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I'm Stephanie Flanders, head of Government and Economics at Bloomberg, and this is Trumperonomics, the podcast that looks at the economic world of Donald Trump, how he's already shaking the global economy and what on earth is going to happen next. Events are moving fast in the US Israeli conflict with Iran, but as of this recording Wednesday afternoon in London, the
ships in the hall moves straight are not. We have a ceasefire declared overnight, the implications of which policymakers, investors, and anyone with a ship stuck in the Straight of horm Moose are all working in real time to understand. Meanwhile, Brent crude prices have fallen back below one hundred dollars, but still about the third higher than before the star the conflict, and some bombs are still flying, while a chunk of global oil and gas production is still offline.
I saw Exon reported this morning six percent of its global production in the first three months of this year been knocked out by events in the Persian Gulf. Well, if we just get to the Straight of Hormuz, eight hundred ships are stuck right now, as usually around one hundred and thirty passing through every day, they will not
get cleared overnight. And it looks as though whatever happens, what used to be a relatively simple act passing through that narrow strait is not going back to normal anytime soon, if ever, and whatever happens, the reputation of the US as the guardian of global shipping is going to be
forever damaged. Indeed, of all the things Donald Trump has done to disrupt global commerce, from levying punitive tariffs to tearing up trade deals, this change in the US role with regard to global shipping may actually have the most
lasting impact. That's what we're going to get into, not exactly what's going to happen in this conflict, let alone gaming out who may have won this particular round, but unpicking the current state of play for shipping in the Gulf and the knock on effects for every business everywhere that relies on fuel being put in a tank to
get their products to consumers. But also what did ensure free passage of goods through the straight of horn Moves and other shipping choke points around the world before the end of February, and what are the implications if that underpinning for free transit is now absent. So here in the London studio with me, I'm delighted to say we have Brendan Murray, our Global trades are who coordinates all of Bloomberg's global trade supply chain and geoeconomic statecraft coverage.
Good to have you back, Brendan, thanks for having me.
And joining us from Nairobi is Peter Martin in Africa and Middle East correspondent who tends to dabble in many other things, including defense and intelligence.
Peter, it's great to have you. Thanks for having me.
We know that there's a lot going on, and I want to have two parts to this. In the sense of thinking about what we're seeing already zeroing in on the sort of transportation shipping aspect of the impact of the Iran conflict and specifically that effective closure or much constrained passage of ships through the Strait of horn Moose.
I was also sort of interested in thinking more broadly of the US role in sort of underpinning the free passage of shipping through places like the Strait of Horn Moose. You wrote about that recently, so we will get into that, But Brendan, let me check in with you first. If I ask you, as our trades are, what the impact of this conflict and the situation the Strait of a Moose has been on global transportation, how would you summarize that?
Well, it's still mainly an energy crisis. The ceasefire that was announced presumably would allow some ships to start going through the Strait of horn Moose again, but that's going to be a long process. Many of the experts that we're hearing from say it could take many months. And so the knock on effects are things like jet fuel prices and diesel prices, and gasoline prices rising, not just in the region and in Asia where they are the most that the biggest buyers of Middle Eastern energy, but
also in Europe and the US. So most Americans would be able to tell you what the price of a gallon of gasoline would be within a nickel of their local station the current price, but they couldn't tell you what the price of diesel has been. And diesel has actually gone up much more steeply than the price of
gasoline has. And so that's sort of the you know, literally the thing that fuels the industrial economy in places like Europe and the US, so the knock on effects were being seen fairly quickly, just not at the doorstep of the average American.
Now we're learning there's usually a reasonably stable margin between the cost of the crude oil, and we always think in terms of Brent crude, but of course no one buys Brent crude except refiners. Everybody else is dealing with refined petroleum products. That had always been quite a stable margin.
And then what we saw was it sort of exploded, as we not only saw an increase in Brent crew but we also saw question marks about actual supplies of those refined goods and even some questions about ports potentially running out of this the fuel that the container ships run on Brendan. I mean, how much has that been a feature?
Yeah, that has been a huge issue for as you mentioned, the container shipping industry. One of the big carriers, a German company, said recently that this was costing them fifty million dollars a week. So you start adding up a five week long conflict and you're talking about billions of dollars. Delta Airlines recently said that the jet fuel surge is going to hit them to the tune of about two
billion dollars. And so we've seen a conflict that's been pretty contained in time frame have very significant and far reaching impacts to companies that as much as we like to think that we have gone green, they still rely a lot on fossil fuels and this is really hitting their margins hard.
I had someone talk about the air in the pipe if we normally have it, whatever it is, one hundred and thirty five ships going through the straight of all moves a day these weeks where you haven't had that one hundred and thirty five, many of those ships would not have arrived yet anyway. So people are not only going to see the lack of them maybe in a six weeks or a months time, what does the delayed response even if we start to see quite a lot of shipping go through as a result of this cease FI.
I think what you've seen, especially in Asia at least initially, was governments saying to people that they should conserve their fuel use, turn their lights off when they're not using them, and to try to control exports so their domestic supplies wouldn't be run down so much. And so what we're going to see if the straight reopens, is those vessels that have crude oil or LNG reach their destinations and
basically replenished supplies back up to normal levels. And the question then will be can that cycle continue to where we're not just in this back and forth of domestic inventories being run down and then just being refilled to normal levels. That's where you see the reverberations really spreading
out more widely than Asia. You have. You know, it takes thirty or forty days for a vessel to get from the Middle East to northern Europe, and so that's essentially the length of this conflict, and so there's a sort of bull whip effect, if you will, that will will kind of reverberate back and forth until supplies can be stabilized.
Finally, just on this point, you mentioned Brendan that you know, in the US you wouldn't necessarily see it, although we have seen gas prices go up. But you did write a piece about how the sort of the trucking industry was being affected in the US. You compared it to some of the stresses that we saw following COVID and the war in Ukraine. Just so how is how is US freight being affected?
Well, at the moment, there's an indicator we look at that has three components to it. One of those is transportation costs and capacity, the other one is where how costs and capacity, and the final one is inventories. And all three of those measures so it's called the logistics index. All three of those measures are spiking higher at the moment.
The latest reading in March showed that there's a real strain in the logistics capacity at the moment, and that just means higher prices for everything that needs to move from point A to point B, particularly particularly imports that have a larger portion of their price being the transportation of actors. So the reaction, especially to higher diesel prices
was pretty immediate. And the capacity this time around is tighter than it was before because we were in COVID and there was you know, there was there was some excess capacity around, and so this time around there may not be the slack that can absorb this particular shock. If what we end up with is something that kind of muddles along here for months.
I'm so glad we have you. I think of you as the kind of real world correspondent. You know, we often talk about these kind of you know, grand terms about the global economy, but you spend most of your time thinking about physically how long it takes for things to get places and why what they need in order to do that. And we've had to care about that
more in recent years, Pete. Stepping back from that, we're now looking at a very uncertain state of play in the Straight of Four Moves, with many claiming it's still Iran has no right to be coordinating, constraining maybe charging for passage through that very narrow straight Just remind us what was the situation before this conflict.
Really, in the decades since the Second World War, the US has seen itself as the guardian of safe passage for ships all over the world, so through the Moves, but also the Panama Canal, seers the Straits of Malacca. Sometimes the US has felt that the burden has fallen under on Washington in doing that, but in reality, the presence of the US Navy around the world anti piracy operations are the kind that we saw off the coast
of Somalia about a decade ago. Those kinds of military operations have really kept trade flowing through the world and have been a crucial means of underpinning American power and also American prosperity.
What's the international law that the US was underpinning by ensuring that passage.
The international law is the United Nations Convention on the Law of the Sea, which the US helped to craft but never actually ratified. But it's the basis of free passage around the world, and the US has really been the primary enforcer of that law, despite the legal technicalities.
And it's interesting because they haven't signed up to it, and neither is Iran. And yet we'd somehow exact situation where one was securing it and the other was abiding. But what's the practicalities of moving through a different system now? If Iran is suggesting it's going to have a permanent role in controlling access to the almost Straight, I mean, you know, what does that look like?
I think in truth no one knows, including Iran or President Trump. And it would be incredibly problematic, clearly an increased cost for shipping companies looking to move goods, energy, etc. Through the Straight and I think, in the eyes of many also potentially illegal because this is not something that the countries are supposed to do.
When the US talk about we can't be the world's policeman, this sense of the underpinning freedom of navigation, what's the broader implications of the US backing away from that.
The implications are pretty profound. So I've spent a lot of the last week speaking to Asian officials, European officials about how they view this. And as you said, it's something that's often taken for granted, but really, without the free passage of goods around the world, the global economy
would come grinding to a halt. And I think that's seen most acutely in Asia, where the US has spent decades talking about the need to maintain freedom of navigation, the fact that China could pose a threat to that, the fact that the global economy would suffer.
If it did so.
But the reality is now that lots of America's partners in Asia and in Europe too, are looking at the US's actions and starting to wonder if really Washington does provide the kind of stable guarantee for freedom of navigation that they've always assumed it did.
The US clearly wants to make sure it stays open or is reopened. But if you're aroun clear that the US actually is minded to take the actions needed to do that. I mean, there's been no operation that's been undertaken in the straight of hom Moves to underpin that.
You know, it would be from a military perspective, incredibly complex to do so. Straight up, hor Moves is extremely narrow, Its long ships have very limited maneuverability. The water is shallow, which means that it's easy to mine. It's also it's surrounded by mountains, which makes it easy to hide missiles and drones. So all of these things mean that militarily it would be very difficult for the US to secure the Strait. The option that lots of people talk about
is escorts of ships. But before this crisis there were about one hundred and forty ships per day moving through the Strait, and it's clear that the US without allied backing doesn't have the ability to escort all of those vessels. So really what's required, in the eyes of most experts, is some kind of political solution, a sea fire or a peace deal which allows safe passage to resume.
I think if you're around you have an interest in ships still passing through. But if you can make money out of that. That seems like quite a good and potentially constrain who goes through, but also charge people to go through. That seems something that they are contemplating even doing in some cases. We had some reporting last week about the details of negotiating potentially with crypto currency payments
to the Iranian military in order to pass through. Do you get the sense that that is becoming more of an official process.
It does seem like they attempting to formalize it, and President Trump has even hinted that the US may in some way be involved in some of those negotiations, although the details are extremely murky at the moment. I mean, I kind of think of it as a too pronged
advantage for around. There are economic benefits they can derive from the situation, but there's also the constant threat hanging over the US and the rest of the global economy that they could close the straight again, which I think has proved to be a very potent Deterran.
Brendan, you spend more time than any of us talking to shipping companies, and I saw that one of the world's biggest shipping companies advised ships today not to not to do anything without talking to the US and the Iranians. I mean, it doesn't there's no sense that it's a safe thing to do yet to go through. Do you have a sense of are they now reconciling themselves to paying to go through the strait? How are they thinking about it? Yeah?
I think they're They're going to react very slowly given the you know, the sheer uh, you know, financial value of what they're carrying, and then the people on board. It's going to it's very murky at this stage. Do you know that we don't know how the Iranians are
going to process the paperwork. They apparently they're looking at manifests and cargo history and and sort of you know, what your relationship is to the US and Israel in the past, so you know, these if what we end up with is some sort of toll system, just to follow on what Peter said, the Iranians will wind up
picking winners and losers. To a certain extent, the Chinese owned a lot of ships, and so do European companies in European countries, So you know, we could see this geopolitical struggle that the US is in with mainly China, but you know, more broadly kind of playing out right there in this waterway where Iran says, you know, the Chinese get the first five slots this morning, and the European companies, you know, can go this afternoon, and you
run into this situation where Iran dictating the terms of transit is going to get obviously very costly and unpredictable, and the shipping companies their number one priority is can they get through safely? And you know that's going to be a very uncertain process if this is what we end up with going forward.
And I mean it's striking because it's one of the industries that the US was keen to get back into and try and build some kind of capacity because as you say it, just in terms of global shipping, those massive containerships, they're pretty much all Chinese or maybe South Korean.
But it's not going to be much good to be a US containership if you're not going to be able to get through the straight Still with you, Brendan, we had talked the other day actually on this show about you know, okay, Rana has shown that it can use this as a very powerful bargaining chip, and you can't help thinking they'll use it again, but by the same token, you'd expect shippers, companies, businesses to all think about alternatives
so that they're not in this position again. How do you think the industry will be thinking about avoid getting round the straight of hormus in the field.
Yeah.
I think one of the lessons coming out of this is going to be a lesson that people learned after COVID and after the Russia full scale invasion of Ukraine, and that's you can't have all your eggs in one basket. And that's not just you know, having one supplier in one country, it's we have to be able to get goods in multiple different routes, through multiple different transportation modes, and we need to build in that extra resilience that we already probably did after COVID and after you know,
the Russia Ukraine war unfolded. So this is just going to be another lesson in self reliance independence when it comes to your supply chain, resilience in your supply chain, and now that this geopolitical cloud of uncertainty hovers over the global economy, how can we make sure our supply chains are robust enough to withstand you know, a five weak closure of the straight of hormose or there are a lot of straits and a lot of waterways in the world, and a lot of them are in unfriendly places,
not just in the Mid East, And so I think you're going to have contingency planners going back to the drawing board and saying, Okay, this is now a new risk that we have to factor in, and it's going to be a costly one if we don't prepare for it.
It does strike me that one sector that does very well out of all these developments is the insurance industry. Are you seeing the cost of premiums and even taking out of insurance going up.
Yeah, definitely. Those are some of the key players in all of this. They will ultimately decide, the insurers will whether a ship is cleared to go through, and if it's not, then you know, those ships will not move through a zone that the insurers feel isn't safe, and so that just gets added into the overall cost of transportation and ultimately what importers and exporters pay. And so they have a pretty immediate surcharge that they can slap on the price of a cargo that factors that in.
And so we'll have to see whether the risk goes down and whether Iran let's ships move through. But the insurance factor is definitely going to be one that we'll have to watch in the weeks ahead, because not many people think that the risks are are gonna go away very soon.
And you know, if you even look at the statement from the Iranians today, the fact that you can now pass through the straightforard moves in coordination with the Aralian military authorities doesn't, I'm sure, instill a great deal of confidence in the typical kind of container ship pilot. Brendan Murray, thank you so much for talking to us. I know when you're dashing off to a flight, we really appreciate it. And Pete Martin in Nairobi, thank you so much.
Thanks for having me, Thanks for having me, Thanks.
For listening to Trumponomics from Bloomberg. It was hosted by me, Stephanie Flanders, and I was joined by Bloomberg Global Trade editor Brendan Murray and Middle East and Africa reporter Peter Martin. Trumponomics was produced by Samma Sandi and Moses and Am with help from Amy Keen, and sound design was by Blake Maples and Kelly Garret, and to help others find and enjoy this show, Please rate it, review it highly.
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