the industry, said the shipping industry stalwart.

‘We set for a tumultuous market’

If the Persian Gulf is closed and other routes are choked, the US, as a net oil exporter, will benefit from higher prices, said an oil industry executive at the Maritime Week on condition of anonymity.

“We are set for a tumultuous market,” he added. “A war situation, which we hope never happens, will put pressure on the shipping industry and shipbuilders,” he said.

The Iranian threat had led to worldwide diplomatic initiatives to thwart a possible further conflagration in the region already struggling with Israel's offensive in Gaza following a terror attack carried out by Hamas in its territory on October 7 and also regular exchange of fire between the Jewish state and Lebanese Shia faction Hezbollah, which joined the war in solidarity with Hamas.

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