How to get rich off the Strait of Hormuz Shipowners have the world over a barrel

“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 realise 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.”

It helps, too, that global sea lanes are very much a seller’s market. While shippers can offload cargo safely away from the war region, they’ll struggle to transport it overland. Modern container ships can carry some 20,000 containers — and no one has 20,000 trucks at hand to transport that much cargo. Local rail services are also poor.

A Reuters investigation into how 17 containers of two-by-four planks of timber were sent to their destination is sobering. The Austrian wood should have left Croatia by ship, then travelled straight to Dubai. Then, a smaller feeder ship would have taken it to Qatar, making the total journey time about 45 days. The war has wrecked these arrangements, with the Austrian timber now not expected to reach Doha for another month. Meanwhile, each container was surcharged $3,600, on top of usual freight costs, another boon for owners.

Another option is to pay for expensive storage, with no idea of how long the situation will last. Oxford Economics, a think tank, suggests that the crisis will last two months. “We assume that traffic levels will rise to around 50% in May and June,” it’s stated, “before gradually recovering to normality over the following six months.”

Then there’s the human element: tankers, after all, don’t drive themselves. On those 800 trapped ships are an estimated 20,000 seafarers. Most come from the developing countries that supply shipping’s labour pool: largely the Philippines and India. They are stuck on their ships, with no end to their sentence in sight. Some but not all crew are on double “hazard” pay. Shipping managers can in theory change crews, as most ships are anchored on either side of the Strait and are therefore accessible. But there are very few people willing to sign up to sit in waters where drones fly overhead and they can hear explosions, yet another challenge for hard-pressed industry accountants.

To be fair, the shipping industry has weathered crises before, though with varying success. It took nearly two decades for shipping to fully recover from the 2008 financial crisis, and only then because Covid increased consumer demand massively, helping shipping too. During the years of awful Somali piracy, when hundreds of seafarers were taken hostage in the Indian Ocean, one of the most common shipping routes, ships began to pass around the Cape of Good Hope instead: it took longer and cost more, but there were no attackers in small boats.

For Hormuz, though, geography limits options. Two large pipelines, in Saudi Arabia and the UAE respectively, can send oil to ports on the Red Sea. But their much smaller capacity can’t replace the pre-crisis 20 million barrels a day that transited the Strait. That, at least, leaves one certainty: business as usual is not returning for a very long time.

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