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Impact of the Latest Israeli-Palestinian Conflict on the Shipping Market


The intensification of the Israeli-Palestinian conflict raises questions about its implications for shipping in the Middle East region. From market and business perspectives, there are concerns regarding the potential effects on the shipping industry.

1: Container and bulk shipping
The escalation of the Israeli-Palestinian conflict poses risks to critical shipping channels such as the Suez Canal and the Strait of Hormuz. The Suez Canal is a vital waterway for all commercial vessels, while the Strait of Hormuz is crucial for the transportation of oil and gas. If these channels were to close, ships would have to take the longer route around Africa, leading to increased shipping costs.

2: Crude oil transportation
The closure of the Strait of Hormuz, which is essential for crude oil transportation, would have significant implications. A substantial amount of oil and gas relies on this strait for export. If the Strait of Hormuz were to close, it would result in reduced shipping volumes, negatively impacting ton-mile demand. Recent developments include a potential decrease in Iranian oil exports and increased production by Saudi Arabia, which could have a positive effect on spot freight rates for major crude carriers.

3: LPG transportation
In LPG transportation, there could be an increase in Very Large Gas Carrier (VLGC) freight rates. Middle East conflicts drive up oil prices, pushing up naphtha prices and reducing naphtha’s competitiveness, thereby increasing Asia’s demand for imported LPG and boosting VLGC demand. Dorian LPG has stated that as long as oil prices do not reach levels that dampen demand, geopolitical conflicts would not have a negative impact on their business.

4: Refined oil transportation
Freight rates for refined oil tankers are already higher than normal, and low inventories. Geopolitical crises could further push up freight rates during the winter season. Following the COVID-19 pandemic, there has been an increase in consumption of gasoline, aviation fuel, and other refined oil products, which could potentially lead to global energy shortages.

5: LNG transportation
Major LNG-importing countries are increasing Floating Storage Regasification Units (FSRUs) to enhance supply diversification, and Middle East conflicts could intensify this trend. Art Regan, CEO of shipping company Energas Infrastructure, has stated that everyone is reassessing the energy matrix for the next 10 to 20 years, focusing on energy security rather than just energy transition.

Conclusion:
The latest Israeli-Palestinian conflict has had various impacts on the shipping market. Container and bulk shipping have relatively limited effects, primarily in terms of longer routes and fuel cost fluctuations. However, there are greater risks and potential for increased freight rates and energy supply shortages in crude oil, LPG, and refined oil transportation. The LNG transportation sector is also undergoing changes to enhance supply diversity.

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