Attack on oil tankers near Hormuz fans conflict fears

By Verity Ratcliffe, Anthony DiPaola and Bruce Stanley on 6/13/2019

DUBAI (Bloomberg) --Two oil tankers were damaged on Thursday in a suspected attack near the entrance to the Persian Gulf, stoking fears that high-stakes diplomatic efforts won’t avert a military confrontation between the U.S. and Iran. Oil prices surged.

The incidents, including an attack on a Japanese-operated vessel, were the second in a month to hit ships near the Strait of Hormuz chokepoint, through which about 40% of the world’s seaborne oil travels. They come as Japanese Prime Minister Shinzo Abe, a rare ally of both Donald Trump and Iranian leaders, visits Tehran in an effort to ease tensions.

“Even in the absence of ironclad evidence, the U.S. and its allies will point the finger at Iran,” said Fawaz A. Gerges, professor of Middle Eastern politics at the London School of Economics. “These incidents are a bad omen because they point to a calculated escalation that tells us both sides are hunkering down.”

The prospects of a conflict have spiked since the Trump administration tightened in early May its sanctions on Iranian oil exports. Trump abandoned a year ago the 2015 deal that was meant to prevent Iran from developing a nuclear bomb and reimposed sanctions in a bid to force the Islamic Republic to rein in its military program and proxy militias.

Facing economic catastrophe, Iran has threatened to retreat from the accord itself unless European parties throw it an economic lifeline. Its supreme leader, Ali Khamenei, told Abe on Thursday that his country would not repeat the “bitter experience” of talks with the U.S.

High-Stakes Diplomacy

The Bahrain-based Fifth Fleet said it received two separate distress signals at 6:12 a.m. and about 7:00 a.m. local time. “U.S. Navy ships are in the area and are rendering assistance,” Commander Josh Frey, a spokesman, said. He couldn’t confirm reports that one of the vessels was struck by a torpedo. Iran said it has rescued 44 sailors.

The manager of one tanker, the Norwegian-owned Front Altair, said it was sailing in international waters when it was damaged by an explosion, whose cause “is as yet unknown.” The Norway Maritime Authority said there were three detonations on board. The ship had loaded a cargo of naphtha in Abu Dhabi and was bound for Taiwan, a company official said.

A distress call over VHF radio from the Front Altair said the ship was “under attack and on fire," said Donald MacLeod, a navigation officer on a vessel about 45 miles away on the Oman Sea. "They had to abandon ship."

Kokuka Sangyo, the Japanese operator of the other ship, said it was attacked twice, three hours a part, forcing the crew to evacuate. The tanker was carrying 25,000 tons of methanol from Saudi Arabia to Asia.

Brent oil crude soared as much as 4.5% and was trading at $62.07/bbl in London. Stocks in Saudi Arabia and Dubai were down more than 1%.

The incidents come a day after Iran-backed rebels in Yemen fired a missile at a Saudi airport, wounding 26 people. The projectile crashed into the arrivals hall, damaging ceilings and windows and causing a fire, though the airport was able to keep functioning with only two flights cancelled. Houthi rebels last month hit oil infrastructure hundreds of kilometers inside Saudi Arabia, forcing it to temporarily close an oil pipeline.

Iran distanced itself from any attack.

“Iran is concerned by the suspicious events around commercial tankers related to Japan,” Foreign Ministry spokesman Abbas Mousavi, was quoted as saying on Fars news agency. “We see this as going against efforts from within the region and beyond to reduce tensions.”

Oil tankers last became a target in the Persian Gulf and Arabian Sea during the so-called "Tanker War" in the 1980s -- a sideshow of the Iran-Iraq conflict. Between 1981 and 1988, a total of 451 ships suffered some sort of attack in the region from Iraqi or Iranian forces, according to a report from the U.S. Naval Institute.

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