The reopening of the Strait of Hormuz is encountering significant difficulties. Even if the vital waterway fully reopens, allowing laden vessels to depart, this alone will not restore normal conditions.

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A sustained resumption of trade requires empty ships to return through the strait into the Persian Gulf to collect new cargo. Shipping companies are hesitant to re-enter the Gulf while concerns persist that a current ceasefire may only be temporary. Tanker owners and their insurers are unwilling to risk vessels becoming trapped for extended periods without assurance of stability.

A brief or fragile ceasefire is insufficient to build the necessary confidence among ship operators. Consequently, the potential benefit from hundreds of loaded ships exiting the strait may be temporary if no new vessels enter to load subsequent cargoes of oil, fertilizer, and other essential goods. Shortages and elevated prices for these commodities could persist for months.

The initial step to normalizing trade flows is the departure of ships already trapped within the Gulf, which has not yet occurred on a significant scale. Traffic through the strait has drastically declined, with daily oil tanker movements falling from a typical level of over one hundred to ten or fewer. According to Matt Smith of trade analytics firm Kpler, there are about 400 loaded oil tankers in the Gulf waiting to get out, but only about 100 empty tankers eager to get in.

Should the strait open imminently, a return to normal oil flows might not be achieved until July. A similar imbalance affects container ships vital for regional imports and exports, with roughly 100 vessels waiting to exit and virtually none waiting to enter. This logjam threatens the movement of critical exports, including an estimated 30% of the world’s fertilizer supply that originates in the region.

Shipping by sea is the only viable method to move these bulk commodities, and sufficient capacity does not exist to easily reroute them. Without new ships transiting the strait into the Gulf, production of goods such as crude oil, refined fuels, and fertilizer is expected to remain halted.

Source: IndexBox Market Intelligence Platform