Hello, Subscribers:
We've made this point before but it seems particularly timely to bring it up again considering the prevailing near euphoria over the Iran peace treaty. The immediate bullish interpretation is that the Strait of Hormuz will soon return to its pre-war traffic levels. Unfortunately, this overlooks what has happened on the other side of the Arabian Peninsula.
As is obvious from the charts below, the number of transits through the Suez Canal, to the north, and the Strait of Bab el-Mandeb to the south, remain about 50% below where they were prior to the Houthis' widespread attacks on Red Sea shipping in late 2023.
[Charts: GSA]
A key factor behind this suppression of traffic is that the cease-fire in this theater of the Mideast war that began in May of last year has been an on and off affair. There was a re-escalation of hostilities last July followed by another truce in October. This led to a tentative pick-up in shipping activity. Yet, as you can see, both of these cooling off periods created minor blips in transits.
Then, this March, the Houthis resumed a blockade of U.S., Israeli, and British ships in response to Operation Epic Fury. (Targeting UK vessels seems odd but, after all, this is the Middle East we're discussing.)
Accordingly, it's unlikely Iran will behave in a less adversarial and mercurial manner. In fact, one could reasonably argue it will be even more belligerent based on the Trump administration's and Israel's overarching objective of denying it uranium enrichment. Additionally, Iran's success in disrupting the world's energy flow is likely to embolden Tehran to continue harassing tanker traffic, other than for themselves and their allies, whenever they become disgruntled. Such a reaction strikes us as nearly inevitable.
This is a key reason, along with Ukraine's increasingly effective drone attacks on Russian oil and gas facilities, why we are anticipating another resounding rally by crude prices. In that regard, please be sure to check out tomorrow's Pick of the Week (POW!) — actually, Picks of the Week. It will provide you with several actionable energy sector recovery plays.
The Haymaker Team