Keep pulling the thread on Louis Hart.
The closure of the Strait of Hormuz has trapped approximately 20% of the global oil supply.
An estimated 1,500 commercial vessels are stuck in the Strait of Hormuz, according to a recent Pentagon report.
The value of working capital trapped on vessels in the Strait of Hormuz is estimated to be in the tens of billions of dollars, potentially exceeding $100 billion.
The cost to finance a single Aframax oil tanker shipment has risen from approximately $40-45 million to $70-75 million since the Strait of Hormuz disruption began before February 28th.
Louis Hart predicts that a prolonged, multi-month closure of the Strait of Hormuz could cause significant strain on the commodity finance system due to the large amount of trapped capital.
Houthi attacks in the Red Sea have forced shipping traffic between Shanghai and Northern Europe to bypass the Suez Canal and reroute around the Cape of Good Hope.
The implementation of Basel IV regulations has contributed to some banks exiting the commodity finance market by increasing capital requirements for activities like issuing letters of credit.
In response to market volatility from the COVID-19 pandemic and the Russia-Ukraine conflict, commodity merchants raised additional capital, leaving them well-funded for the Strait of Hormuz crisis.
Rerouting ships from the Suez Canal around the Cape of Good Hope adds 10 to 15 or more days to voyage times, increasing costs for working capital, ship day rates, and insurance.
Louis Hart predicts that Middle Eastern countries like Saudi Arabia will increasingly invest in building new pipelines to create alternative export routes that bypass the Strait of Hormuz.