Shenwan Hongyuan Group Co., Ltd. has released a research report stating that a disruption in the Strait of Hormuz, leading to a rapid drawdown of global crude inventories due to releases from commercial and strategic reserves, will create a significant "pressure differential" with the high inventory levels held by Middle Eastern oil producers. Even if the strait reopens, the logic of crude inventory restocking will strengthen medium-term demand for maritime shipping. Compared to the rerouting seen during the Russia-Ukraine conflict and the Red Sea crisis, the geopolitical risk premium is unlikely to dissipate quickly. Efficiency losses from "naval escort" operations may mean only a limited number of vessels meeting Iran's requirements can pass through.
Focusing on tankers, the conversion of strategic reserve releases into seaborne trade could reach 2.5 million barrels per day. Combined with increased shipping distances, this could offset a demand gap of nearly 10 million barrels per day resulting from restricted crude shipments from the Persian Gulf. The main viewpoints from Shenwan Hongyuan are as follows:
Primary dynamics across sectors prior to the Strait of Hormuz impact: The long-term cycle is upward, while the medium-term cycle resonates with commodity inflation. In the long term, shipping vessel assets are in a state of marginal demand pricing. The vessel replacement cycle from the 2003-2012 delivery peak is projected to extend until 2037-2038. Earlier orders for container ships and LNG carriers have crowded out shipyard capacity for other vessel types. The shipbuilding sector is experiencing a simultaneous rise in both orders and profits. The calculated return on ship investment based on time charter rates significantly exceeds the Weighted Average Cost of Capital (WACC), alleviating concerns about the sustainability of new vessel orders.
Medium-term cycle: Profits from upstream shipping trade increase with inflation. Factors like deglobalization, supply chain restructuring, wealth disparity, and intensified geopolitical conflicts are increasing regional mismatches for agricultural products, base metals, and energy commodities.
Long-term logical changes brought by the impact: Tankers, dry bulk, containers, and shipbuilding. - Tankers: Logic of crude inventory restocking. The strait disruption causes a rapid global crude inventory drawdown from reserve releases, creating a large "pressure differential" with high Middle Eastern inventories. Even post-reopening, the restocking logic will strengthen medium-term shipping demand. The "narrow pipe" effect: Similar to the Russia-Ukraine and Red Sea rerouting, the geopolitical risk premium won't end quickly. Efficiency losses from escorts may restrict passage to few vessels meeting specific criteria. - Dry Bulk: Drawing parallels to the late 1970s, high oil prices could drive coal demand, potentially ushering in a golden era for dry bulk shipping. - Gas Carriers: Recovery is expected to take a longer time. - Shipbuilding: If oil prices remain above $80 per barrel, demand for offshore installations (e.g., deepwater drilling rigs, offshore support vessels) could surge, creating additional demand.
Short-term impact: Whether a fuel crisis or food/water shortages lead to escalation. Long-distance strategic reserve releases can hedge against short-term effects. - Marine Fuel: Monitor emerging bunkering tightness in ports like Singapore. If uncontrolled, vessel queuing at ports could reduce effective shipping capacity, potentially benefiting the entire shipping sector. - Food, Water, and South Asian Power Supply: East Asian and G7 nations hold substantial reserves. However, blockades could cause food/water shortages in Middle Eastern countries or power crises in South Asia, potentially escalating geopolitical conflicts.
Key focus for tankers: Strategic reserve releases converted to seaborne trade could reach 2.5 million barrels per day. Increased shipping distances can offset the nearly 10 million barrels per day demand gap from restricted Persian Gulf crude shipments.
Subsequent scenario: Long-term strait closure would have massive impact. Limited passage methods, evolving from blockade to escorted transit, could prevent extreme outcomes. During the 1981-1988 Iran-Iraq War, 500-600 ships were attacked with hundreds of crew casualties. Current global trade volume is triple that of 1985, with approximately 18 ships attacked recently.
Regarding specific investment targets: - Tankers: Focus on China Merchants Energy Shipping (601872.SH), COSCO SHIPPING Energy Transportation (600026.SH), and China Merchants Nanjing Tanker Corp (601975.SH). - Chemical Tankers: Consider Xingtong Shipping (603209.SH), Shenghang Shipping (001205.SZ), and Junzheng Group (601216.SH). - Dry Bulk: Monitor Haitong Development (603162.SH) and Guohang Ocean Shipping (920571.BJ). - Shipbuilding (resonating with tankers): Key focuses include ST Songfa (603268.SH) and China State Shipbuilding Corporation (600150.SH). - Container Shipping: Watch COSCO SHIPPING Holdings (601919.SH), Orient Overseas (International) Ltd (00316.HK), T.S. Lines (02616.HK), and SITC International Holdings Co., Ltd. (01308.HK). - US-listed Tankers: Consider Euronav NV (EURN), Frontline plc (FRO), Nordic American Tankers Ltd (NAT), International Seaways Inc (INSW), and Teekay Tankers Ltd (TNK). For product tankers: Scorpio Tankers Inc (STNG), Torm plc (TRMD), and Hafnia Ltd (HAFNIA.OL). - US-listed Dry Bulk: Himalaya Shipping Ltd (HSHP), Star Bulk Carriers Corp (SBLK), Genco Shipping & Trading Ltd (GNK).
Risk warnings include new civilian ship orders falling short of expectations, a downturn in shipping market prosperity, significant increases in raw material costs like steel, substantial appreciation of the Renminbi, conflicts exceeding expectations, and a global macroeconomic recession accelerating faster than anticipated.