Vessel transits via Hormuz crash to pre-MoU levels. Here's why, Pg13

Key Highlights:

• Vessel transits through the Strait of Hormuz have significantly decreased to levels last seen before the US-Iran Memorandum of Understanding (MoU) in June.
• On July 13, only 14 vessels crossed the strait, a sharp decline from 24 on July 12, indicating renewed tensions between the US and Iran.
• The drop in maritime traffic has led to an increase in oil prices, with Brent futures rising by approximately 8% over the past week to about $85 per barrel.
• Discrepancies in the interpretation of the MoU regarding designated routes and transit fees are emerging as major flashpoints.
• India is identified as one of the most vulnerable Asian economies to rising oil prices, facing potential widening of its Current Account Deficit.

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Detailed Insights:

• The Strait of Hormuz is a crucial chokepoint, historically accounting for one-fifth of global oil and Liquefied Natural Gas (LNG) flows before the West Asia war.
• Iran insists that vessels use its designated routes and seek permission for transit, with plans to impose a service fee later.
• The US and its allies encourage vessels to use waters adjacent to Oman as an alternative to Iranian-designated lanes.
• Maritime data indicates a shift towards "dark routes" and Iranian-designated paths, with activity on IMO and Omani corridors almost disappearing.
• The escalation has extended beyond the strait, with Iran reportedly engaging four Gulf states and Jordan, and Qatar suspending all maritime activity.
• Project Freedom, a US escort initiative for the southern corridor, has effectively collapsed, with only one of 12 outbound vessels using it on July 11.
• A 10% increase in oil prices typically widens India's Current Account Deficit by 0.4% of the GDP.

Key Concepts Involved:

• Strait of Hormuz: A narrow sea passage between the Persian Gulf and the Gulf of Oman, critical for global oil and gas shipments.
• US-Iran Memorandum of Understanding (MoU): An agreement signed in June aimed at de-escalating tensions between the United States and Iran.
• Brent futures: A leading global benchmark for crude oil prices, representing future delivery contracts.
• Automatic Identification System (AIS): An automatic tracking system used on ships for collision avoidance and maritime traffic monitoring.
• Dark shipping: The practice of vessels turning off their AIS transponders to avoid detection, often associated with illicit activities.
• Current Account Deficit (CAD): An economic indicator where a country's total value of imports of goods, services, and transfers is greater than its total value of exports.