Container Bytes #42: The Iran-Oman Framework and the Transpacific Rate Rebound

So it looks like there is anticipation once again that the Strait of Hormuz could reopen, but this time through an Iran-Oman agreement.

So what's the latest here, and what's different this time?

So as you said, this time it's an Iran-Oman initiative, whereas before, uh, Oman wasn't really directly involved or officially involved, and this is really, um, an agreement between these two sides.

I'm sure there's input from other parties, but it's kind of this bilateral agreement, and it's a big change in that it is set to allow transits through the Omani side.

So when we've seen attacks on vessels in the last, you know, month or so, it's really been on vessels trying to use this, uh, lane that is not via the Iranian lane, which is to the, to the north.

So this deal would reopen the Hormuz without tolls or fees on transiting vessels for 60 days, and this would have ships entering the Persian Gulf in coordination with Iran through that northern lane and exiting the Gulf in coordination with Oman through that southern lane.

So it is recognizing authority other than Iran over the Strait of Hormuz to some extent, but it's also validating, at least partially, um, Iranian authority over the strait, which the US as well as several other Gulf states have been really opposed to.

And it would also mark a big change to the status quo if it, uh, takes effect, and if it is part of a more permanent settlement, that would be a, a real, a real shift.

But the hope is that this will maybe take the place of what the memorandum of understanding was meant to do back in June, which was kind of create stability, um, open the strait, which is in the interest of a lot of the parties involved, um, and create that space that the sides, US and Iran, can negotiate towards a final peace deal, which would tackle other issues like Iran's nuclear program and things like that, which so far have just been sidelined because the Hormuz has been the big issue for now.

Okay.

So what would the reopening of this type of deal mean for ocean freight?

So first of all, it's not definite that it will happen even if it's signed by both the sides, Iran and Oman.

It may be contingent on the US removing their blockade, which again, would be kind of a, a tacit or really explicit recognition of Iranian control over, or at least partial control over the strait.

Um, if it is reopened though, probably see what we started to see when it kind of reopened last time back in June, which would be a, a rebound in traffic, but one that would be gradual.

Even if this goes into effect completely, we're still having just this northern and southern channel, which are much... which are kind of the narrower channels, and the main central lane will, will remain closed because of the, um, concern over Iranian mines.

So we might not have traffic return to normal levels even if this goes into kind of full effect.

For the container market, we'll probably see some of those stuck vessels start exiting before we'll see a lot of traffic entering the Persian Gulf for obvious reasons that, you know, carriers don't want those vessels to get stuck again as long as there's so much uncertainty or, or possible instability.

Once there's more, um, kind of confidence in the solution, you might see more, uh, container vessels entering the Persian Gulf, and this would ease pressure on those, uh, land bridge solutions, which are really kind of overwhelmed, um, these alternatives to, to going through the strait.

And so that might start to kind of ease some of the, some of the problems there.

But it might be a while until you see kind of a resumption of regular traffic and those big vessels or long haul vessels making calls, um, in the Persian Gulf again until carriers are really, uh, confident that, that this is going to take.

It's possible if this goes smoothly and if somehow this involves, uh, developments, uh, between Saudi Arabia and, and the Houthis meaning a de-escalation there, this could be a step towards resumption of Red Sea transits as well, which is what we started to see back in June as well.

Um, but again, a lot of unknowns.

The biggest impact, as we've said before, on, you know, global economy and on logistics as well is the price, um, of oil.

So if crude prices that had eased back to kind of pre-war levels when the first ceasefire took place in late June, um, they had shot up by 35% past $90 a barrel by late July.

Um, the recent de-escalation has seen prices come down by 18% since late July.