Yet More on Tanker Shipping!

Here is another article following the previous one on free passage in the Strait of Hormuz, the small, tight bend in the Persian Gulf where the waterway is at its narrowest. On Bluesky, in response to my previous post, a user directed me to this video, a daily update of about 30 minutes on a Youtube channel called What’s Going on With Shipping.

I want to start by clearly stating the basis on which I am sharing this video. I had never heard of this channel until a few hours ago. It is run by a man named Sal Mercogliano who says he is a former merchant mariner and historian who teaches maritime history and also consults on the subject. In other words, he seems to be a shipping and tanker professional/nerd. And he runs this shipping news channel. I cannot independently vouch for its credibility. However, I watched today’s episode and a number of factors – subscriber counts, reliance on accredited news articles and industry data sources, tone, thoroughness and more – make me think it is at least legitimate enough to get a first look at the situation in the Gulf. I found it fascinating. This reminds me – unfortunately – of the reporting on supply chain disruptions at the start of the COVID pandemic. There was a sudden need to become familiar with the complex, but for most of us, little understood world of global supply chains, the undersides and mechanisms that actually govern how the modern interconnected world actually works.

There is no big reveal in this episode. Rather, it’s about the granular details, all the moving parts that can’t fit into mainstream news accounts. Two of the most interesting takeaways for me are: First, the immediate reason why few, if any, ships are crossing the strait is not simply danger. The world of marine insurance and reinsurance is very complex. And one of the international financial regimes that govern it imposes certain capital requirements on insurers. The outbreak of this war immediately changed risk patterns, which automatically increased capital requirements significantly. Insurers don’t have a lot of money on hand. So they had virtually no choice but to cancel their contracts, raise rates, collect those rates and thus increase their available capital. Once this is done, at least the issue of capital requirements will be resolved. Second, President Trump says that in addition to purchasing maritime insurance in the Gulf, the United States will escort oil tankers across the strait if necessary. What Mercogliano is saying is that the U.S. Navy does not currently have enough ships in the Gulf to do this. It’s important. There are many other details that are not surprising but still fascinating to discover. The entire energy extraction system relies on a constant number of tankers coming to collect oil, gas, LNG or whatever. If there are no ships, there is no switch to stop goods from arriving at the port for shipment. And there isn’t enough storage to store things for more than a very short time.

Mercogliano does not say this directly. But listening to these comments, one gets the impression that very little thought has been given to how to manage the impact of very predictable actions by Iran. In any case, I recommend watching at least part of the video. It’s fascinating stuff.