Abu Dhabi has stepped up its security around oil and shipping in the UAE following Israel’s retaliatory strike on Iran, according to industry sources.
One source with knowledge of the matter told S&P Global Commodity Insights that OPEC’s fourth largest producer has raised its threat levels around energy assets, with the region girding for potential follow-on attacks. Israel launched a retaliatory strike on Iran April 19 in response to Iran’s drone and missile attack against Israel on April 13.
“We have stepped up our preparedness,” the source said on condition of anonymity. The UAE government declined to comment. The UAE produced 2.95 million b/d of crude in February, according to the latest Platts survey by S&P Global.
The Platts Dubai price benchmark, a measure of medium heavy-sour crude produced in the Gulf, reached a six-month high of $90.75/b on April 9 amid warnings of an impending Iranian attack. However, the benchmark pared those gains to be assessed at $87.69/b on April 19, with market watchers appearing hopeful that the conflict will not escalate further.
Shipping risks
Also of concern are the shipping risks that continue to grow in the region.
Iran has threatened to shut the Strait Hormuz, which is used to ship one fifth of the world’s crude, and earlier in April seized a cargo vessel with ties to Israel offshore the UAE port of Fujairah.
A Singapore-based shipping broker who spoke on the condition of anonymity said that freight rates for clean petroleum product tankers were up 5-10% following the latest escalation.
Platts assessed the LR2 clean tanker rate for shipping 75,000 mt from the Persian Gulf to Japan at $53.26/mt April 19, up from $40.25/mt a week earlier, according to S&P Global Commodity Insights data.
However, analysts are skeptical of Iran’s ability or desire to close the channel to regional oil exports. Tehran has never attempted to close the Strait of Hormuz, which is the main conduit to sell its own crude.
“The strait has never been closed and that is unlikely to happen today or in the future. But it can become more dangerous, which could challenge the normal flow of oil,” said Jim Burkhard, S&P Global Commodity Insights’ vice president, oil markets, energy and mobility.
Hormuz alternatives
Both the UAE and Saudi Arabia have developed alternative oil export routes to the Strait of Hormuz.
The kingdom has the 1,201 km-long East-West pipeline, with a capacity of 5 million b/d, to transport crude to the Yanbu port in the Red Sea. Some oil produced in Abu Dhabi is transported via a 360 km-long pipeline to Fujairah on the Arabian Sea. ADNOC, which produces and sells oil on behalf of Abu Dhabi, declined to comment.
However, even Fujairah has been vulnerable to attack. In 2019, four commercial vessels were damaged in unexplained attacks. Iran’s April 13 seizure of the MSC Aries, which is owned by Gortal Shipping, an affiliate of Israeli-linked Zodiac Maritime, happened 50 miles off the coast of Fujairah, according to shipping and military officials.
A spokesman for the Port of Fujairah declined to comment.
“Further IRGC [Iranian Revolutionary Guard Corps] operations in the Gulf could push up shipping insurance premiums and make some shipping companies more hesitant to transit the area,” said Ryan Bohl, senior Middle East and North Africa analyst at the RANE Network.
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