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By Yawen Chen
LONDON, July 9 (Reuters Breakingviews) – Ships passing through the Strait of Hormuz may pay tolls after all. Just not the kind Iran can actually collect. Ostensibly, the relative calm of the last few weeks is over. Iran’s strikes this week on ships trying to transit Hormuz via the waterway nearest Oman – rather than Tehran’s stipulated “safe route” hugging its own coastline – prompted counterattacks by U.S. forces. President Donald Trump then tore up a 60-day ceasefire.
Yet far from freaking out, Brent oil prices are miles below the $120-a-barrel levels seen in March and April, when investors feared 20 million barrels of daily crude and petroleum products supply might be trapped. On Thursday they were merely at $79 a barrel, against $71 on Monday. That says something about both sides’ leverage, and the increasing restrictions on it.
Iran’s power remains its ability to strike any vessel passing Hormuz, and thus charge a levy or toll for safe passage. Washington’s is an ability to hit back even more powerfully than it did during the height of the war in March and April. Both developments remain possible, but with looming mid-term U.S. elections in November limiting Trump’s scope to re-escalate a controversial war, Tehran will know his bark is likely worse than his bite.
Unfortunately for Iran, so is theirs. The lesson of the last few months is that disrupting one of the world’s most important shipping lanes is different to upending the oil market itself. Sector specialist Energy Intelligence estimates that alternative export routes, emergency global production increases, strategic stock releases and sanctions waivers reduced the effective supply shortfall to around 3 million barrels a day. Demand adjusted swiftly too: China’s crude imports fell by about 5 million barrels a day between February and May and refiners elsewhere in Asia cut runs. As previously trapped tankers in the Gulf exited the strait, some markets had too much supply rather than too little.
If the oil market continues to muddle through and more of the black stuff avoids Hormuz via pipelines, Trump may see Iran’s leverage as a wasting asset. He’s then even less likely to sign off on an Iranian toll system, which in any case would represent a highly visible defeat. Yet shippers through Hormuz are still likely to pay a toll, even if it’s not a literal one that Tehran collects. So long as the current less stable equilibrium drags on, the daily cost of hiring and insuring oil tankers to pass through Hormuz will remain elevated compared to pre-war levels. That, plus the distinct risk of losing hard-to-replace vessels, will mean transit numbers below the 54 crossings counted by the Joint Maritime Information Center on June 24 — itself way below levels seen before March. Given this de facto toll will be passed onto oil’s end-users, the main upshot of crude’s latest flashpoint is to reinstate an appropriate premium that encompasses all this lingering risk.
CONTEXT NEWS:
The U.S. military said on July 8 it launched fresh strikes on Iran to keep the Strait of Hormuz open to shipping, triggering Iranian attacks on Kuwait and Bahrain.
The latest round of attacks, which the U.S. said was carried out in response to Iran’s assault on three cargo ships transiting the strait on July 7, came hours after U.S. President Donald Trump said he believed an interim ceasefire with Iran to be “over”.
Brent crude futures had fallen 1.3% to $76.99 a barrel by 0749 GMT on July 9, before recovering to trade at $79 a barrel as of 1200 GMT.
The United States also revoked the general licence authorising the sale of Iranian crude on July 7.
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
Editing by George Hay; Production by Streisand Neto
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