Cutting Hormuz dependency seen vital

As periodic flare-ups between the United States and Iran are likely to keep disrupting the Middle East region and the Strait of Hormuz indefinitely, reduced reliance on the critical energy shipping lane remains the best option for affected businesses and countries, at least, for now, experts said.

Renjith Nair, projects and operations head at Chinese logistics firm Sinotrans in Dubai, the United Arab Emirates, told China Daily that end-to-end lead times have risen across the supply chain, with vessel rerouting, traffic drops and port congestion emerging as the main challenges.

He said significant increases in shipping costs are pressuring margins. Clients, meanwhile, are extending credit lines to manage cash flow, causing customer payment delays. Partners and customers typically prefer to complete their purchases once the product has arrived in physical form.

According to analytics firm Kpler on Sept 3, six commodity vessels transited the Strait of Hormuz on Sept 2, down from 11 a day earlier ‌and well ‌below the ‌10-day average of around 13. It noted that the number of vessels transiting the waterway could change as some ships typically switch off transponders during the voyage.

In an earlier update on Sept 1, Kpler reported that the Strait of Hormuz traffic declined sharply on Aug 31, with five confirmed crossings, down 50 percent from 10 a day earlier.

“Four vessels entered the Gulf and one exited, using a mix of Iranian, Omani and negotiated routes. Two crossings involved shadow vessels and one involved a sanctioned vessel,” it said in a post on X.

Such events are just some of a series of incidents that have made navigation at sea and in business, as well as diplomacy more risky and complex.

Both the US and Iran have been claiming they have control over the Strait of Hormuz while Iran and Oman have held separate talks on the future management of the waterway, where roughly 20 percent of the global petroleum and liquefied natural gas supplies passed before the conflict, which is now in its seventh month.

Tehran has repeatedly said that the strait would not fully reopen until Washington fulfills its commitments under an interim deal they signed in June, which lapsed in August.

Ahmad Ghouri, an associate professor at the School of Law, Politics and Sociology at the University of Sussex in the United Kingdom, told China Daily that the Iran-US memorandum of understanding attempts to impose transit rules, fines, and potential detentions on vessels moving through the Strait of Hormuz. The MoU, a temporary ceasefire agreement signed on June 17, has since expired and collapsed.

Under customary international law, he said, the straits used for international navigation cannot have their passage suspended or conditioned by coastal states.

“Any bilateral arrangement that restricts third-state vessels, requires compliance with special rules, or imposes penalties directly conflicts with the non-suspendable right of innocent or transit passage. The MoU is therefore legally problematic, particularly because it excludes Oman, the co-coastal state,” said Ghouri.

By contrast, he said the Iran-Oman discussions as reported in media appear to focus on diplomatic coordination, regional stability, and technical cooperation. Such bilateral engagement is lawful as long as it does not impose new conditions on foreign vessels.

“If Iran and Oman limit their cooperation to safety, environmental protection, or information-sharing, it aligns with customary law. However, if they adopt restrictive rules similar to the MoU, the arrangement would become equally incompatible with international legal norms governing straits,” said Ghouri.

Mehran Kamrava, a professor of government at Georgetown University in Qatar, told China Daily that the discussions between Iran and Oman are reportedly at an advanced stage.

“This indicates that the Iranians are fully aware that the Omanis need to cooperate. They need to be fully on board if any sort of administrative apparatus over the Strait of Hormuz will hold and I think that’s a very important space to watch, but certainly the Omanis do not want to run afoul of the United States or the Gulf Cooperation Council states,” said Kamrava.

As the dispute over Hormuz continues, Nair of Sinotrans said some of the adjustments made impact direct shipments from source, which means bypassing UAE redistribution to shorten dependency chains, selective price pass-through where structural cost increases are passed on when unavoidable, and focusing on dynamic ATP (Available-to-Promise) realignment, which he explained is early deficit signaling to avoid limited stock.

Like many others who are trying to work around the current challenges, Nair said his firm’s moves are near-term adaptations “to an abnormal operating environment and not a preferred long-term strategy”.

“We have confidently established an alternative solution to effectively address the situation by aligning with our customers’ business cycles. In light of the regional port shutdown and congestion, we are proactively utilizing ports such as Khor Fakkan, Sohar, and Jeddah to ensure stability and confront the challenges head-on,” said Nair.

The adjustment is also being reflected in the region’s port infrastructure.

In July, Emirati multinational logistics firm DP World announced that it would develop two new container terminals in Fujairah on the UAE’s eastern coast.

“The development will expand DP World’s UAE capacity and gateway network, giving customers greater choice, flexibility, and connectivity across regional and global trade routes,” the Dubai-based company said in a statement.

Once operational, it could boost DP’s total container handling capacity in the UAE to almost 22 million twenty-foot equivalent units from the current 19.4 million TEUs, while significantly expanding general cargo and ro-ro (roll-on/roll-off) capability, Reuters reported.

Even Iraq, which is seen as maintaining close ties with Iran, has approved oil export mechanisms in August to reduce reliance on the Strait of Hormuz despite having signed a raft of agreements covering transport, infrastructure and government cooperation, among other aspects.

The Iraqi cabinet approved mechanisms for exporting Iraqi crude through different international and local outlets. The Arab Weekly reported that the contracts under the new mechanism will run for three months, which began on Sept 1.

But with the US Treasury last month unleashing “Operation Economic Outcast”, which is widely seen as a pressure tactic to isolate Iran and force it to enter a deal and reopen the strait, the world should brace for fresh compounded challenges ahead.

The US sanctions — first announced on Aug 19 with targets later detailed on Aug 24 — include companies and vessels purportedly involved in networks supporting Iran’s nuclear and missile programs, and oil-revenue generation. The campaign also focuses on five sectors that Washington said help sustain Iran’s economy, namely digital assets, technology, gold, aviation, and shipping.

On Aug 19, the UAE Ministry of Foreign Affairs issued a statement by Afra Al Hameli, director of the Strategic Communications Department of the ministry, announcing the suspension of all trade and commercial exchange and financial transactions with Iran “until further notice”.

In the statement, Al Hameli reiterated the UAE’s steadfast commitment to dialogue, cooperation and regional integration as essential means of advancing peace, stability and prosperity in the region.

Nair from Sinotrans said Iran was not a material part of his firm’s sourcing or distribution footprint, so, the direct commercial effect has been limited.

“The more meaningful impact has come indirectly — through the broader regional trade and banking friction the Hormuz disruptions have caused among other Gulf markets,” Nair said.

“We’re monitoring the situation closely, as any further shift in regional trade alignment could affect freight routing, insurance and banking relationships even where we have no direct Iran exposure.”

Underlying message

Kamrava, the professor from Georgetown University in Qatar, noted that the expanded sanctions against Iran have an underlying message from the US to other nations that they should sever economic links with Tehran.

“Certainly this is going to have an impact, but not necessarily the impact that the United States anticipates. The impact will most acutely be felt by the Iranian middle classes and their purchasing power, their ability to conduct international business and their ability to travel will be severely impacted. But the so-called behavior of the state will not necessarily change,” said Kamrava.

Nair from Dubai said the new US sanctions on Iran had no direct impact on his firm, but caused some indirect friction.

“Because we have no direct commercial ties to Iran, the sanctions don’t affect us in a first-order sense. But banking, insurance, and shipping networks across the Gulf are interconnected — partners tend to grow more cautious whenever sanctions regimes tighten, which can add friction even without direct exposure,” Nair said.

The consequences, however, are not confined to companies operating in the Gulf. Higher energy and shipping costs can feed into inflation and financing conditions far beyond the region, particularly in emerging economies that remain sensitive to commodity prices and external borrowing costs.

Sujoko Efferin, a professor in the Faculty of Business and Economics at Universitas Surabaya in Indonesia, told China Daily that the Strait of Hormuz closure presents a serious challenge for developing countries with strong economic growth such as Indonesia and some other Southeast Asian nations.

In an interview with Reuters on Sept 2, International Monetary Fund Managing Director Kristalina Georgieva said that bond yields are being driven upward by higher overall debt levels, continued inflation pressures from ​the still-closed Strait of Hormuz, and competition for capital from AI-related debt issuance.

“This is not just a low-income developing ​countries’ problem,” Georgieva told Reuters. “High debt levels in advanced economies, combined with stubborn inflation, could lead to debt service costs going up for everybody, including for the low income, for the emerging markets and developing economies.

“We need to remember that some of the emerging ​market economies have worked very hard to gain market credibility and compress spreads. That could be erased by a lift in ​debt service costs, by the increase in yields globally by advanced economies,” the IMF chief said.

Yet, amid the Hormuz closure woes, Efferin, the professor from Indonesia, said there “lies a significant opportunity for reflection and renewal”.

“While the immediate effects such as rising inflation and higher food costs are deeply felt, they also encourage long-overdue actions about energy resilience,” said Efferin.

Rather than remaining passive, he said, nations are now motivated to accelerate their development pathways.

“The crisis has revealed the limitations of current energy strategies, prompting a thoughtful reassessment of priorities. This moment is inspiring a significant shift toward cleaner, more sustainable energy sources.”

The IMF warning “reinforces the urgent reality behind the disruption”, Efferin said, adding that while high borrowing costs compound existing vulnerabilities, Southeast Asia’s pivot toward renewable energy cooperation offers a strategic hedge to reduce future dependence on volatile fossil fuel markets.

“This crisis, though painful, may accelerate fiscal discipline and regional solidarity, transforming debt pressures into incentives for cleaner, more self-reliant economic structures. The challenge is real, but the opportunity to build resilience through smarter partnerships and sustainable growth may, at least to some extent, offset the challenge,” he said, adding that the post-crisis world “will never be the same again”.

Contact the writers at jan@chinadailyapac.com