How the U.S. Naval Blockade of Iran Could Reshape Global Energy Finance for Years

It wasn’t the warships that caught my attention when I first saw a satellite image of the Strait of Hormuz this month. It was the line. West of the strait, a long, almost patient line of tankers waited for permission to move, their lights blinking in the dark water. The world’s industrial breath is contained, give or take, in three thousand two hundred vessels.

More than any speech from Washington, that picture conveys the true nature of the situation. It sounded like a policy statement when President Trump declared that the U.S. Navy would “interdict every vessel” that paid tolls to Iran. On the water, it appears more like a gradual tightening of a financial noose that is still being priced by markets.

In a matter of hours, oil prices surged above $100 per barrel. According to traders I spoke with in London, Monday’s atmosphere was similar to déjà vu, only worse. The old regulations, which were drafted following the embargo in 1973 and improved during each subsequent Gulf crisis, seem to be out of date. For many years, it was believed that Iran had the advantage: shut down Hormuz, stifle the world economy. That presumption now seems out of date. Sitting on its own shale, the United States has turned the tables. Iran is not threatening to obstruct the flow of oil out of the Gulf. Washington is preventing Iran from ever selling its oil.

In short, anything that removes more oil from the market drives up prices, and gas prices follow, according to Trita Parsi of the Quincy Institute. He cautioned that crude might reach $150 if the Houthis choose to close Bab al-Mandeb in retaliation. You can’t ignore that forecast. Manufacturers of plastics, fertilizers, and other products exposed to petrochemicals are already writing hedging memos.

Shanghai-based supply-chain consultant Cameron Johnson told Al Jazeera that he anticipates an increase in raw material costs in the coming weeks. The silent alarm beneath that forecast is difficult to ignore.

This is made more difficult by the fact that no one is speaking out loud. In practical terms, a blockade intended to stifle Iranian income is also a blockade of Hormuz. Former NGP Energy Capital employee Anas Alhajji made that point very evident. The cost of insurance for ships that are not Iranian has already increased. When their underwriters are pulling coverage, captains don’t trust CENTCOM’s verbal assurances. Even though the cease-fire is officially in effect, there is still concern about Iranian reprisals. Ships wait as a result. Cargoes get older. Credit letters begin to appear brittle.

Beneath the headlines is a more complex financial story that won’t end when the shooting stops. The unglamorous machinery of energy finance—trade credit, oil contracts denominated in dollars, and sovereign reserve flows—is being discreetly rewired. China is purchasing Iranian crude at steep discounts while observing from the sidelines. Beijing isn’t abandoning Tehran, but it’s also not jumping to its defense. Every tanker that ghosts its transponder and every barrel sold outside of the dollar system erodes the foundation that American policymakers built over the course of forty years.

Whether this blockade will last long enough to become structural is still up in the air. Cease-fires fall apart. Red lines are exchanged for language that saves face in negotiations. However, the memory of this week—3,200 stranded vessels and $100 worth of oil arriving overnight—will remain in the risk models of all energy traders and sovereign funds for years, even if the ships begin to move again next month.

As you watch this play out, you get the impression that the old playbook—written when money flowed one way and oil flowed the other—is finally coming to an end. It’s unclear what will take its place. That kind of uncertainty is despised by the market. It also frequently remembers it.