Commercial shipping traffic through the Strait of Hormuz should increase rapidly if the United States and Iran reach a stable agreement that improves security in the strategic sea lane, the CEO of a major oil tanker company told CNBC.
“The moment the tide turns and the U.S. and Iran find some kind of agreement, at least not to attack shipping, I’m very optimistic that those sailings will resume fairly quickly,” said Lars Barstad, CEO of the publicly traded tanker company. front linein this week’s interview.
Headquartered in Cyprus, Frontline has a fleet of 80 vessels and transports crude oil and petroleum products around the world. Five of the company’s tankers are currently stranded in the Persian Gulf due to the closure of the Port of Hormuz, Barstad said.
Barstad said traffic through Hormuz would not quickly return to pre-war levels, when 130 to 140 ships were passing daily. But a credible deal between the United States and Iran should lead to a significant increase beyond the five to 10 ships currently passing through the strait each day, the CEO said.
Barstad said some shipping companies are positioning tankers near the Gulf to cash in on the reopening of Hormuz. The front lines are not positioning vessels toward the opening, he said.
“Some actors try to approach this kind of opening scenario from a purely commercial standpoint,” Barstad said. “You could say that keeping the ship afloat is like holding a call option that something might happen.”
However, as the security situation remains unstable, it is unclear whether the United States and Iran will reach an agreement. President Donald Trump threatened to bomb Iran on Thursday night, but abruptly called off the planned attack, citing consultations with the Islamic Republic.
This has become a familiar pattern. President Trump hints at a major escalation, but eventually backs down and insists a deal with Iran is close. The cycle then repeats.
“Every weekend, we’re so close to a solution, and then every Monday, it’s disappointing,” Barstad said.
He said shippers will eventually tire of positioning themselves for an opening that never materializes and will have to decide whether to send their tankers elsewhere.
When Hormuz opens
Barstad said about 10% of the world’s largest tankers, super-large crude carriers, are currently stuck in the Gulf with oil on board. These ships can each carry up to about 2 million barrels. These will be the first fleet to leave Hormuz, if space is available, he said.
The CEO said Gulf countries were desperate to export oil because their oil storages were full and disruptions in the Straits were causing huge capital outflows.
“You’re going to end up with a lot of oil migrating into the water,” Barstad said. But he said there would be some logistical challenges in loading the oil that Gulf countries want to export.
Tanker fleets have been dispersed around the world to recover oil from areas such as the US Gulf Coast while Hormuz is closed. Saudi Aramco Chief Executive Amin Nasser said in May that relocating tankers would be the biggest obstacle to increasing oil flows through Hormuz.
But freight rates will be so high that tankers will return to the Middle East, Barstad said. Tankers transporting crude oil from the Americas to Asia are only 30 days away from delivering their cargo to the Persian Gulf.
But Balstad said Middle East exporters may not be able to fully recover pre-war production levels anytime soon. Some oil wells shut down during the war may have been permanently damaged due to pressure loss and water contamination, he said.
“I think it’s inevitable that there will be less oil coming out of the Middle East than before the shutdown,” Barstad said.
threat level
Barstad said many shippers are waiting for the threat assessment to be lowered from the highest alert level before transiting through Hormuz.
The Joint Maritime Information Center warned the shipping industry on June 4 that the threats facing ships in Hormuz are “significant” with “heightened risks of attack and miscalculation”. JMIC is a security organization headquartered in Bahrain that coordinates between allied navies and merchant ships in the Middle East.
“This means you have to expect to be hit by something if you pass through, so this is kind of the highest level of risk assessment,” Barzad said.
On June 7, JMIC downgraded the threat assessment for Hormuz from critical to the second-highest level of severe, “due to a large number of safe passages via the southern route” near the Omani coast. However, the group warned that the strait remained at a “high risk of attack”.
“Once some of these red lights turn orange or yellow, you’ll see owners start calling pretty quickly and start passing through the Strait of Hormuz,” the Frontline CEO said.
Traffic passing through Hormuz is already increasing. President Trump said Wednesday that the U.S. Navy has secretly helped transport 200 commercial ships and more than 100 million barrels of oil through Hormuz over the past month.
Barstad said that about half of the ships currently passing through Hormuz are using the Iranian-designated shipping route, with the rest taking the southern route near Oman.
Iran and Oman reportedly held talks about imposing transit fees upon the opening of Hormuz. The Trump administration is adamantly opposed to the fee structure. The Treasury Department has sanctioned Iran’s Persian Gulf Straits Authority.
Barstad said the shipping industry doesn’t like the idea of transit fees at all. But he said shippers are realistic and will adapt if the U.S.-Iran deal yields some kind of rate structure. The CEO said tolls are being paid to transit through the Suez and Panama canals.
“Ultimately, it’s the consumer who gets the bill,” Barstad said.
