The de facto closure of the Strait of Hormuz has significantly disrupted global LPG transport markets, with global seaboard LPG transport declining to levels not seen since the first calendar quarter of 2024. According to Dorian LPG earnings transcript, the closure has fundamentally shifted trading routes and vessel allocation, with 80%-90% U.S./Canada exposure and amplified Panama Canal transit costs that compress realized TCE rates. The company reported that up to 80% of their business are U.S. liftings, with management noting that 90% of their coverage has been focused on US operations, marking a significant shift away from Middle East exposure.
Major oil producers are systematically bypassing the Strait of Hormuz through strategic pipeline infrastructure, significantly reducing Iran's potential negotiating leverage. According to reports from Investing.com India, Saudi Arabia converted its pipeline capacity from just 770,000 barrels per day to 7 million bpd in mid-March following the Strait's closure. The UAE is simultaneously fast-tracking construction of a second west-to-east pipeline to Fujairah, which will double its crude export capacity to 3 million bpd when operational in 2027. These pipeline diversions demonstrate how global oil producers are ensuring the Strait is not the critical chokepoint it once was.
The closure has created significant freight market disruptions, with higher freight markets on the back of the wide open West-to-East arbitrage being further supported by high bunker expenses for ship owners. As reported by Dorian LPG, some ports saw a doubling of costs through March, with some countries ending bunkering services to prevent or preserve energy stocks. The Panama Canal has contributed to absorbing vessels from the market, resulting in significantly higher Panama costs with increased proportion fees. The company noted that transits through the Panama Canal's new locks face the most acute auction fee escalation, with management confirming $63,600 per day as the second highest TCE rate they have earned in their corporate existence.
While the two pipelines combined can handle only about 4.5 million bpd of the total 7 million bpd capacity, these workarounds divert approximately 25% of the oil that previously flowed through the Strait of Hormuz. As reported by Investing.com India, these strategic diversions demonstrate how global oil producers are ensuring the Strait is not the critical chokepoint it once was. The tenfold increase in Saudi pipeline usage represents a significant shift in regional oil transportation infrastructure, with the UAE's second pipeline expected to double its crude export capacity to 3 million bpd when operational in 2027.
The pipeline diversions challenge the conventional wisdom that Iran holds important negotiating cards through Strait of Hormuz control, with the latest developments showing how global LPG markets have been fundamentally disrupted by the closure. According to Dorian LPG management, the company is not scared of the spot market but remains ready to increase time charter coverage if pricing merits. The development suggests that other countries are likely to follow suit with similar pipeline and infrastructure projects when feasible, further weakening Iran's strategic position in global energy markets. The company's focus on dual-fuel and scrubber deployments, along with fleet modernization through asset rotation, positions it well for the evolving regulatory environment and anticipated IMO net-zero compliance requirements.
