Reports of the closure of the Strait of Hormuz seem to be exaggerated. Certainly, the Iranian Revolutionary Guard issued a statement through the Farrs Press Agency in Iran, stating that the “Commander of Iran’s Islamic Revolution Guards Corps (IRGC) Navy Rear Admiral Alireza Tangsiri stressed that Tehran is prepared to close the Strait of Hormuz whenever the country’s authorities issue an order”. The statement continued that Rear Admiral Alireza Tangsiri said “that the decision rests with the top officials within the country”.

Therefore, it appears that the Strait is not blocked.

The background to this threat is the growing tension between the US and Iran, with the American armed forces massing in the Indian Ocean. The two sides are negotiating, although it is unclear what the details of these negotiations are. They seem to be addressing the issue of Iran’s nuclear weapons programme; the underlying question, as far as the Americans are concerned, is the continued existence of the regime in Iran. Therefore, the negotiations may be difficult, and there is a strong likelihood of military conflict.

Whether any military action by the Americans will result in the closure of the Strait, with all the implications for shipping, and indeed other logistics markets, that would come with that is far from certain. The previous bombing of Iran by both the Israeli’s and the Americans did not result in any substantial interruption to shipping into the Gulf, so it is unclear if the Iranians would or could close even part of the Strait of Hormuz.

What it does imply is that there will not be any return to normal in the region and that the risk premium for vessels serving the region will remain. This is clearly relevant to any move away from the ‘Cape Route’. The Houthis in Yemen, who have obstructed much of the traffic through the Red Sea and the Suez Canal, are allies of the Iranians and therefore it is quite possible that they will stage some form of attack on shipping if only for symbolic purposes.

Therefore, the implication of the tensions with Iran is that they may not lead to a direct assault on logistics assets in the region, but they will help sustain the heightened level of risk, delaying any return to normal in container shipping, such as a resumption of the Suez route. This will impact prices.
Source: Ti Insight