Tensions between Israel and Iran have risen sharply after Iran fired over 200 missiles at sensitive Israeli sites in one of the most significant escalations in recent years. Israel has retaliated with air strikes on Hezbollah positions in Lebanon and is considering broader military responses, including strikes on Iranian nuclear facilities. The risk of a full-scale regional conflict is high and threatens to disrupt shipping through the Strait of Hormuz, a critical transit point for global oil supplies.
Israel has vowed to retaliate for the latest attacks and market participants are watching the situation closely, as a strike on Iranian oil facilities will not only affect the country in question, but also the wider Arabian Gulf. Iran produces 3.15 million barrels per day (mbpd) in 2024, or around 3% of global production, so a significant amount of global supply is at risk and could be taken off the market. Adding to the risk premium is the potential closure of the Strait of Hormuz, which will affect Arabian Gulf exports, which account for around 20% of global crude oil trade.
Focusing on Iran alone, the country has shown resilience in terms of both oil production and exports, as it exported a record amount of crude in July with a total of 1.56mbpd, while production in September was 3.3mbpd, the highest since October 2018. The country has a long history of sanctions, with the US first imposing sanctions on Iran in 1979, freezing $12bn of Iranian assets following the hostage crisis. These initial sanctions were expanded in 1987 with an embargo on Iranian imports. By 1995, US companies were prohibited from investing in Iran's oil and gas sector, and foreign companies faced secondary sanctions for similar activities. More recently, in 2012, additional sanctions targeted Iran's central bank, crippling its profits from oil exports. This reduced Iran's exports by 1.4 million barrels per day. The 2015 Joint Comprehensive Plan of Action (JCPOA) temporarily eased sanctions, but these were reinstated in 2018 after the US withdrew from the deal, citing concerns over Iran's missile program and regional influence.
The country relies heavily on exports to China, which accounted for 89% of Iranian exports in 2024, although it is not easy to track the actual shipments that facilitate the trade. Due to the US sanctions, carriers are proving resourceful as they increasingly use ship-to-ship transfers in the Riau Archipelago, which is why a large proportion of Iranian exports go to destinations such as Malaysia and Singapore, according to AIS data.
In 2024, the vast majority of tankers carrying Iranian oil were VLCCs, accounting for 86% of the trade, while Suemaxes and Aframaxes accounted for 12% and 2% respectively, with the National Iranian Tanker Company (NITC) being the largest owner of the vessels, demonstrating Iran's ability to build its own fleet and circumvent sanctions.
If hostilities escalate and key oil facilities are hit, much of the world's oil will be taken offline, leaving room for other exporters to take market share. In addition, the tankers currently dedicated to the Iranian trade will find it extremely difficult to be employed in other trades, adding to the upside risk for crude tankers. It will be crucial to monitor how the situation unfolds and what the actual impact on shipping may be.
Data Source: Intermodal