The Strait of Hormuz is back in the spotlight after an alleged attack on four commercial vessels at Fujairah in the United Arab Emirates, close to the southern entrance to the strategic waterway, took place amid soaring tensions between the US and Iran. Oil prices and tanker insurance rates have barely flinched so far with the market seemingly confident that a major escalation is not imminent. Iran has previously threatened to shut the world’s most important oil artery, through which the bulk of Mideast jet fuel exports pass in addition to its huge crude oil traffic, in response to the US’ decision, announced last month, to try and drive Iranian crude exports to zero (JFI Apr.29’19). The US has deployed a carrier strike group and bomber task force to the Mideast Gulf since then to “send a message” to Iran that any attack on US interests in the region would not be tolerated. It is by no means the first time over the past decades that Iran has threatened to block the strait, and with benchmark Brent oil prices still in the low-$70s per barrel, the markets appear to have shrugged off the seriousness of the latest incident, for now at least. Iran called the Fujairah incident in which two Saudi oil tankers were damaged in a May 12 sabotage attack “alarming and regrettable,” and is widely expected to sit tight and wait it out rather than seek to escalate the situation either indirectly through its proxies in the region or by directly targeting critical infrastructure. The Saudi tankers were empty with one on its way to load crude at the kingdom’s Ras Tanura port for delivery to Saudi Aramco customers in the US. Like the largely indifferent oil price, the fact that insurance for tankers sailing through the Strait of Hormuz has yet to be affected by the Fujairah attack suggests the risk of a major escalation is not imminent. “In terms of the sabotage that appears to have occurred against the ships [in Fujairah], I think the logic is that the Iranians are showing what they could potentially do,” says Jack Watling of the UK’s Royal United Services Institute. “But obviously if they actually sank one of these ships … there would need to be some sort of retaliation. So it was sabotage less than catastrophic.” Insurance sources told Energy Intelligence Thursday that US oil major Chevron and two other companies had stopped their vessels from entering Fujairah while the security situation remained uncertain.
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