Iran attack on Israel 'factored in' by shippers and energy suppliers in Middle East

Iran attacking Israel and concerns of an escalating regional conflict are already "factored in" by the energy industry in the Middle East, according to shippers and market analysts.

"Since ships and companies affiliated with Israel are already under threat from the Houthis and Iran, we believe that operational patterns have already factored in such threats, and that the recent Iranian saber rattling has not resulted in further measures of significance at this point," David Loosley, secretary general of shipping industry group Bimco, said by email Aug. 12.

"The Middle East is not considered a no-go zone as such, but shipowners generally conduct their security risk assessments to determine how the Iranian threat could affect them and then decide on appropriate defensive and protective measures," Loosley said.

Freight costs to move crude oil and refined products from the Middle East were little changed or down on the day Aug. 12.

The cost to use a tanker to ship clean products on a Long Range 2 vessel from the Persian Gulf to the UK slumped 5% on Aug. 12 to $50.80 a metric ton, the lowest since December 2023, while the dirty tanker rate to move crude oil from the Persian Gulf to the Mediterranean was unchanged at $15.86/t, according to Platts assessments from S&P Global Commodity Insights.

The lack of a market response to the escalation of the crisis is in part due to unity among Arab governments stating their opposition to the Israeli attacks, minimizing tension between Iran and its neighbors, Fotios Katsoulas, a shipping and freight analyst at Commodity Insights, said.

"As flows from the region are crucial for China and the rest of the world, we don't expect any disruption there, as this would cause China and others to intervene," Katsoulas said, adding any market impact would therefore likely to be minimal.

Energy security

The Strait of Hormuz that connects the Persian Gulf to global shipping routes is the world's most important energy transit chokepoint, with over 20 million b/d passing through it. Latest IMF Portwatch data shows the average daily ship transits via the strait stood at 91 in the week ended Aug. 11, down from 111 a year earlier.

"The risk of the conflict impacting oil production remains low, but oil transport is at greater risk," analysts at Commodity Insights said in an update to their "Political Risk Scorecard" report. "As has been the case since Oct. 7, if oil supply and flows are unaffected, it will not lead to a sustained uplift to crude oil prices." Crude oil and natural gas prices jumped Aug. 12, but more in reaction to Ukraine-Russia fighting and force majeure declared at Libya's Sharara field.

Platts-assessed Dated Brent climbed 2.1% to $83.31/b on Aug. 12, the highest since May 8. The September JKM marker for LNG was assessed at $14.19/MMBtu on Aug. 12, up 4.4% on the day and the highest this year.

Any impact on Israel's gas infrastructure would have regional as well as domestic implications. Israel is now a significant gas producer and regional exporter, with output having reached a record high of 24.7 Bcm in 2023, according to Israeli energy ministry data published in May.

In the immediate aftermath of the Oct. 7 attacks, the Israeli government ordered the closure of the Tamar platform as a precautionary measure. It resumed operations one month later.

Israel is also a key regional gas exporter. In 2023, it exported some 11.6 Bcm of gas to Egypt and Jordan, a 25% year-on-year increase.

Egypt in particular is reliant on gas imports from Israel to meet domestic demand in the summer months and to be able to export LNG in winter.

Without Israeli gas, Egypt would likely have to import more LNG cargoes on top of those it has already contracted for this summer to meet domestic demand, further tightening LNG markets.

Jet fuel demand

Most flight disruptions have been centered around the Middle East, largely in Israel, Iran and Lebanon, but they haven't affected global jet fuel demand, Linus Benjamin Bauer, founder and managing director of Bauer Aviation Advisory, said by email Aug. 12.

Platts-assessed jet fuel FB Arab Gulf cargo gained 1.1% to $89.42/b from a three-month low on Aug. 5.

"If tensions escalate, and flight cancellations or route adjustments become more widespread or prolonged, we might see a more pronounced impact on fuel demand in the coming weeks," Bauer said.

"We are currently in the summer travel season, a peak period for aviation. If disruptions significantly reduce travel demand or capacity during this time, it could lead to a noticeable dip in fuel consumption. The full effect might become more evident as airlines finalize their schedules and travelers alter their plans in response to the ongoing situation," he said.