Outcomes

  • Short and sharp — the war concludes within a few weeks. Hostilities die down and trade within the Gulf returns by the summer.
  • Extended conflict — the Strait of Hormuz continues to be problematic and marine traffic will not be navigating there for the foreseeable future.

Methodology

Below is the thinking behind these two scenarios. In a market like this, it is important to identify the main push and pull factors clearly. One of the most important features of both scenarios is slow steaming. Higher bunker prices reduce vessel speed and tighten effective fleet supply. This is often why shipping can perform relatively well during periods of conflict. In the short term, that is supportive for owners. However, in a more prolonged conflict, slower fleet speeds would increasingly be offset by demand destruction, weaker GDP growth, and changes in commodity consumption.

1. Short and sharp — base case (60% likelihood)

The outline here is that the war is completed within a few weeks and hostilities subside. If targeting of ships by the Iranians ceases, then confidence might return to the conflict area. Vessels will move freely again through the Strait of Hormuz without a navy escort, and the Gulf will be free of mines. Our main assumptions are:

  • Slow steaming will continue as long as the oil price remains high. We factor in three months of very high oil prices, and thereafter a slightly elevated oil price compared to pre-war levels to account for damaged infrastructure. The knock-on effect will be an easing of slow steaming by the third quarter.
  • Coal trades will significantly boost most dry bulk vessel segments immediately. Initial data shows coal volumes slowed slightly in the first two weeks, but we anticipate them building as the oil price stabilises. Increased coal demand will continue through most of the year as countries adapt to reduced oil and gas availability.
  • Bauxite demand will reduce due to aluminium facilities affected in the conflict zone. High gas prices may also reduce output. Guinea is considering limiting availability and controlling prices, and we therefore expect a period of reduced bauxite shipments for at least six months.
  • Fertiliser volumes will substantially decrease due to the loss of Middle East supplies and high market costs. This will be partially offset by longer voyage lengths as volumes from the Gulf cease. Substitute volumes of nitrogen and sulphur will be pulled in from the US Gulf, Canada, and Kazakhstan.
  • The war has a modest impact on global GDP from higher oil prices and the knock-on inflationary effect. Global growth for 2026 was predicted lower anyway, and this will be slightly compounded. The knock-on effect will be lower trade in cement, steel, forestry, and ores and minerals.
  • As grain prices have risen, more stocks have entered the market, particularly in the US. We therefore expect volumes to be similar to pre-crisis levels.
  • Lower trade volumes during the high bunker price period, due to pricing uncertainty, lost arbitrage, and price elasticity of demand. We assume stronger cargo volumes in the second half of the year as bunker prices abate.
  • We would also expect higher volumes of trade into the Gulf to compensate for the loss of trade during the conflict.

Outcome: Freight rates are likely to remain firm at around current levels over the next few months, with the possibility of further acceleration later in the year if delayed trade volumes return.

2. Extended conflict (40% likelihood)

In this case we assume that maritime traffic does not resume through the Strait of Hormuz into the Gulf for the foreseeable future — either through extensive damage to maritime infrastructure or continued attacks by Iran on vessels entering the Strait. Our assumptions here are:

  • The oil price will remain high, above $100 and potentially closer to $200 per barrel. The world will then have to adjust to reduced supply of oil and gas. Bunker prices will remain high, and we will be in an era of very slow steaming.
  • We expect coal volumes to significantly increase as countries switch to a cheaper and more readily available power source. We would then expect Indonesia to release more volumes to cope with the extra demand while still maintaining a high price.
  • We expect bauxite volumes to be significantly lower and supply reduced to compensate, as aluminium output around the world decreases.
  • Fertiliser volumes will drop considerably, with a knock-on effect of lower grain yields and less traded volume in 2027.
  • Global GDP will be affected more than was estimated at the start of the year. The WTO estimates that a prolonged conflict would wipe another half percent off global trade growth. As a result, we would reduce volumes across the dry bulk segments except for coal.
  • Grain prices would remain higher and volumes would marginally reduce.
  • This scenario would have no rebound, but a general decline in global trade offset by slow steaming. Higher anxiety over commodity availability may encourage greater stocking when the price is right, however the ability to do this has been diminished.
  • No trade returns to the Gulf and alternative supply lines are established.

Outcome: Lower trade volumes, but a fair market due to the enforced slowdown of the fleet.