Middle East conflict creates short-term volatility in dry bulk trade and demand

In addition to cargo disruptions, vessel exposure is significant. Dry bulk vessels undertake approximately 7,000 transits through the Strait of Hormuz each year, underlining the scale of dry bulk exposure to any escalation in security risks or access restrictions. This translates to roughly 20 passages per day. Any sustained disruption or closure would therefore have immediate knock-on effects on fleet deployment, voyage economics and regional trade flows, even if actual cargo volumes are partially diverted or deferred.

Disruption to regional trade flows

Trade to and from the Middle East would be disrupted as shipowners and charterers avoid exposure to elevated security and insurance risks. Vessel calls to affected ports are likely to be deferred or cancelled, resulting in an immediate halt or sharp slowdown in dry bulk cargo movements linked to the region.

Diversions from the Red Sea and longer sailing distances

Even amid the Red Sea crisis over the past year, more than 2,000 dry bulk vessels have continued to transit the Suez Canal every month, although volumes remain below pre-crisis levels. With renewed and heightened threats, these vessels are now likely to avoid the region entirely and divert via the Cape of Good Hope. Such diversions significantly increase voyage distances and sailing days, thereby raising tonne-mile demand and absorbing additional vessel capacity, offering some near-term support to dry bulk demand fundamentals.

Energy market spillovers and coal demand upside

A prolonged conflict would likely tighten crude oil and LNG availability, pushing prices higher. In such a scenario, energy-intensive economies, particularly in Asia and parts of Europe, would be forced to rely more heavily on coal for power generation.

If Middle Eastern energy exports remain constrained for more than a month, coal demand could rise sharply. Asia accounts for nearly 90% of global coal demand, with India, China, Japan and South Korea collectively importing close to 700 million tonnes of thermal coal in 2025, out of total global seaborne trade of just over 1,000 million tonnes. Any incremental coal demand would therefore translate directly into higher dry bulk trade volumes and tonne-mile demand.

Sharp escalation in war risk premiums

War risk premiums are expected to rise dramatically. It has been widely reported that war risk cover will be withdrawn in the conflict affected region. The current cover will terminate on 5 March. Post that the insurers are likely to offer new  terms for different micro markets and these terms could be different for each market. Ship operators will have a choice to contract on new terms or opt out of it. 

Given the war-related risks in the conflict zone, the coverage and insurance premiums are likely to be dissuasive for shipowners, effectively putting a temporary halt on shipping activity in the region.