Persian Gulf shipping faces severe congestion as GPS jamming has increased the risk of collisions, while escalating regional tensions force ship operators to restrict transits to daylight hours only, creating a backlog of nearly 1,000 ships since last week, market participants said June 23.
The disruption stems from widespread electronic interference affecting global positioning systems and communication services, prompting ship owners to limit movements.
"There are not only concerns that the ships may get attacked, but the immediate problem is how to get recent loadings out of the Persian Gulf," said a source with a tankers' owner whose two laden ships recently moved out, and another is being loaded.
"Only a window of 16 or 18 hours is being used for movement, instead of the usual 24 hours, causing this congestion of ships," the source said.
This operational constraint has created an unprecedented traffic jam in one of the world's most critical energy transit routes. The Strait of Hormuz, connects the Persian Gulf to the Arabian Sea. Approximately 20 million b/d of seaborne crude, condensate and refined fuels pass through the strait, along with nearly 11 Bcf/d of LNG.
Other market participants have also flagged the problem of GPS jamming that is causing a major disruption in the Persian Gulf.
"The lack of connectivity is becoming very frequent. Many ships are not contactable," said a shipping executive whose company has faced this problem.
Even if there is no direct attack on ships, the possibility of collisions cannot be ruled out because when the GPS gets jammed, locating other ships in the vicinity becomes extremely difficult, and the navigation gets disrupted, the executive said.
A Unipec-chartered VLCC, the Front Eagle, collided June 17 with a Suezmax, the Adalynn, and both ships caught fire off Khor Fakkan on the east coast of the UAE, just outside the Strait of Hormuz, where maritime authorities have warned of more electronic interference following the escalation of Iran-Israel military conflicts. The reason for the collision could not be confirmed.
It is mandatory for the onshore operations team of any ship to be in touch with the crew onboard 24/7 and this is not happening at the moment, sources said. There is also an increased risk of sea mines damaging the ships, even if the Strait of Hormuz is not closed, they said.
Freight implications
The congestion has already driven significant freight rate increases, with VLCC rates on the benchmark Persian Gulf-China route jumping to w80 on June 20 from w48 a week earlier, according to Platts assessments. Clean tanker rates also reached year-to-date highs on Persian Gulf-North Asia routes.
Tanker brokers said that in a worst-case scenario, if the strategic strait is closed, the freight will slump as several tankers will be left with no choice but to remain idle. Conversely, if the strait continues to operate normally, then owners can seek a heft freight premium under the pretext of going into a war zone.
The Strait of Hormuz enables significant cash flow for Iran because the oil-rich country exports crude to countries such as China, despite the US sanctions.
However, sources said that the additional war risk premium for a seven-day transit through the Persian Gulf has remained mostly unchanged since the latest conflict began, around $30,000-$40,000 for LR1 tankers, and the bigger amounts being quoted in the market are highly exaggerated.