New Delhi: Daily charter hire rates for tankers to India have more than doubled to $250,000 in about two weeks, as escalating hostilities in the Red Sea and Strait of Hormuz push up the cost of shipping oil to the world’s third-largest oil importer, according to three people familiar with the developments.
Rates have risen 150% from about $100,000 as Houthi forces seized control of Yemen’s Mocha port near the Bab el-Mandeb Strait, the people said. Bunker fuel prices have also risen 50% to $900 a tonne, while insurance costs have increased 20%, adding to the cost of imports, including energy.
Iran-backed Houthi forces seized Yemen’s Red Sea port city of Mocha last week and have since advanced toward the Bab el-Mandeb Strait, reaching the strategically located Perim (Mayun) Island and further threatening shipping through the key Red Sea chokepoint, according to Reuters and other reports. The development comes as traffic through the Strait of Hormuz remains severely disrupted, raising the risk of further pressure on shipping and energy supplies in the region.
The latest escalation is a major concern for India as a likely Houthi takeover of Bab-al-Mandab could worsen disruptions and force tankers carrying Saudi Arabian oil to take the Suez Canal route, adding another two weeks to the voyage and potentially further pushing up global oil prices, according to shipping industry executives. Oil prices are already around four-month highs, with benchmark Brent crude near $105 a barrel.
“The situation has completely reversed over the past week,'' said Anil Devli, CEO of the Indian National Shipowners' Association (INSA).
"Seafarers are now worried to take the Strait of Hormuz route. There was some movement earlier, but now there is none as now both ships are being attacked and sunk, shippers killed, while earlier they were mostly disabled and not allowed to move," he said.
West Asia accounts for about 30% of India’s current oil and gas imports. The development is significant for India, as every $1 increase in crude oil prices raises the annual import bill by ₹18,000 crore, affecting inflation and growth. In July, India’s retail inflation rose to a 19-month high of 4.45%.
He added that tanker rates had eased to around $70,000-80,000 a day about two months ago but have surged of late.
The increase in tanker freight costs comes as India’s crude import bill for April-July this fiscal year has already reached $63.37 billion, up 56% from a year earlier. This compares with a total oil import bill of $123 billion in the previous fiscal year.
“The latest uncertainty in West Asia threatens to halt the revival of supplies and the eventual rise in prices adds to the supply constraints, as there are instances of Russian crude also being sold at a premium,” said an executive with a refiner, one of the three people cited above, requesting anonymity.
The Indian crude basket was last recorded at $115.98 a barrel on 9 September. It's derived basket comprising Sweet grade (Brent Dated) and Sour grade (Oman & Dubai average) crude oil imported by Indian refineries, is used as a reference point for the government’s budgeting purposes and for providing fiscal support to oil marketing companies.
“There is very limited movement of ships around the Strait of Hormuz and the little that moves, paying hefty war risk premium that has also gone up further high over the already elevated levels,” said a UAE-headquartered logistics major DP World executive, who did not want to be named.
DP World operates a global logistics and ports network across 80 countries and has a 10% share of global container traffic.
Queries emailed to India’s ministries of ports, shipping and waterways, and petroleum and natural gas, and state-run refiners Indian Oil Corp., Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL) remained unanswered till press time.
In a bid to support Indian ships and provide confidence to the industry, the Centre launched the Bharat Maritime Insurance Pool (BMIP), a $1.5 billion facility, in May, with a sovereign guarantee of $1.4 billion to facilitate continuous maritime insurance coverage.
However, an executive with an Indian shipping company, speaking on condition of anonymity, said Indian ships are currently not plying through the affected routes and are therefore not using insurance support through the government-backed fund.
While tanker rates have surged, container freight rates remained stable at $4,476 per 40-foot container during the week ending 10 September, according to the Drewry World Container Index (WCI), largely due to a fall in rates on the Asia-Europe trade route.
Rates from Shanghai to Genoa fell 3% to $4,216 per 40-foot container, while those from Shanghai to Rotterdam declined 2% to $3,997. On the transpacific trade, rates from Shanghai to Los Angeles rose 2% to $7,352 per 40-foot container, while those from Shanghai to New York edged up 1% to $9,726.
“Iran-US tensions continue to disrupt shipping through the Strait of Hormuz. The Panama Canal Authority has postponed a 0.15-metre draft reduction for Neopanamax vessels, although transit restrictions remain,” said Drewry in its 10 September update.
According to a recent analysis by S&P Global Energy, prospects for a definitive resolution to the war between Iran and the US have dimmed. With Brent crude prices recently topping $100 a barrel for the first time since July, crude oil markets are settling into a prolonged new normal in which disruption risk is persistent.