The escalating conflict in the Middle East is rapidly disrupting the global iron ore shipping trade. On the morning of the 12th local time, an official from a port in southern Iraq reported that two foreign tankers were attacked and caught fire within Iraqi territorial waters. The incident resulted in at least one fatality, with 38 crew members rescued. Iraq subsequently suspended operations at its oil terminals.
According to reports, the United Kingdom Maritime Trade Operations stated on the 12th that a cargo ship was struck by an unidentified projectile near the Strait of Hormuz, causing a fire on board. As a result, transit through the Strait of Hormuz has been nearly paralyzed. Multiple vessels fully laden with iron ore have urgently altered their destinations mid-voyage, diverting towards East Asian markets. This has contributed to a rise in iron ore futures prices.
Tracking data from shipping analytics firm Kpler reveals that at least five iron ore carriers have changed course en route. Three of these vessels belong to the British mining giant Anglo American, while two are operated by the Brazilian miner Vale. These ships, originally bound for Bahrain and Oman, have now been redirected to countries including Vietnam, Singapore, and Malaysia.
The rerouting is having a particularly significant impact on the iron ore concentrate and pellet markets. The Middle East is a major global production hub for direct reduced iron (DRI), which is highly dependent on imported high-quality iron ore pellet feedstock. "The Middle East conflict has substantially tightened the supply of iron ore pellets," said Alexis Ellender, an analyst at Kpler. The benchmark iron ore futures price in Singapore rose by over 1.3% at one point, reaching $105.55 per ton, its highest level since mid-January.
Vessels are being forced to divert, with Bahrain and Oman being the first affected. Kpler data shows that Anglo American's Cape Shangrila, initially headed for Bahrain, is now en route to Singapore. The Cape Jasmine, also originally destined for Bahrain, has diverted to Vietnam. The Mineral Zimbabwe has changed its destination from Oman to an Asian country. Two Vale-owned carriers originally sailing to Oman have also been redirected to Malaysia, among other locations. Furthermore, according to Kpler, other vessels have been forced to halt outside the Arabian Gulf, awaiting further passage.
The Strait of Hormuz is one of the world's most critical shipping channels. Following strikes by the US and Israel on Iran, Iran subsequently initiated attacks on transiting vessels, leading to an almost complete shutdown of maritime traffic through the strait. Concurrently, the conflict has driven up freight and fuel costs, further increasing the landed price of goods.
Bahrain and Oman are key centers for pellet production and export in the Middle East. Bahrain is both an importer of pellet feedstock and an exporter of finished pellets. Oman possesses larger-scale pellet export capacity, with Vale operating a dedicated plant at its Sohar port. Macquarie Group estimates total DRI production in Gulf states will reach approximately 14 million tons by 2025.
David Cachot, Research Director at Wood Mackenzie, warned that "the current geopolitical turmoil exposes the significant vulnerabilities of this already highly concentrated supply chain." He stated that any disruption to the inflow of pellet feedstock or the export of finished pellets would "rapidly propagate throughout" the entire DRI industry.