How oil is finding its way around the Strait of Hormuz

0:00The surreal horror film Back Rooms is a smash. The director is a 20-year-old YouTuber, and it's based on his popular web series. Why is this online phenomenon taking off at the box office? We get into it on NPR's Pop Culture Happy Hour. Listen via the NPR app or wherever you get your podcasts. Today on State of the World, how oil is finding its way around the Strait of Hormuz. You're listening to State of the World from NPR. We bring you the day's most vital international stories up close where they're happening. I'm Greg Dixon. Ship traffic in the Strait of Hormuz is virtually at a standstill due to the conflict in Iran with the U.S.

0:44and Israel. So companies are looking for ways around that vital route to ship oil, but also other goods from fertilizer to furniture. NPR's Jackie Northam tells us how they're finding alternate routes. There's only one way to get in and out of the Persian Gulf, and that's through the Strait of Hormuz. With the waterway effectively closed, the flow of oil exports is taking a detour. Niels Rasmussen is chief shipping analyst at BIMCO, one of the largest member organizations for shipping companies. He says Saudi Arabia is now transferring crude oil through an east-west pipeline running across the Arabian Peninsula, where it can be loaded on the Red Sea.

1:25Also, the United Arab Emirates have increased their usage of their oil pipeline, so they've also been able to protect some of their exports that would normally have to move through the Strait of Hormuz. Cargo, including medicine, food, fertilizer, and other necessities, is also quickly finding new routes. If the one thing the shipping industry has had to learn over the past decade, it's how to be flexible. Anybody who's moving goods from point A to point B, You always have to have a plan B and a plan C and a plan D depending on the risk sort of profile of the area. Eric Johnson is senior editor at the Journal of Commerce, part of S &P Global Market Intelligence.

2:07He says the alternative plans to work around the closure of the Strait of Hormuz is to create overland corridors connecting ports throughout the region. So you have road and even some minor use of rail kind of shipments to get around having to transit through the Strait. For example, Marisk, the world's second largest shipping company, is shuttling goods overland to and from ports outside the Strait of Hormuz. Karsten Kildall is chief commercial officer at Marisk. He says the shipping company has become increasingly adept at finding new routes on short notice since the supply disruption of the COVID pandemic, attacks on ships in the Red Sea, and a shortage of water in the Panama Canal.

2:52And so when the Strait of Hormuz is closed, as it is now, within weeks we are actually able to make the cargo flow in different ways. And I think it's because of the practice we've had over these last five, six years, where we've just been hit by one unforeseen event after the other. Other international shipping companies have set up sea rail truck networks throughout the region, including Iraq, Turkey and Kuwait. Kildall says all of a sudden the roads and highways in the region are clogged with trucks. Of course, trucking capacity in the Gulf region is a bottleneck right now. And of course, we compete with other providers to get access to the trucks that are necessary to keep an operation like this running.

3:37Still, trucks and rail cars can't carry as much as a ship. Rasmussen with BIMCO says there are logistical problems with overland caravans, particularly trucks. More will have to be imported into the region. I also imagine that the congestion for trucks in and out of the ports will go sky high. And once they're there, do you have enough truck drivers? And can you actually feasibly move that much cargo in and out of a port? Or are the trucks just going to sit there and wait? Johnson with the Journal of Commerce says this latest crisis is prompting shipping companies to think about new trade patterns, markets that aren't hindered by choke points like the Strait of Hormuz.

4:22If your job is to move goods, you're going to start thinking, what are markets that we can actually access that require the least amount of transit and the least amount of political kind of turmoil that we might encounter? Like the turmoil now in the Strait of Hormuz. Jackie Northam, NPR News.

4:45That's the State of the World from NPR. Thanks for listening. It's June and another big week in the run-up to the midterms. Primaries in half a dozen states, including California, where new congressional maps are in place. And a chaotic race for governor is wide open. We're also following gas prices and Iran. So far, talk of a peace deal is just talk. We'll keep you posted. Listen every morning, Up First, on the NPR app or wherever you get your podcasts. This message comes from Squarespace. Squarespace provides an all-in-one platform to grow your business and get paid, offering tools to build a beautifully designed website or online store that highlights your brand and engages customers.

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