Ship captains and crews transiting the Strait of Hormuz make so much danger pay that they're 'almost being viewed as mercenaries' | Fortune
The operation of transporting oil through the Strait of Hormuz has become increasingly perilous yet lucrative due to ongoing geopolitical tensions. Despite consistent threats from Iran, commercial vessels, including oil tankers, continue to navigate this critical waterway. The presence of U.S. military protection and alternative pipeline routes has enabled oil shipments from the Persian Gulf to return to levels seen before the onset of conflict.
In an attempt to reinforce its position regarding this vital global oil passage, Iran has escalated its attacks on vessels, employing drones and missiles even against ships outside the immediate area of the Strait. Although there has been a slight decrease in maritime traffic in light of these threats, vessels persist in making trips, often engaging in shuttle runs that involve transferring oil cargoes from one ship to another before delivering the oil to buyers.
For those willing to accept the risks associated with these transit routes, substantial financial rewards are available. Captains of tankers reportedly earn around $100,000 each month for navigating the Strait, in addition to a bonus of $50,000 for every trip completed, according to sources cited by the Financial Times. This danger pay represents a significant increase from the typical monthly salary of approximately $15,000, reflecting the necessity for shipowners to maintain a crew amid heightened risks.
Sailors, who often earn as little as $1,500 monthly, can see their earnings multiply significantly during voyages through Hormuz, potentially increasing their income by four to six times their regular pay. Other regions, such as the southern Red Sea and the Gulf of Oman, also provide danger pay, albeit at lower rates compared to those for transits through Hormuz, where attacks by Houthi forces on Saudi vessels have been reported.
The ongoing shuttle operations mean that crews are frequently exposed to danger, allowing them to accumulate bonuses for each trip. A source indicated to the Financial Times that individuals willing to endure the persistent threat of attacks are being perceived as "almost being viewed as mercenaries," although some crew members have been pressured to remain on board despite their reservations.
Since the conflict commenced on February 28, at least 93 vessels have been attacked, with 24 sailors reported killed, as per the International Maritime Organization. In addition to the hazard pay, shipowners are incurring substantial costs for insurance, with war risk premiums ranging from 6% to 10% of a vessel's value—potentially amounting to as much as $20 million for a supertanker operating in the Gulf.
The rise in costs has adversely affected shipping expenses, with freight rates for cargoes passing through the Strait of Hormuz reaching an unprecedented $1.3 million per day, a stark increase from the previous year's rates of $20,000 to $50,000 per day. The demand for vessels to transport oil from the Gulf has also contributed to a global tanker shortage, driving freight rates higher internationally.
According to shipbroker Gibson, the cost of hiring a tanker for a journey from the U.S. to China now stands at approximately $80 million, surpassing the $74 million required for a standard SpaceX Falcon 9 launch. Brokerage SSY has noted that current shipping rates are the highest recorded since the introduction of supertankers in the 1960s, even when adjusted for inflation.
These soaring shipping costs have prompted oil producers and commodity traders to consider acquiring their own tankers to better manage expenses. However, if freight rates continue to escalate, they may significantly impact the profit margins associated with oil and refined products. For example, European refiner Repsol experienced a decline in its margin from $36 per barrel in the third quarter to $15 in October, as reported by analysts at RBC. Further reductions in margins could lead refiners to cut back on crude processing.
Looking ahead, the risk premium in the Persian Gulf may worsen. Analysts have cautioned that the Iranian regime, under pressure to maintain its authority, could intensify the conflict and reclaim control over oil trade routes. Esfandyar Batmanghelidj, the founder and CEO of the Bourse & Bazaar Foundation, recently noted that Iran retains the capability to damage regional oil infrastructure and could escalate its actions if diplomatic avenues are dismissed by U.S. leadership. He remarked on social media that while Iran has not engaged in total destruction, it could resort to such measures if the current state of affairs continues unabated, a concern echoed by those closely monitoring the region's dynamics.