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How does the Taiwan crisis impact the world market for tankers?

Approximately 11 mb of oil per day transit through the Taiwan Strait.


Rising tensions between China and the US have overshadowed shipping in the Taiwan Strait, a waterway through which the vast majority of China’s oil imports and exports pass. Vessel tracking data indicate that approximately 11 mb of oil per day is sent across the Taiwan Strait. Of this, about 9 mb/d (80%) is crude, 1.5 mb/d (14%) are clean refined products and 0.5 mb/d (6%) fuel oil. About 93% of these flows are in the north and the rest (all of which are clean products or fuel oil) are heading south, Southeast Asia and occasionally Europe. It should also be noted that not all oil tankers destined for China pass through the Strait and some captains choose instead to head north to China across the ocean to the east of Taiwan.

According to data from AXSMarine, the vast majority of crude tankers passing through the Straits are VLCCs, while the majority of tankers of products are MR2. However, given BRS Tanker’s underlying assumptions that China will eventually become a product exporting power, it can be anticipated that more and more LRs will use the waterway in the coming years.

In the unlikely event of the closure of the Taiwan Strait, BRS Tanker estimates that the disruption of world tanker markets would be minimal unless shipping to the west of Taiwan was threatened. Although there would undoubtedly be an insurance premium for tankers travelling to the region, the analysis suggests that the net impact on demand for tonnes/mile would be negligible, since the difference between sending a cargo from Singapore to northern China is only 8 hours shorter when passing by the waterway compared to sailing on the western side of Taiwan.

Economic threat is greater than war

Despite the alarm, BRS Tanker assesses the danger to shipping in the region as very low. This is based on the assumption that China will not invade Taiwan and neither China nor the U.S. want a physical confrontation. Both are the world’s most important political and economic powers, and their ties are deep and each side needs the other. Although China conducted an unprecedented real fire drill in the Taiwan Strait and is a nuclear power, it does not currently possess the same military power as the US. While in the future, its military capability may eventually approach that of the US. thanks to the multiple aircraft carriers that are currently being built in their shipyards. In the short term, any confrontation between the US. and China would be economic.

For BRS Tanker, this is the biggest risk for tankers and the global economy in general. In fact, the recent trade war (during the Donal Trump administration) between the two countries led to lower global economic growth and lower tonne-mile demand for certain tankers, in particular the VLCCS and LPG tankers.

Given the above, it seems that Taiwan would have more to lose in the event of a full-fledged conflict. In fact, it has already accused China of cutting it off due to the actual fire drills taking place in the vicinity of its coast. Although the drills were short, it remained of concern to the island in terms of energy security. If tensions do not dissipate in the short term, it seems likely that the Taiwanese authorities will be able to order their refineries to increase their purchases of crude and products despite the current high prices. Given Taiwan’s historic oil imports, this would see an increase in demand for clean tankers from other parts of Asia and the Middle East and demand for crude tankers from the Middle East.




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