By John Haughey
Contributing Writer
HOUSTON — The longer ships remain trapped inside the Persian Gulf and oil tankers stack in the Arabian Sea, the more likely Gulf states will reach a deal with Iran to allow commerce to resume in the Strait of Hormuz, global market and insurance analysts said in a Tuesday CERAWeek by S&P Global forum.
“Iran already controls the strait,” said Paul Sankey, lead financial analyst with Brooklyn-based Sankey Research. “My suggestion is, ultimately, maybe, the U.S. has to pull out of the region and leave it to the GCC [Gulf Cooperation Council] and Iran.”
The United States gets little oil and no gas from the Persian Gulf, although the nation’s manufacturers are, to varying degrees, reliant on petrochemicals, minerals, and other refined products from the region. Farmers worldwide, including in the United States, import fertilizer materials from the Gulf.
The Trump administration said it’s in contact with elements within Iran’s government in talks that could lead to opening the strait, and forum participants said there are also backchannel discussions between members of the Gulf Cooperation Council — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates — and Tehran.
“Maybe they find an accommodation and just accept the fact, excuse me, that the Iranians control the north Gulf and Strait of Hormuz, because it’s very difficult to see a military solution,” said Sankey, a veteran analyst who referred to unfolding events since the United States and Israel launched Operation Epic Fury on Feb. 28 as “Gulf War III.”
He was joined in the forum at the 44th annual CERAWeek by S&P Global conference by London-based Oliver Wyman and Marsh Management Associates CEO Nick Studer, U.S. Transportation Command leader Air Force Gen. Randall Reed, and S&P Global Head of Crude Oil Market Research, Energy, and Mobility Jim Burkhard.
Rather than leave the Gulf, Studer said, “I think the U.S. plan will come with naval support, and that may get things moving a little bit. But ultimately, ships are really moving with Iranian permission.”
As a global insurance broker and risk adviser, he said Marsh understands oil and liquified natural gas tankers are easy targets.
“We have a long experience in Ukraine,” Studer said. “That’s a very different situation, because the Ukrainians have beaten back the Russian navy to the east shore of the [Caspian] sea” using drones and missiles.
He noted Ukrainians on March 3 severely damaged the Russian-flagged liquefied natural gas carrier Arctic Metagaz with a naval drone in the Mediterranean Sea, and on March 23 launched drone attacks against Russian Baltic Sea ports.
“So, threats everywhere,” Studer said. “I don’t think anyone in the world can be talking to more clients about risk than us at Marsh. And when we look across the world, we’re seeing what I call ‘an everything, everywhere, all-at-once challenge.’”
Sankey noted that despite a coordinated effort by the United States, European Union nations, and China, missile and drone attacks by Iran-allied Houthis in Yemen reduced Suez Canal traffic by 60 to 80% over the past three years.
“The Houthis have been very quiet” for months, he said, but few ships were plying the Red Sea to avoid the threat, although traffic is now ticking up.
“One of the things that concerns me the most is the Iranians seem to have the Houthis still up their sleeve as we’re loading the Red Sea with crude,” Sankey said. “So, you know, the nightmares are compounding at this point.”
Threat ‘Now Is Permanent’
Studer agreed with Sankey that there is no military solution that ensures the safety of shipping traffic, especially not in the Arabian Sea, the 24-mile-wide Strait of Hormuz, and the Persian Gulf.
Iran’s “coastline is twice as long as the Texas coastline on the Gulf and you know, your enemy can fire a missile from the back of a pickup truck from … 100 miles” away, Studer said.
Contrary to general impression, shipping lines can get insurance, “but ship owners don’t want to put the crews at risk,” he said, adding there is a growing “humanitarian issue” unfolding in the Persian Gulf with as many as 20,000 crewmen idling on anchored ships.
“Many of those ships are short on food. Reverse osmosis doesn’t work well if you’re sitting in mud, so they’re short on water,” Studer said. “And ironically when you’re sitting on top of millions of barrels of oil, they don’t have [fuel for] generators. So, there’s a real challenge there.”
That’s why, Sankey said, the ultimate solution will be negotiated between Gulf states and Iran.
“If you’re thinking long-term, how can you continue this process that isn’t going well, quite frankly, of trying to force regime change in a region that has just a long history” of defying interventions by outside forces, he asked.
It’s “just very difficult to see how you can get around” unseating the regime in Tehran “without the potential for civil war, which is a horrible thing to hope for, obviously,” Sankey said.
Mixed messages emerging from Tehran, as cited by President Donald Trump, means there could be “a split leadership potentially,” he said. “These communications … seem to indicate a split amongst various factions in Iran, which is also nightmarish in its own way.”
Sankey acknowledged a GCC-Iran deal would require concessions by all to be supported by the United States and Israel.
“Ultimately, everybody does want to live happily ever after, so you have to get the Iranians to accept an Israeli state. You probably have to get the Israelis to accept a two-state [solution with Palestinians]. … That’s a demand of the GCC, so there are some very big issues here that need to be addressed.”
But extraordinary measures are needed, Sankey said. Otherwise, everyone loses.
“Obviously, this is a threat that now is permanent,” he said.
