A third of the world’s seaborne crude and fuels pass through
the Strait of Hormuz at the mouth of the Persian Gulf. So it’s no
surprise that as skirmishing in the Gulf between the U.S. and
Iran has intensified this year, the price of oil has ... wait ... fallen?
Anyone betting that troubles in the area would push up the
price of oil has lost a barrel of money. The prices of Brent crude
and the U.S. benchmark, West Texas Intermediate (WTI), are
each down about 26% from their highs of last October, which
was before hostilities ratcheted up.
The stability of oil prices is fortunate for President
Trump, who’s been able to tighten the screws on Iran with-
out provoking an increase in gasoline costs that would be
unpopular with voters. It’s also a plus for the global econ-
omy, which benefits from a reliable supply of affordable
crude. Shocks to the supply of oil have been causes of global
economic downturns in the past. Not so happy are the lead-
ers of Iran, who are (still) hoping to get relief from Trump’ssanctions by making the U.S. and its allies feel some pain.
Given the importance of the oil market, the placidity of
prices is a crucial mystery to unravel. After all, four tank-
ers were sabotaged in the region in May and two in June.
On July 10 a British warship had to intervene to stop Iranian
vessels from impeding a BP Plc tanker. On July 18, Trump
announced that the U.S. had shot down an Iranian drone
that approached the USS Boxer near the Strait of Hormuz.
And on July 19, Iran’s Revolutionary Guard Corps held a U.K.
tanker and stopped a Liberian-flagged, British-operated ship
in the strait, leading Trump to say, “This only goes to show
what I’m saying about Iran: trouble, nothing but trouble.”
The tension has captured the attention of marine insurers, if
not oil traders. The price of insurance against war risk has risen
about 1,000% since earlier this year, to $500,000 or more for
a single voyage of a standard oil tanker and its cargo through
the Persian Gulf, according to people familiar with the market.
The stress echoes the early days of the 1980s tanker war
between Iran and Iraq, which began as a skirmish but ended
with significant damage. Fifty-five commercial ships were sunk
or declared total losses. The U.S. Navy eventually formed con-
voys to protect ships from attack, but that exposed American
sailors. In 1987, Iraqi missiles killed 37 crew members of the
USS Stark. A year later the USS Vincennes shot down an Iranian
commercial airliner with 290 passengers after misidentifying
it as a military jet.○ Tension hasn’t caused a dramatic
rise in crude prices—and the numbers
are stacked against Iranian disruption○ By Peter Coy and Alex Longley
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