Another Day, Another Tanker Attack: Welcome to the New World of Oil Risk

Another Day, Another Tanker Attack: Welcome to the New World of Oil Risk

by | published June 14th, 2019

It seems I have been writing a lot recently on the issue of risk in the oil market.

How I calculate the PRC (Political Risk Coefficient) in my very successful Σ Algorithm trading system was the central subject of my Oil & Energy Investor installment last week (click here to read it).

And then, how the use of risk management concerns has been manipulated to magnify unwarranted profits in the latest “paper barrel”/”wet barrel” spread game was the subject of my detailed “Dark Files” on June 11 (click here to read that one).

Well, I need to return the subject yet again.

While a portion of this has been artificially constructed to manufacture returns fueled by a shaky market and its approach to uncertainty, some of the risk element is quite genuine.

Like yesterday, for example…

These Attacks are Escalating

The latest attacks on two oil product tankers just south of the highly strategic Strait of Hormuz once again puts the matter of risk in the oil market center stage.

Unlike the attacks one month ago, however, yesterday’s was more consequential.

The earlier attack on May 13 targeted four ships in waters off the main United Arab Emirates (UAE) bunkering port of Fujairah just southwest of the Strait of Hormuz. All those tankers were empty and there were no injuries.

Those events were followed one day later by a drone attack on portions of the large Saudi East-West Pipeline transporting crude oil west from the country’s primary fields in the Eastern Province to embarkation terminal facilities on the Red Sea near Jeddah.

Once again, no causalities.

Yesterday, however, the tankers were carrying volume (oil products), the damage was extensive, crews on both vessels had to be evacuated, and there were injuries.

Image result for tanker attacks in gulf of oman

June 13: view from the bridge of the Front Altair, one of two tankers hit in the Gulf of Oman Source: IRIB (Islamic Republic of Iran Broadcasting); IRIB obtained the photo from a regional press pool

According to my sources in the region, both the U.S. Navy and the Iranian Revolutionary Guard Corps, whose navy (IRGCN) controls Iranian waters in the Persian Gulf region, scrambled forces deployed in the area following the attacks.

At the center of current U.S. charges is a conclusion that IRGCN high speed attack vessels orchestrated both the May 13 and June 13 attacks.

Washington has said it would provide evidence for both attacks. It has yet to do so for last month’s episode. The U.S. Navy said that an examination of debris following yesterday’s attacks could ascertain origin.

An Unusual Attack

According to sources within the U.S. military planning apparatus, the focus of attention is Iranian Zolfaqar semi-submersible, high-speed torpedo boats.

One is pictured below from a photo released by the official Iranian Fars News Agency in October of 2015; note the torpedo tube starboard midship. Another is located on the port side.

Tehran has flatly denied the charge that it attacked the vessels either in May or yesterday.

My Iranian sources pointed out that yesterday’s attack made no sense, given that President Hassan Rouhani was hosting Japanese Prime Minister Shinzo Abe at the time in Teheran. Both tankers hit yesterday were en route to Asia (Singapore and Taiwan, respectively).

Last evening U.S. time, Iranian Foreign Minister Javad Zarif angrily denied (again) that his country had any involvement in either the May 13 or June 13 attacks. He categorically condemned U.S. Secretary of State Mike Pompeo’s statements linking Teheran with the events. Zarif said the U.S. had not “a shred of factual or circumstantial evidence,” further labeling Pompeo’s approach “sabotage diplomacy.”

It is perhaps a sign of the times that this exchange between the U.S. and Iranian foreign policy officials took place on Twitter.

Sources in my Persian Gulf regional network also pointed out that there were no indications of any unusual IRGCN deployments in advance of the attack yesterday.

On the other hand, these same sources acknowledge the attack did bear the markings of a torpedo launch from a boat, rather than vessels incurring damage from a deployed mine in the water, or surface-to-surface or ship-to-ship missiles.

And there are also other unusual aspects of the events.

Inaccurate Reporting and Escalating Tensions

Once again, information immediately dispatched from a government-controlled media source in the UAE turned out to inaccurate.

Yesterday, the media source reported that one of the vessels hit had been sunk. That turned out to be untrue.

While the May 13 episode was still unfolding, the same media source reported that an attack was underway onshore at the Fujairah port facilities. That also turned out to be untrue.

Both, of course, served to escalated tension.

Meanwhile, my sources both in Iran and Iraq are concerned that, as in May, this attack will be quickly paralleled by another, perhaps onshore, in the region.

Shortly after yesterday’s attacks, crude oil prices spiked by 4%. Those prices then came down again, closing at about 2% up for the day’s trading session (that closes at 2:30 PM Eastern time).

Overnight, and absent any other provocations, indications are pointing to a slightly lower oil open on Wednesday. This latest bout with Persian Gulf crisis trading indicates that such events are still perceived by the market as insular, rather than serial. That is, they are viewed as isolated episodes having no prolonged impact on oil trade or pricing.

That may change if the ripples of uncertainty are reinforced by accelerating events.

We’re In a New Normal Now

The whole situation changes abruptly if throughput access is threatened at the Strait of Hormuz -the passage connecting the Persian Gulf to the north with the Gulf of Oman and Arabian Sea to the south.

Some 22% of the world’s entire daily transit of crude (and over a third of what moves via tanker) moves through the Strait.

I have physically stood on the western shoreline of Hormuz. You can clearly see Iran to the east, along with the heavy number of vessels (both large and small) moving through the narrow connection. The navigable strait waters are only about a mile and half wide.

While the IRGCN had conducted exercises to signal it can impede flow through the Strait, direct confrontation with the (now two carrier task force strong) U.S. fleet is unlikely. Strikes to create market angst, on the other hand, are always a possibility.

As one Iranian contact wryly put it, “There are hardly enough U.S. war ships in the Persian Gulf to provide private escort services for each ship plying there” – an all too clear reference to the number of individual targets available to play on the market’s ability to counter instability.

As an Iraqi colleague added last evening, “Aside from the logistical complexity, should the U.S. counter with some sort of flagged convoy arrangement, Iran will consider it an act of aggression and could move against the Strait [of Hormuz].”

Welcome to the new normal in the Persian Gulf.



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  1. anthony van luyn
    June 14th, 2019 at 22:09 | #1

    Perhaps Mr Trump would like to explain the clearly contradictory evidence of the Japanese crew who stated it was a missile attack and not limpet mines.
    Many in Australia (including myself) believe the USA is behind these attacks in an attempt to cause middle Eastern tensions to assist Saudi Arabia and Israel. This is not the first time that it has occurred. Saddam Hussein was hung because of the Behaviour of the Bush Administration in dregging the UK and Australia into a clearly orchestrated war. No Nuclear Weapons Opps sorry , Next Libya now Turkey and Iran when does ther thuggery stop.

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