From UnHerd, April 20:
“We have no idea what on earth will happen,” admits one shipping expert. It’s a common response if you ask anyone in the industry about the crisis in the Strait of Hormuz. How will it impact trade? Will there be long-term damage to oil routes? Will terrified seafarers leave their jobs? Nobody has a Scooby.
People still think shipping is an old-fashioned business. After all, even giant container ships usually travel slower than your grandparent drives. But overseas trade has increased fourfold since 1970 and it is still growing. Today, 90% of everything we consume comes to us by 100,000 ships and 1.5 million seafarers, though you wouldn’t know it until a crisis comes along. When the Icelandic volcano Eyjafjallajökull erupted in 2010, and all aviation stopped, supermarket shelves didn’t empty. That’s because we rely on shipping: but just don’t realize it.
In this latest crisis, there are thought to be more than 800 ships stuck on either side of the Strait of Hormuz, a narrow waterway that Iran has essentially invaded — the Strait’s waters belong half to Iran and half to Oman — with threats of mines and drones. Despite Donald Trump’s dubious claim that 34 ships had gone through the strait on Monday, and despite muddled talk of closures and reopenings, for now hardly anything is moving. Before the crisis, after all, traffic through the Strait averaged 100-150 vessels a day. On Saturday, it was less than 20.
Only a fifth of the world’s oil supply is at issue here — but from the noise you’d think it was all of it. In fact, the blocked supply disproportionately affects nations that get most of their oil from the Gulf. South East Asia and Japan are suffering most. Even so, this is a problem that affects us all. As the International Energy Agency recently warned yet again, this is the largest disruption in history, adding that demand for oil is likely to fall by 88,000 barrels per day, as buyers adjust to a depleted supply and find alternatives. In economics, this is known as “demand destruction”, and it’s the surest outcome in a very unsure situation. At the worst point so far, the price of a barrel of oil surged to $150.
All the while, the crisis is expensive in other ways too: idle ships still cost money to run; crew members have to be paid, sometimes double their wages as hazard pay; charterers (who rent ships) have to pay rental even if the ship is going nowhere fast. Factor in port rates — several thousand dollars a day — and ships can cost thousands of dollars to operate, even when they are idle. Cruise ships face higher costs because while a modern tanker can operate with a crew of a dozen, cruise ships employ thousands of people, and they all need to be fed and paid.
Nor does anyone know when this will end. In its latest World Economic Outlook released last Tuesday, the International Monetary Fund stated that in an “adverse scenario with larger and more persistent increases in energy prices”, global growth will slow to 2.5%, compared to a 3.4% growth rate in 2024-5.
As is always the way, the pain would not be distributed evenly. Of richer countries, the UK gets the worst forecast, with a growth rate of 0.8%, down from the IMF’s January prediction of 1.3%. (The IMF pointed to Britain being a net energy importer and therefore being more exposed.) In its very worst scenario, the Hormuz crisis might push the world into recession.
What is less widely reported, however, is that, for some, this crisis is actually good for business. Consider freight rates, which for ships operating away from the warzone have increased dramatically. Some tankers now cost $100,000 a day to charter. That’s some 10 times the average — but they’re still being chartered. “No shipowner is going through a slump as such,” says Willmington. “It’s actually been beneficial for ship owners.”....
....MUCH MORE
