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Oil Markets Shrug Off Gulf Of Oman Tanker Attacks

Tensions are soaring again the Middle East after two oil tankers were attacked in the Gulf of Oman.

The U.S. released a video that purportedly shows Iranian patrol boats removing an unexploded mine from one of the tankers. Secretary of State Mike Pompeo asserted that Iran was definitively behind the attacks.

But some experts say it is too early to jump to conclusions. “I don’t think there is any conclusive evidence that Iran was to blame,” Amrita Sen, chief oil analyst at Energy Aspects, said on Bloomberg TV. “These could be other groups in the region that have carried out the attacks. We just don’t have enough proof right now.”

The incident comes a month after other oil tankers were apparently attacked near the Strait of Hormuz, which fueled speculation of a broader military conflict. However, the details of that incident were also murky, and while the U.S. government blamed Iran, the evidence to back up such a claim was lacking.

The damage to the oil tankers from the latest attack was much more serious. At least one of the ships caught fire while the crews on both abandoned ship. One ship had was carrying methanol from Saudi Arabia to Singapore, while the other was carrying naptha from the Emirates to Japan.

Even as the world awaits more evidence, the attack has thrown U.S.-Iran tension back onto the front burner.

“Even in the absence of ironclad evidence, the U.S. and its allies will point the finger at Iran,” Fawaz A. Gerges, professor of Middle Eastern politics at the London School of Economics told Bloomberg. “These incidents are a bad omen because they point to a calculated escalation that tells us both sides are hunkering down.”

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There are two competing narratives surrounding Iran’s involvement. On the one hand, if Iran was responsible, it would suggest that the Iranian government is trying to send a message to the U.S. that it has the ability to disrupt tanker traffic in the Persian Gulf, as it has long threatened. It could also be an attempt by hardliners in Iran to scuttle the attempt to defuse tensions. Prior to this incident, tensions had eased between Tehran and Washington. But, of course, the Iranian government would not want to spark a military response from Washington.

“As long as there is significant ambiguity the attacks won’t produce a casus belli,” or cause for war, Jack Watling, a researcher at the Royal United Services Institute in London, told the New York Times. “But Iran is demonstrating its capabilities. It is saying, ‘We can impose a cost on our adversaries in this confrontation, and it will be high.’”

However, Iran also arguably has little to gain from setting off a regional conflagration.

Notably, Japanese Prime Minister Shinzo Abe was visiting Iran on Wednesday, acting as an intermediary between the U.S. and Iran, and he warned about the dangers of slipping into war. According to the New York Times, Abe attempted to pass the Supreme Leader Ayatollah Ali Khamenei a note from President Trump, although the overture was rejected. “I do not see Trump as worthy of any message exchange, and I do not have any reply for him, now or in future,” Khamenei said, according to the Iranian state news media. For his part, Trump responded by saying that neither side is ready for a deal.

Iran’s foreign minister Javad Zarif said the timing of the attack was suspicious, perhaps aimed at derailing regional talks.

Reported attacks on Japan-related tankers occurred while PM

was meeting with Ayatollah for extensive and friendly talks.

Suspicious doesn't begin to describe what likely transpired this morning.

Iran's proposed Regional Dialogue Forum is imperative.

— Javad Zarif (@JZarif)

Japan was the destination for one of the cargoes, so the timing of the attack – coinciding with Shinzo Abe’s visit – would be reckless. In fact, tensions had been on the wane over the last few weeks. Only a few days ago, Iran freed a U.S. resident from prison on espionage charges, a decision clearly aimed at defusing tensions with Washington.

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In other words, while Iran remains a suspect, it is just as plausible that the attack was conducted by those who wish to see Iran isolated. There are plenty of actors who might have an interest in that outcome. 

While there has been no major disruption to oil shipments in the Persian Gulf, the string of attacks could lead to a spike in shipping insurance. In May, after the last round of attacks, the Joint War Committee of London’s Lloyd’s Market Association said put the entire Persian Gulf on its “listed areas,” meaning that shipping is risky in the region. Insurance costs for shipping could rise.

“We need to remember that some 30 percent of the world’s crude oil passes through the Straits. If the waters are becoming unsafe, the supply to the entire Western world could be at risk,” Paolo d’Amico, the chairman of the International Association of Independent Tanker Owners, said in a statement.

Oil prices shot up 4 percent in early trading on Thursday, briefly erasing the steep losses seen the day before. However, the focus quickly shifted back to the anxiety over an economic recession and plunging oil demand. Oil prices were flat during Friday trading. The attack, and the ratcheting up of tensions between the U.S. and Iran could lead to a rebound in prices, but for now, demand side fears are keeping prices in check.

By Nick Cunningham of Oilprice.com

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