The Daily View: Hormuz’s legacy is being built in steel and concrete

GIVEN the political whiplash inflicted on anyone brave enough to follow the daily news cycle, it is remarkable that shipowners still feel confident enough to make long-term investment decisions. Yet the orderbook continues to swell as owners sidestep questions about stability and geopolitical risk in favour of the immediate appeal of fresh tonnage.

The global fleet is steadily expanding and the orderbook has grown by around 10% since the start of the year. By mid-year, orders totalled a record $657bn. While still well below the excesses of the 2008 boom in relative terms, the orderbook now represents 21% of the fleet, up from 10% in 2020. Tankers have led the charge, with some 150 VLCCs ordered so far this year — already the highest annual tally in more than five decades.

The assumption underpinning much of this optimism is clear enough. Recent disruption has been lucrative for many shipping sectors, encouraging owners to bet that volatility will continue to support earnings. The problem is that the longer-term outlook is becoming harder, not easier, to judge. Geopolitical uncertainty, expanding shipyard capacity and ageing fleets are creating a far more complex investment landscape than current ordering trends suggest.

If uncertainty is causing hesitation in some boardrooms, however, one conclusion appears to be gaining broad acceptance: reliance on the Strait of Hormuz is no longer viewed as a risk worth tolerating.

The brief closure of the waterway — long dismissed as an unlikely worst-case scenario — demonstrated how vulnerable global supply chains remain to a single chokepoint. The disruption paralysed a significant share of global crude and LNG exports and exposed the economic cost of concentrated trade routes.

The response has been swift. DP World’s plans for a new port and container terminal on the UAE’s east coast form part of a wider effort to reduce dependence on Jebel Ali and create supply chains that bypass Hormuz altogether. Containers would be able to enter and leave via the Gulf of Oman before moving inland by road to gulf markets.

At the same time, billions of dollars are being directed towards pipeline projects across the Middle East. The UAE is accelerating expansion of its Fujairah export corridor. Iraq is reviving long-dormant plans to boost Mediterranean access. Regional proposals linking gulf energy production to ports in Syria and Turkey are once again attracting political and financial backing.

Not all these projects will be built. Some have spent years gathering dust in filing cabinets. But their revival matters. The most important lesson from the Hormuz crisis may not be found in freight rates or tanker earnings, but in the investment decisions now being made to ensure the next disruption does not matter quite so much.

Richard Meade
Editor-in-chief, Lloyd’s List