On June 18, the United States and Iran signed an outline agreement to end the war started by the United States and Israel on 28 February. The agreement provides for a 60-day negotiating period to reach a final agreement. At this stage, however, one cannot but conclude that there has been little progress towards the reopening of the Strait of Hormuz. Disillusionment has replaced what confidence there was in the parties’ capacity to restore the free passage which existed in the strait before 28 February, as hostilities resumed in early July.
Even if it has no status in international law, the Persian Gulf Strait Authority (PGSA), the creation of which was announced by Iran’s Guardians of the Revolution in May (see our last barometer), has de facto control over ships looking to go through the strait. The Iranian authorities are currently able to dictate which ships pass and which do not, whether they take the northern, central or southern route.
The CMA CGM Galapagos emerged from the Persian Gulf without difficulty after using the north route via the Iranian-controlled Larak checkpoint. Conversely, the Evergreen container ship, Ever Lovely, which tried to get out of the gulf via the southern route along the coast of Oman, was attacked by an Iranian drone, as was the tanker, MV Kiku. The attacks resulted in the International Maritime Organisation (IMO) suspending its seafarer evacuation plan, just two days after starting it.
The Iranian navy has warned ships against using routes not designated by the PGSA. For Western merchant navies, however, the gulf is an area to be avoided in the absence of guarantees, stability and visibility. Many English-speaking maritime analysts are very circumspect, moreover, about the possibility of a return to pre-28 February conditions.
In March and April, the shipping companies used the speed of their vessels to counterbalance the hike in fuel prices. Today, however, Asia-Europe services are simply too slow and too long. This has brought a flood of negative consequences, including, most notably, port congestion and excessively slow returns of empty containers to Asia. On an annual basis, we have dropped from an average of 4.3 rotations per year via the Suez Canal to three via the Cape of Good Hope, which, theoretically, means a major reduction in revenues for the shipping companies.
This chosen mode of operation allows the shipping companies to maintain a certain level of demand for available space despite overcapacity and, thus, to avoid a collapse in freight rates. It would seem, however, that the limits of this strategy have now been reached.
The spot price for very low sulphur fuel oil (VLSFO) dropped markedly at the end of June, following the announcement of the ceasefire between Iran and the United States. Reference prices fell to around USD650 per tonne on the Singapore and Rotterdam bunker markets after the announcement of the ceasefire at the end of June, compared to USD100 at the height of the crisis.
However, the heatwave looks to be having an effect on freight rates, which are beating records on the pot market. The increase is the highest recorded since the Covid-19 pandemic and the crisis provoked by the Houthi attacks on shipping in the Red Sea.
This early peak season can be explained fairly logically by a combination of at least five factors (...)