Dongxing: The long-term effects of the conflict between the US and Iran cannot be ignored. It is recommended to pay attention to the oil transportation sector that benefits the most directly.

Dongxing released a research report stating that the US-Iran conflict has caused significant disruptions to the global shipping industry. The issue of actual control over the Strait of Hormuz continues to be a source of ongoing tension, and this serious uncertainty will continue to impact the global supply chain system, with long-term effects that cannot be ignored. The bank recommends focusing on the oil shipping sector that will benefit most directly from the conflict. Even without considering the impact of the Iran situation, the oil shipping industry is already in a period of relatively stable growth due to changes in the supply-demand situation. The conflict between the US and Iran has further pushed up oil shipping prices, which have been maintained at high levels for a long time. Unlike previous fluctuations, this increase in shipping prices is more sustainable, and there is a possibility of prices exceeding expectations in the next 26 years. Key points from Dongxing: Direct impact of the US-Iran conflict on the shipping industry: Oil shipping > Container shipping > Dry bulk The shipping industry can be broadly classified into oil shipping, container shipping, and dry bulk shipping, with the oil shipping sector clearly being the most affected by the conflict. The Strait of Hormuz is the only sea route from the Persian Gulf to the Indian Ocean, handling 25% of global seaborne oil trade, 19% of liquefied natural gas trade, 29% of liquefied petroleum gas trade, and 13% of related chemical trade, making it a crucial link in the global maritime transportation system. The passage issues in the strait have directly led to increases in oil prices and shipping rates. Currently, the price of Brent crude oil is around $110 per barrel, significantly higher than before the conflict, while the VLCC-TCE (CT1) rate from the Middle East to Ningbo remains at a high level of $300,000 per day. The impact on container shipping is mainly concentrated in the regional area. According to Clarkson data, the Middle East region's container throughput accounts for about 5% of the global total, which means the impact is relatively manageable due to its low proportion. The blockade of the Strait of Hormuz has led to a significant increase in container ships rerouting through the Red Sea route and other multimodal transportation methods to avoid the blockage, but this has increased costs and reduced transport efficiency. The Red Sea route, serving as an alternative, is facing pressure from increased insurance premiums and emergency surcharges. As another important route in the Middle East region, the Red Sea route has yet to fully recover from the crisis caused by Yemen and now faces the current conflict. As a result, some European vessels have chosen to bypass the Red Sea route and sail around the Cape of Good Hope to avoid risks, resulting in a two-week delay in transport time and corresponding increases in freight costs. Furthermore, the increase in oil prices due to the conflict has also led to an overall cost increase in container shipping. However, overall, the impact of this conflict on container shipping is weaker than the Red Sea crisis at the end of 23. The impact on dry bulk shipping is relatively small. Since the Middle East region is not a major market for dry bulk shipping, the direct impact is limited, with the industry mainly feeling the effects of rising fuel costs. It is important to note that although the blockade of the strait has made transportation more difficult and costly, it has actually increased the importance of shipping companies in the industry chain. By enhancing their position in the industry chain, shipowners have gained greater bargaining power and have been able to pass on the increased costs to both upstream and downstream players. This has led to a significant increase in the recent performance of oil shipping companies. The conflict's transmission of risks to related industries in the supply chain: Petrochemicals, freight forwarding, insurance, etc., industries directly affected The impact of the US-Iran conflict on the petrochemical industry is quite direct. As the downstream sector of the oil transportation industry, the dual increase in oil and shipping prices has led to rising costs for petrochemical products, directly driving up the prices of end products. The price of 95# National 6 gasoline has risen from around 8000 yuan per ton at the beginning of the year to over 11,000 yuan per ton in early April, and now has fallen to around 10,000 yuan per ton. The freight forwarding industry and exports to the Middle East have also been directly impacted. The conflict has led to a significant increase in rerouted container shipments in the Middle East, resulting in significantly longer transportation times, skyrocketing freight and surcharges. Shipping companies are temporarily increasing fees charged to freight forwarders, but the process of passing these costs on to shippers may not always be smooth. There are also various risks in the receiving process, as even if shipping companies can fulfill their maritime transportation contracts, they may still face a series of unresolved issues such as releasing goods, customs clearance procedures, and container weight issues. Receivers may also abandon cargo due to damage to their interests during the war, leading to pressures such as final duties, container fees, and storage fees being transferred to freight forwarders. Therefore, freight forwarders with existing Middle East routes may accumulate a certain amount of risk. In terms of Middle East export trade, according to the General Administration of Customs data in March, China's exports to the Middle East have plummeted significantly compared to the same period last year, with exports to Iran, Iraq, Kuwait, Bahrain, and Qatar falling by close to or over 80% on a monthly basis, and exports to Saudi Arabia and the United Arab Emirates, the two hubs in the Gulf region, dropping by 38% and 65% respectively. China's largest container shipping company, COSCO Shipping Holdings, announced on March 4 that it would suspend new booking services on Middle East routes. On March 25, COSCO Shipping Holdings updated its services in the Middle East region, resuming new booking services to the UAE, Saudi Arabia, Bahrain, Qatar, Kuwait, Iraq, Oman, and other countries in the Middle East region through multimodal transportation transfer methods. However, the company stated that due to the uncertainty in the Middle East region, it had not yet considered resuming passage through the Strait of Hormuz. As a result of the strait blockade, the shipping costs for Middle East exports have significantly increased compared to before the conflict, and delivery times have been greatly reduced, posing significant obstacles to trade for both parties. Furthermore, the insurance industry has also been directly affected. Insurance plays a crucial role in the shipping industry, and the lack of maritime insurance will prevent vessels from obtaining financing from banks, ports will refuse docking, and shipowners will bear unlimited liability, which is clearly unsustainable for normal shipping companies. A key measure of the US sanctions against Russian oil tankers is to prohibit the provision of insurance and reinsurance to vessels transporting Russian oil. In early March, the international mainstream maritime insurance system initiated a "collective withdrawal of coverage + refusal of coverage" for the Persian Gulf/Strait of Hormuz, essentially adding another layer of "soft blockade" outside the physical blockade by Iran. Because ships sailing without insurance will inevitably violate charter contract and bank loan terms, they can only choose to anchor and wait. For insurance companies, long delays in cargo and ship damage will lead to more claims, and as insurance companies tend to use exclusion clauses to limit payouts, disputes related to Iran's war are expected to increase in the future. The pressure on the insurance industry is not only limited to the shipping sector, as premiums in the aviation, real estate, and property sectors in the Middle East have also risen due to the conflict. In the future, insurance market pricing, underwriting conditions, and reinsurance capacity will continue to be affected by the progress of the US-Iran conflict. The fragility of the supply chain and the resulting long-term uncertainty are also key concerns for industry stakeholders For most people, attention is more easily focused on the direct impacts of the conflict (including rising oil prices, shipping prices, insurance premiums, etc.), but the bank believes that industry stakeholders may also attach equal importance to the long-term uncertainty caused by the conflict. The current conflict, following the Red Sea crisis, once again exposes the vulnerability of global supply chains. A regional power can use its geographical advantage to block the global energy artery at relatively low cost for an extended period, a result that most countries did not anticipate. In fact, a similar effect was seen in the Red Sea crisis in 23, but at that time, the ships still had the option of bypassing the Cape of Good Hope. Clearly, the blockade of the Strait of Hormuz is more comprehensive this time, and its impact on the global energy supply chain is more profound. After Iran demonstrated substantial control over the strait, causing significant damage to itself, it is imperative for all parties involved to not only find a way to reopen the strait but also to establish a mechanism to ensure that Iran no longer abuses this power. If the root of the problem is not fundamentally addressed, every time Iran feels that its interests are harmed (due to economic sanctions or Israeli attacks), the strait will be blockaded, leading to perpetual disruptions in the Persian Gulf and endangering global energy security. While the bank can see a gradual easing of the conflict, it is clear that Iran has no intention of lifting the blockade of the strait at present, and negotiations are still needed to resolve the issue of normal passage through the strait. In the long term, how to reach a long-term constraint mechanism for all parties involved and ensure that all parties do not unilaterally break the agreement remains a huge challenge. For industries related to the supply chain, certainty and quantifiable uncertainty are key to maintaining a long-term stable supply chain. High shipping costs can always be resolved, but uncertainty about how high they could go is the real threat. The fragility of supply chains and the potential long-term uncertainty resulting from the US-Iran conflict lead to industry stakeholders needing to consider risks and contingency plans more carefully than before, resulting in additional expenditures on infrastructure layout, inventory management, etc., to improve the stability of the supply chain system, while simultaneously increasing unit transportation costs. This is the potential long-term impact of the US-Iran conflict on the global supply chain system. Risk warnings: Changes in geopolitical situations, unexpected fluctuations in oil prices, lower-than-expected demand due to economic recession, etc.