Mideast petchem players cautious after Persian Gulf incident

Focus article by Muhamad Fadhil

GUANGZHOU (ICIS)–Petrochemical players in the Middle East have turned cautious over shipments that pass through the Persian Gulf, days after Iran fired warning shots at a Singapore-flagged commercial ship plying the Straits of Hormuz, industry sources said on Thursday.

The straits – a vital route for shipping commodities such as crude and petrochemicals from the Middle East to Asia – connects the Persian Gulf to the Arabian Sea.

On May 14, the Iranian military fired warning shots across the bow of Singapore-registered vessel Alpine Eternity that was passing through the Persian Gulf at the time.

“Nobody is excessively alarmed by this, but we are all taking usual precautions,” according to a major Dubai polymer trader active in Iran.

Singapore has called for an investigation on the “shooting incident on 14 May”, with a view to preventing future recurrences, according to the country’s Maritime and Port Authority (MPA).

“Such interference with navigational rights is a serious violation of international law,” the MPA said in a statement issued on 18 May.

About two months prior to the “shooting”, Alpine Eternity was involved in a collision with an Iranian oil drilling platform. Investigations are still ongoing on this incident that occurred on 23 March, according to Singapore’s MPA.

“It was more a one-off incident. We don’t expect it to happen again,” the Dubai-based polymer trader said.

Petrochemical market players in the region are taking precautions, but the incident has not resulted in any slowdown in overall trade, industry sources said.

It could be a form of “political posturing” by Iran ahead of its nuclear negotiations with six world powers next month, according to Dubai-based sources.

“Iran may be asserting itself before the landmark talks,” said a source close to a major Middle East polymer producer.

International sanctions have been imposed on Iran on suspicion that the country is developing nuclear weapons.

In early April, Iran agreed to a deal with world powers during talks in Switzerland, to curb its nuclear program in exchange for some sanctions relief.

A final deal, which could mean a lifting of sanctions on Iran, is expected to be hammered out in end-June.

Industry players in the Gulf Cooperation Council (GCC), which is led by Saudi Arabia, are concerned that Iran’s re-entry into the market may lead to more volatility, if not a downturn, in prices of commodities, including petrochemicals.

The GCC comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.

“The firing incident [in the Persian Gulf] and the political tension between Iran and the GCC will only create instability [in the Middle East],” a Saudi-based petrochemical source said.

On the regional security front, the GCC has received re-assurance from US President Barack Obama of military support against possible threats that Iran poses to the Middle East.

Saudi Arabia and Iran are perceived to be engaged in a proxy war in Yemen, which is being besieged by Houthi rebels believed to be backed by entities affiliated to the Iranian government.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections