The Daily View: Days not weeks

DONALD Trump may have promised to ensure the FREE FLOW of ENERGY to the WORLD, but for the moment the world of insurance and shipping remain sceptical of his capitalised pledges.

The lack of detail is one thing, but indications from within the US Navy that escorts are not coming quickly has only polarised risk assessments from within the shipping industry.

At one end of the spectrum, Greek shipowner George Prokopiou has quietly been sending his tankers through the Strait of Hormuz, at night, with no AIS. He has secured war risk cover for his bold risk taking, proving that the market is open for business at the right price.

That the vast majority of his competitors are baulking at the prospect of their crews and assets running the gauntlet of Iranian drone strikes as the casualty list grows by the day, illustrates the consensus view is more mindful of the dangers.

“Not while combat operations are taking place,” was the response from one tanker owner when asked if Trump’s escort services would tempt him to move his trapped and loaded tanker out of the Middle East Gulf.

At the beginning of the week most traders expected disruptions to last days, not weeks. Those same sources are becoming more sceptical not less in the wake of Trump’s bid to reassure markets that energy will continue to flow.

Video footage of burning ships and a live news feed of the expanding scope of this conflict is not being offset by the sinking of Iran’s dilapidated naval assets. They were never the threat to shipping.

While US naval power boasts some of the most sophisticated defence technology in the world, Iran’s cheap but effective unmanned aerial and waterborne drones are more than capable of sinking tankers, even if the escort service is spun up quickly enough.

Add in the prospect of mines and this is not a commercial decision to be taken lightly, regardless of insurance cover.

For now, our base case assumption that the Strait of Hormuz remains a disruption measured in days not weeks, stands. But that is a fluid assessment that is being tested with every security bulletin flashing another ship getting hit.

Should any of Mr Prokopiou’s dark entries and exits through the danger zone end in disaster, the current $80 oil price is likely to respond.

Once days extend to more than a week it will push $100, and if that extends to months the $120 prices will prompt a rethink of energy supply chains that will have a lasting effect across markets.

Richard Meade
Editor-in-chief, Lloyd’s List

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