Strait of Hormuz under threat: Shell warns of blockade risk and impact on oil market

Oil prices are rising as a result of the conflict between Israel and Iran, as are shipping costs due to the increased risk. A potential blockade of the Strait of Hormuz would make the situation even worse, according to Shell’s chief executive.

Oil prices rose over the past week as the conflict between Israel and Iran escalated, with Brent crude gaining nearly 1% on Thursday to more than $77 a barrel. Wael Sawan, chief executive of oil company Shell, one of the world’s largest traders in oil and natural gas, also warned that further escalation of the conflict in the Middle East could make the situation worse. The Guardian reports.

Meanwhile, US President Donald Trump suggested that the US could join the air war between Israel and Iran.

“Maybe I’ll do it, maybe I won’t. I think nobody knows what I’m going to do,” the US president said.

Blockade

The transport of goods, including oil, is already being disrupted by the jamming of navigation signals in and around the Persian Gulf.

According to Sawan, the situation would worsen further if the Strait of Hormuz, which connects the Persian Gulf with the Indian Ocean and carries around a quarter of the world’s oil trade, were blocked.

“If this artery is blocked for any reason, it will pose a very serious problem for global trade,” Sawan said at a conference in Tokyo. He also said that Shell has plans in place in case the situation worsens.

Shipping costs rise

According to data from analytics and data company Clarksons Research, cited by the Financial Times, the cost of chartering large oil tankers through the Strait of Hormuz has also more than doubled amid rising risks in the area.

The daily cost of chartering a large tanker capable of carrying 2 million barrels of oil from the Persian Gulf to China more than doubled after Israel attacked Iran.

The Baltic Dirty Tanker Index (BDTI), which measures the cost of transporting unrefined oil and fuel oil by tanker, recorded an increase of more than 12% in shipping costs.