The Daily View: Long road to recovery

THREE weeks ago, there was a degree of certainty among economists and political pundits that the Strait of Hormuz would not stay closed for long.

Today, the analysis examining what happens if global oil prices averaged around $140 a barrel for two months is barely raising an eyebrow.

We are no longer just assessing the immediate aftershock of “the largest supply disruption in the history of the global oil market”. The damage to gas infrastructure comes with consequences that will last years, regardless of how quickly this now ends.

The latest assault on Qatar knocked out about 17% of the country’s LNG export capacity and repairs could take as long as five years, according to QatarEnergy’s chief executive.

Around 19% of global LNG supply came from Ras Laffan last year.

Take 19% of supply out of any market for a sustained period and prices will surge, with buyers scrambling for alternatives.

In gas and LNG, where supply underpins power, industry and heating, the consequences quickly cascade through the wider economy.

The immediate supply chain disruptions, a burgeoning bunker availability crisis and potential recessionary effects of an extended conflict are starting to become clearer.

The strength of the subsequent recovery will be determined by how quickly shipping through the Strait of Hormuz rebounds, and how fast oil prices, supply chain stresses and financial market conditions ease.

Right now, that looks further away than ever.

Proposals for a non-binding safe corridor plan are not without value, but until that comes with a credible cessation of strikes against maritime targets, traffic will continue to trickle rather than flow.

Iran’s promises of safe passage for some based on payments and national diplomatic deals may move some, but not at the volumes that will prevent long-term economic consequences.

US plans to tie naval escorts to US insurance that the insurance market never needed, offers little hope that a credible diplomatic or security plan is imminent.

Three weeks of war have already stored up market implications for years to come, and the longer this lasts, the worse it will get.

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

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