The Iran/Israel escalation and its impact

A brief overview of recent developments

The Iran-Israel conflict is a long-standing and highly complex geopolitical struggle, characterized by deep ideological, strategic, and regional rivalries. Tensions between the two countries sharply escalated following an Israeli airstrike on Iran. This attack was a deliberate attempt to neutralize Iran’s potential nuclear capabilities.

• June 13, 2025 – Israel carried out an airstrike on Iran, followed by additional strikes targeting Iranian missile infrastructure and nuclear sites. According to some sources, these strikes resulted in the deaths of senior commanders of the Islamic Revolutionary Guard Corps (IRGC) as well as scientists involved in the nuclear program.
• June 13-16– Iran launched over 400 ballistic missiles and hundreds of drones against multiple Israeli cities, including Tel Aviv, causing both civilian and military casualties as well as significant infrastructure damage.
• June 22– The United States conducted its first direct military strikes targeting Iran’s nuclear facilities.
• June 22– In response, Iran’s parliament voted in favor of a possible closure of the Strait of Hormuz, a strategic passage through which about 20% of the world’s oil transits. While this decision marks an escalation of the conflict, an actual shutdown remains unlikely due to Iran’s strong economic dependence on the strait and the requirement for approval from the Supreme National Security Council.
• June 23– In retaliation for the US strikes, Iran launched missiles at a US airbase in Qatar.
• June 24– US President Trump brokered a tentative ceasefire between Israel and Iran, marking a temporary halt after 12 days of direct military escalation. However, both sides accused each other of violations within hours. Israel reported Iranian missile launches and responded with limited strikes near Tehran; Trump publicly warned Israel to ‘do not drop those bombs.’

How has this impacted the shipping market?

The situation has introduced uncertainty along Middle Eastern trade routes, particularly through the Strait of Hormuz. Rising geopolitical risk has led to significant oil price volatility. Adding to the situation, signal jamming has become increasingly widespread. Originally used by military forces to obscure naval movements, it now disrupts tracking data for over 1,000 commercial vessels in the region.

Together, these factors have raised war risk premiums, increased logistical costs, and caused trade inefficiencies. They have also led some shipowners to avoid the region, resulting in longer sailing distances. For shipowners, this heightened threat environment has translated into higher earnings, particularly in the Suezmax and VLCC segments.

Tankers

Around 25% of global crude oil and petroleum product exports pass through the Middle East Gulf. As shipowners divert away from the area, tightening supply and longer routes are expected to push tanker rates higher. Rising war risk premiums and shifting trade flows are likely to sustain upward pressure on tanker earnings in the short term.

Gas:

The Middle East accounts for approximately 40% of global LPG (VLGC) exports and over 20% of LNG volumes. Rising tensions have pushed up risk premiums, leading some shipowners to avoid the region. This has tightened vessel supply, increased arbitrage opportunities, and driven freight rates higher across both the LPG and LNG markets.

PCTC:

The Middle East is primarily an import destination for car carriers and is not a significant export hub. However, ongoing route disruptions and port congestion are reducing operational efficiency and tightening vessel availability. Additionally, the risk of fewer transits through the Suez Canal could put upward pressure on the PCTC segment if vessels are forced to reroute via the Cape of Good Hope. While the impact on this segment remains more limited compared to tankers and gas carriers, these conditions could support firmer rates and improved short-term profitability.

What to expect going forward

While Iran has threatened to close the Strait of Hormuz, a prolonged shutdown is considered unlikely due to its dependence on oil exports, particularly to China. However, any disruption would affect flows from the entire Gulf, forcing longer and more costly trade routes from other regions.

If tensions escalate further, we expect tighter supply chains, rising war risk premiums, and elevated spot rates, all of which could support stronger earnings across vessel segments in the short term. We continue to monitor the situation closely and assess its impact on asset values and performance.

Sources: Financial Times, TradeWinds & Reuters