Oil tankers are remaining cautious about sailing through the Strait of Hormuz after Iran declared Friday that the sea lane is open to commercial ships, video footage shows.
Oil futures contracts tumbled Friday as the market interpreted the announcement from Tehran as a major breakthrough that will ease the massive disruption to global energy supplies. The U.S. benchmark, West Texas Intermediate crude settled down 12% Friday at $83.85 per barrel, while Brent crude futures finished the day down 9%.
But statements from Iranian officials and President Donald Trump have caused confusion about whether the strait is really open or not.
Iran’s Foreign Minister Seyed Abbas Araghchi initially said the strait was “completely open” for the remainder of the ceasefire with the U.S. and Israel. But Iranian media aligned with the Revolutionary Guard issued conditions for safe passage that resemble the rules which Tehran has imposed for weeks now.
‘A false dawn’
A number of tankers and cargo ships did try to exit the strait Friday via the route designated by Iran around Larak Island but they suddenly turned back, said Matt Smith, director of commodity research at Kpler.
“They’ve clearly not been given approval to pass through,” Smith said.
Commercial ships must follow a route designated by Tehran and coordinate with its military, a source close to Iran’s Supreme National Security Council told Tasnim News. Ships are not allowed to pass if they or their cargoes are linked to hostile nations, according to the Tasnim report.
It is “unclear whether there’s a dramatic change here,” said Tomer Raanan, a maritime risk analyst at Lloyd’s List Intelligence. “Iran still wants ships to transit through its territorial waters.”
Trump, meanwhile, said the U.S. naval blockade of Iran remains in place. Tehran threatened to close the strait if the blockade is not lifted.
This all means that the strait remains functionally closed, said Matthew Wright, senior freight analyst at Kpler. “It is a false dawn,” Wright said.
‘Not declared safe’
The world’s largest shipping association BIMCO advised vessels Friday to avoid the strait due to the threat of mines. The area is “not declared safe for transit at this point,” said Jakob Larsen, BIMCO’s chief security officer.
The diplomatic overtures between the U.S. and Iran can soothe the oil futures market, but they cannot solve the physical disruption of energy supplies. The disruption will only grow worse every day that the strait remains closed.
The final oil and product tankers, which departed the Persian Gulf before the strait closed, have completed their weekslong journey to their destinations in Asia, Europe and North America.
One of the final shipments is a tanker of Iraqi crude that will arrive in Long Beach, California, next week, said Wright, the freight analyst at Kpler.
The dominoes will now start to fall with oil no longer arriving from the strait, said Smith. Refineries in Asia, which are heavily dependent on Mideast oil, will have to cut their output, he said. This means countries that import products like jet fuel from Asian refineries will potentially face supply shortfalls, he said.
“The supply crunch in Asia is bigger than anywhere else,” Wright said. “They’ve already significantly drawn down on their onshore inventories.”
It will take months for traffic through the strait to return to normal, Wright said. The large shipping companies will likely sit on the sidelines and observe the first movers before they dip their toes in, he said.
Correction: This story has been revised to reflect that Tomer Raanan is a maritime risk analyst at Lloyd’s List Intelligence. A previous version misspelled Raanan’s name.