Shipping in the Persian Gulf is currently facing severe congestion due to a combination of GPS jamming and heightened regional tensions. This situation has forced ship operators to limit transits to daylight hours only, leading to a backlog of nearly 1,000 vessels since the previous week. The electronic interference affecting GPS and communication systems has resulted in many ship owners restricting their movements. A tanker owner indicated that there are growing concerns not only about potential attacks on ships but also about the challenge of clearing recent shipments from the Persian Gulf.
With operational hours reduced to a mere 16 or 18 hours per day instead of the usual 24, the congestion has intensified in this vital energy transit area. The Strait of Hormuz, connecting the Persian Gulf to the Arabian Sea, is crucial as it handles approximately 20 million barrels per day of crude and refined fuels, along with a significant volume of liquefied natural gas. Shipping executives have raised alarms over the frequent loss of connectivity, making vessels difficult to contact. This lack of GPS functionality complicates navigation and increases the risk of collisions, as locating nearby vessels becomes challenging.
A collision incident involving two tankers in June has underscored these dangers, with both vessels catching fire off the coast of the UAE. The operational disruptions have driven freight rate increases, with VLCC rates significantly rising on key shipping routes. In a dire scenario where the Strait of Hormuz is closed, many tankers would idle, causing freight rates to plummet. Conversely, if transit remains open, shipowners could demand higher freight prices due to the perceived risks.
However, the war risk premium for transit through the Persian Gulf appears largely unchanged amidst the ongoing conflict.