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The globe’s leading energy merchants found it challenging to profit from the market upheaval during the initial phase of the Iran war, as they contended with burning petroleum carriers, projectile assaults on oil terminals, and vessels stranded in the Gulf.
Though conflicts and significant fluctuations in energy costs commonly lead to substantial earnings for commodity dealers, some were taken by surprise when the Iran war erupted on February 28, holding speculative selling bets in particular energy sectors that had long been deemed to have excess supply.
Commodity merchant Vitol was one of the firms encountering difficulties, with over 10 consignments immobilized in the Gulf when hostilities commenced. Trafigura possessed 10 ships within the Gulf, all chartered to other companies and not transporting its own goods, while Glencore had a single one.
Mercuria and Trafigura both sustained financial hits during the initial period of the war, though a portion of these have subsequently been recouped, as per industry observers. Vitol, Mercuria, and Trafigura all opted not to comment.
The disorder at the outset of the war, when it was uncertain if petroleum shipments from the Gulf could continue traversing through the Strait of Hormuz, had rendered all parties uncertain of their standing, an executive from a trading firm stated.
Vitol, the globe’s foremost autonomous merchant, has been especially vulnerable due to its significant petroleum transport operations in the Middle East. After Iran effectively halted transit through Hormuz, two ships transporting Vitol’s naphtha consignments, which were confined in the Gulf, were ignited by Iran on March 12, resulting in the fatality of a single crew member, as reported by the firm.
Regarding its surviving ships immobilized in the Gulf, the expenditure for vessel insurance and operation has surged dramatically with the ongoing hostilities. Premiums for vessels in the Gulf, determined on a weekly basis, have increased over six times since the commencement of the war.
Vitol also found it necessary to transfer personnel from Bahrain and manage disturbances at the petroleum-shipping harbor of Fujairah in the United Arab Emirates, where it operates a processing plant and warehousing infrastructure.
Petroleum facilities at Fujairah have been hit repeatedly by assaults by Iran, though Vitol’s installations have not sustained direct impact.
Even though the conflict with Iran has incited a significant escalation in energy costs and considerable instability — typically circumstances where commodity firms prosper — numerous firms initially found it difficult to manage the immense upheaval.
For Vitol, the hardship from the physical interruption and immobilized consignments was exacerbated by deficits from particular derivatives transactions, as reported by individuals acquainted with the situation.
While speculation in the market regarding billions of dollars in financial setbacks among the leading commodity firms has been widely spread, insiders at these firms denied their veracity, stating that the magnitude of any deficits had been severely overstated.
A number of less-experienced derivatives dealers recently departed Vitol, as per individuals acquainted with the situation, but it remained uncertain if this stemmed from any unsuccessful market wagers. Dealers frequently transition positions in the spring, following the period for performance incentives.
“In the prevailing circumstances, it is exceptionally challenging — an intricate and sensitive undertaking” to transport the consignments to their required destinations, Jean-François Lambert, chief of Lambert Commodities, remarked.
However, he further noted that the instability would likewise offer a “tremendous chance” for commodity firms. “Probably 2026 will prove a highly lucrative year in terms of financial returns,” he stated.
Prior eras of significant instability have yielded substantial gains for commodity firms. Vitol, Trafigura, Mercuria, and Gunvor all declared immense earnings for 2022 and 2023, when the Russian incursion into Ukraine ignited an energy shortage.
Nevertheless, the present predicament differs considerably. The difficulty of merely obtaining consignments has likewise grown substantial, as the extensive upheaval stemming from the war causes dealers to be uncertain whether consignments they have procured and protected will reach their destination.
The erratic fluctuations in raw material values and the cessation of access through Hormuz have compelled commodity firms to obtain extra credit facilities, which they can utilize to safeguard their financial buffers.
Vitol and Trafigura have both obtained further $3bn lending arrangements, while Gunvor has acquired $1.5bn.
Further contributions from Verity Ratcliffe, Rachel Millard, Jamie John, George Steer, Chris Cook and Lee Harris