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Hormuz blockade would mean $554bn hit to seaborne trade

Any closure of the Strait of Hormuz by Iran or other actors could disrupt more than half a trillion dollars worth of seaborne trade to and from Gulf countries, Russell Group computer model predicts

‘Loss of oil as an input will hurt the ability of companies in Asia to produce the goods that are needed, so there will be a knock-on effect for anybody to whom they supply goods,’ says managing director

CLOSURE of the Strait of Hormuz by Iran or other actors could disrupt more than half a trillion dollars worth of seaborne trade between Gulf countries and the top 50 trading economies worldwide, according to computer modelling from a leading risk management software provider.

Saudi Arabia — already engaged in proxy wars with Iran in Yemen and Syria — would be the most affected country, with trade in both directions of $3.5bn a week. Some $2bn a week of that moves through Ras Tanura, its biggest port.

Asian countries led by China and Japan would initially be at the forefront of any fallout, and would be damaged far worse than Europe and the US, Russell Group added.

However, some 80% by value of the cargo flow is made up of crude oil, much of which serves as raw material for petchems and plastics in key Asian manufacturing centres, so the West would ultimately not escape the fallout.

Most of the remaining 20% is comprised of containerised imports such as food and consumer goods, and there are also some dry bulk traffics, such as Saudi bauxite exports.

Tension has ramped up massively since the Trump administration pulled out of the Iran nuclear deal last year, effectively reimposing sanctions on Iran that have already forced many operators of tankers and other vessel types to drop calls to that country.

In addition, the US military is deploying the USS Abraham Lincoln Carrier Strike Group and a bomber task force to the region.

Tehran has hinted at retaliation, and US officials such as national security advisor John Bolton have openly accused Iran of being behind the mining of four vessels alongside in bunkering hub Fujairah on May 12.

As reported by Lloyd’s List this week, leading war risk insurers such as Thomas Miller-managed UK War Risks and Norway’s Den Norske Krigsforsikring for Skib are predicting a rise in additional premiums, possibly substantial.

The obvious nightmare scenario for shipping would be an Iranian effort to shut down the Strait of Hormuz, a development which has been threatened by Alireza Tangsiri, head of the naval forces of the Islamic Revolutionary Guard Corps.

“If we are prevented from using it, we will close it,” he told state news agency Fars. “In the event of any threats, we will not have the slightest hesitation to protect and defend Iran’s waterways.”

Lloyd’s List asked the Russell Group to model the consequences of a closure for the shipping industry.

Seaborne trade through the Strait of Hormuz is worth $554bn a year, the firm believes, with the vast majority of that accounted for by oil, said managing director Suki Basi.

Of that, around half passes through just five ports, namely Ras Tanura, Jebel Ali, Al Basra Oil Terminal, Bandar Imam Khomeini and Ras Laffan.

Much of the trade is Asian-centric, with Saudi exports to China valued at $31bn, to Japan $28bn, to India $21bn, and to South Korea $19bn, compared with exports to the US, at just under $19bn.

“Loss of oil as an input will hurt the ability of companies in Asia to produce the goods that are needed, so there will be a knock-on effect for anybody to whom they supply goods,” said Mr Basi.

“The connected risk for insurers will be the effect on supply chains, which means credit risk, business disruption and defaults.”

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