Hormuz Shipping Traffic 70% Below Pre-Conflict Levels Amid Rising Attacks

What happened

Shipping traffic through the Strait of Hormuz remains 70% below pre-conflict levels, according to a weekly assessment by the UK Maritime Trade Operations (UKMTO). In the seven days leading up to October 28, a total of 277 vessel transits were recorded in the strait, comprising 155 inbound and 122 outbound movements. This combined figure, which includes automatic identification system (AIS) observations and US-reported facilitated transits, is significantly lower than pre-conflict levels.

UKMTO also reported that vessels continue to face attacks, navigation interference, and security risks across the Gulf. October was the worst month for attacks on shipping since the conflict began, with at least 35 incidents recorded in the Gulf and the Strait of Hormuz. Since February 28, when the conflict started, UKMTO has recorded 88 incidents in the Strait of Hormuz.

Why it matters

The Strait of Hormuz is one of the world's most critical maritime routes, especially for oil transportation. The US Naval Cooperation and Guidance for Shipping (NCAGS) estimates that approximately 80% of transits through the strait involve energy carriers. The persistence of traffic 70% below pre-conflict levels, combined with an increase in attacks on ships, signals a significant and ongoing disruption to the flow of oil and other essential goods.

This situation raises insurance and operational costs for shipping companies, in addition to creating uncertainty about the delivery capacity of supplies. Reduced traffic and increased security risks can lead to delays, route diversions, and ultimately impact the global energy supply, with potential repercussions for oil prices and the global economy.

Market impact

• Commodities: Oil tends to react with high volatility and upward pressure. The disruption in the Strait of Hormuz, a vital route for energy transport, creates a supply risk that could sustain or elevate crude oil prices. The perception of lower supply or increased transport risk tends to be priced in quickly. However, the magnitude of the impact will depend on the ability of other routes or inventories to compensate for this disruption.
• Interest rates and bonds: In a scenario of higher energy prices, there is an inflationary risk. This could lead central banks to maintain tighter monetary policies for longer, or even consider interest rate hikes to curb inflation. Consequently, government bond yields (Treasuries and others) may rise, reflecting expectations of higher interest rates and risk aversion.
• Dollar and exchange rates: The US dollar tends to strengthen during periods of global risk aversion, such as that generated by geopolitical conflicts and trade disruptions. Investors seek assets considered safer, and the dollar is often a safe haven. Emerging market currencies, such as the Brazilian real, may depreciate against the dollar due to capital outflow and the perception of increased risk.
• Equities: Global stock markets tend to react negatively to increases in oil prices, which can impact production costs and consumer purchasing power, as well as raise inflationary pressures and interest rates. Sectors such as transportation and manufacturing may be particularly affected. Energy companies, on the other hand, may see their profits increase, but overall market sentiment tends to be cautious.

What to watch

Investors should closely monitor weekly reports from UKMTO and other maritime monitoring agencies regarding traffic and incidents in the Strait of Hormuz. Any sign of escalating attacks or a further reduction in traffic could intensify concerns about oil supply. Furthermore, it is crucial to observe statements and actions by global and regional powers regarding navigation security in the region, as well as oil and gas inventory data, which can indicate the market's resilience to these disruptions.

Scenarios

Base Scenario: Traffic remains at reduced levels and attacks continue sporadically, keeping oil prices volatile with an upward bias, but without a drastic escalation that completely paralyzes the route. Risk Scenario: A significant escalation in attacks or a partial/total blockade of the strait would lead to an oil supply shock, with soaring commodity prices and strong global risk aversion, negatively impacting equities and emerging market currencies.

Original source: Middle East Eye. For information only, not investment advice.