Exactly how many ships – and how much oil – are getting through the Strait of Hormuz? With apologies to Shakespeare's Hamlet, that is the question.
We know that the amount of oil and other products is well below its pre-war levels. No one is arguing the market is supplied at the same level it was at the start of the year, when fully 20% of all the world's oil was sourced through the narrow Gulf corridor.
We also know that Iran continues to assert control over significant portions of ship traffic. You can debate if they actually do, but you can't debate that they claim power over the seaway.
If you believe Iran, very little oil is getting through the Strait of Hormuz. If you believe the United States government, a fairly significant amount of oil is successfully making it out, largely in part because of escorts from the U.S. Navy.
Kpler – the parent company of Marine Traffic, whose data we have used extensively (thank you to them!) over the last few months – noted risks rising again in the region before the market got a couple more positive headlines.
First, Iran and Oman claim to be close to some kind of deal where the two countries establish a joint shipping corridor through the Strait. The idea is that the cross-waterway neighbors would help ensure safe passage for ships, clear any mines, and more. We don't have many more details than that, but that scant communique was enough to help send oil down a couple of bucks on Tuesday. The positive tone was nice, but let's be clear: neither Iran nor Oman controls or oversees the waterway. It is an international shipping channel that is open to all international navigation. Yes, Iran can threaten, harass and disrupt shipping, but the two countries have no legal basis to make any kind of 'safe shipping' deal.
Also, as I noted in an interview with Energy Aspects' Amrita Sen, other Gulf nations are very unlikely to agree to or adhere to any 'deal' that would require them to pay a fee or toll for safe passage. I've personally spoken with representatives of some of these nations and can assure you that they will be frustrated with any pay-to-ship type situation.
The other headline is that Pakistan says it made "significant progress" in peace talks with Iran. Pakistan has been an important back-channel player in reaching Iran, and the positive tone of its comments eased oil markets a bit.
This news all plays around the backdrop of the U.S. going harder against Iran economically.
Labeled "Operation Economic Outcast," US Treasury Secretary Scott Bessent is waging an economic sortie against Iran.
The idea is to pressure Iran's hardline leadership enough that they are forced to come back to the negotiating table and/or cease aggression around the Strait of Hormuz. Well, as of this writing, we are still waiting on the exact details of what sanctions and economic pressure may be levied; there is one lesser-discussed aspect of the plan that is noteworthy.
In addition to the new Iran measures, the Office of Foreign Assets Control (OFAC) also rather quietly ended its designation for Syria as a state sponsor of terrorism. This little-noticed move may have significant implications for some Western energy firms. A few weeks ago, the US led an announcement that some names you know will invest more than $60 billion dollars into… Iraq. Yes, Iraq. The country we went to war with less than two decades ago. Some of those billions would go toward construction – or reconstruction – of pipelines that run from northern Iraq and then on to Syria and Turkey, where the oil would then be loaded onto ships and the haven of the Mediterranean. By removing Syria's designation as a state sponsor of terrorism, American companies will have a much easier time investing in the country. The 'terror' label adds a high hurdle for investment.
This change matters to Chevron (CVX), ConocoPhillips (COP), and BP (BP). Although the move doesn't guarantee that the investment plans will proceed, removing the terror designation is an important step forward for investment. Watch this space, and watch Iraq.
It's the quiet season on Wall Street as analysts and investors take much-needed breaks. Expect more stock calls to kick back in after the U.S. returns from the Labor Day holiday. We've got a couple of individual stocks below to talk about, but let's first hit some macro energy comments from Wall Street.
The team at Citigroup is on the tape talking about lower longer-term oil prices. Citi notes that its 'base case' remains an Iran peace deal that could send Brent crude back into the $60 range next year. But the firm also highlights a 'bull case' where the Strait of Hormuz remains unsteady past the November 3rd elections in America and Brent pops back into the $110 range.
