Ripples From the Persian Gulf: Understanding Trade Repercussions
Echoes sound from the Gulf of Oman. Two oil tankers were attacked last month. Today, another drone has been shot down by the US Navy.
Citing Secretary of State Mike Pompeo, US intelligence points to Iran’s responsibility as the state actor behind the tanker events. Oil costs are expected to fluctuate surrounding ongoing tensions.
This is the short of it. As business professionals analyze the potential blow to oil investments, they also turn their eyes to increased tensions in the region. It might not only be US vs. Iran as tensions heats up in the gulf.
What are the ripple effects? What other nation actors are likely to start hopping as the heat in the kettle rises? This is a look at 5 known facts so far.
Oil prices took a significant corresponding hit
It may not have been profound, but in the hours that followed these attacks, oil prices increased by roughly 4%. The Brent crude oil barrel cost in the wake of these attacks jumped to approximately $53USD.
Some fluctuations in oil cost are expected during vacation months, and so markets remained calm. Oil pricing boards were quick to cite this as a kneejerk reaction to the incident. It will be the aftermath of these events, and corresponding follow-up events, that we must keep an eye on. If tensions escalate, then a normal surge may continue to put pressure on markets, and this will create some negative cause and effect. At this point, keep your ear to the ground, and carefully watch developments on US_Iran trade sanctions.
US and China trade disputes have previously included Iran sanctions
How many of us were paying attention when the ZTE layoffs happened? We were afraid that the cheaper alternative to Android would go belly-up back then. If you were watching the market forecasts then, you remember the reasons behind the spat. The US had withdrawn from the Iran nuclear deal_a direct policy action to combat increasing Iran hostility. The Chinese allegedly violated and undermined this executive sovereign decision by selling US products to Iran.
While the US and China were able to negotiate this situation and lift bans on ZTE, the situation left its mark. This was perhaps the first official critical direct hit in the so-called “trade war”. After this, the US looked more critically at the China Belt and Road initiative especially as it related to flagged extremist threats in countries such as Iran.
Conditions have since worsened with the US-China debates, and the Huawei telecom company was banned due to allegations of trade/cyber espionage. This is one of the reasons why some fear a wider conflict may be imminent. These fears may impact oil trade and freighter stocks. Points which could create some cost fluctuations in those peer-based marketplaces.
Attacks on oil are political and target Global oil markets
Iran culpability was cited by US intelligence based on tools and sophistication of the tools used. We know, based on US intelligence, that Iran’s political regime has a personal interest to disrupt world oil trade, especially in the Gulf. There has been an increasing hostility against innocent civilian oil trade in this region for a while. The Secretariat will toughen policies against Iran until trade policy talks and diplomacy hearings can be scheduled.
Japan was in oil and US talks with Tehran when this occurred
Ironically, when the attacks were launched against two freighters carrying Japanese cargo on board, the Prime Minister of Japan was at a council meeting in Tehran. PM Shinzo Abe was discussing oil trade and US policy with Iran leaders in Tehran. The meeting was to negotiate some of the talking points the US had brought to the table as the economic superpower of oil trade mediation. Iran has responded with increasingly negative sentiments toward meeting US President Donald Trump.
Southeast Asian/Global trade was directly challenged
We know that this unique incident has incited violence against oil rigs that contained some Japanese-owned assets. The attacks endangered the lives of the entire crew on board.
This is an insult to the Japanese as they met for peaceful talks. It is a direct sabotage of their free and secure trade in the world.
The friendship that the US has with the Japanese couples with a strong diplomatic influence in the Persian Gulf region after repeat militarized conflicts here. Thus, it has triggered expected responses from the United States government.
This is significant for several reasons. One, the increasing tension in the Persian Gulf will create barriers and roadblocks for Southeast Asian traders. The US must play her cards exactly right to avoid breaking down the depreciating trust of smaller island nations in the Southeast Asian region. These nations have watched the US_China trade war closely, and with some anxiety.
Precautionary measures you can take
Knowing the cause and effect of these events will help you determine what you should do in response.
Invest in risk analysis
It can never hurt to forecast risk. Yet, if you have not invested in some form of risk assessment, be it software or an accountant, now is the time to do so. Tensions in world trade are getting heated and there is no time like the present to pad your investments for unexpected consequences. Think of it as a preemptive necessity.
Create cost mitigation
If you invest in oil by the crude barrel, in oil stocks, or in other labor associated with the market, it may be time for you to create a cost mitigation plan. Is there something that you are doing that you can maybe let go of? Is there a cheaper alternative to the oil you are buying, the route you are shipping from, etc? Count the costs now, while they sit at a low 4% fluctuation.
Invest in adaptive insurance for your rigs
Are you joining the marketplace only just now? Consider investing in insurance for your rigs before you even let them sail. Traveler is one of several insurance brokerages that offer oil rig insurance. Talk with your insurance agent to see if there are savings you didn’t previously know about.
Be aware of conflicting laws
Recently, the Supreme Court ruled that overtime is not a requirement for offshore workers. This can be a great blow to labor force incentive. Be attentive to the complaints your workers have. These are dangerous times and investing in the wage security of employees is a vote of confidence in keeping them on for the long haul.
Likewise, be aware of changing compliance laws or compliance failures in oil rig policy. Failure to comply could create a lot of liability costs that can otherwise be eliminated.
Adapting some of these above precautions and practices may not prevent you from feeling the burn of changing freighter markets completely. We suspect that you will be somewhat insulated from the full impact of them, at the very least. The greatest asset now you have is your team and an eye for enterprise. Keep both eyes open.