The Strait of Hormuz is open, what risks remain?

0:00The narrow, hundred mile gateway that fuels much of the global economy that closed when US and Israeli bombs began to fall in Iran that put vital trade in a chokehold for weeks, it's now open. Iran's foreign minister announced Friday morning that the street of Hormuz is, quote, completely open, but vessels must pass through a, quote, coordinated route. It was retired US Navy Admiral James Tvredis speaking with CNN Friday morning. Certainly it's good, but he's got questions. Well, what about those minds that might, or maybe might not be in the water? Where are the number two? Iran has its open, does that mean the normal traffic separation scheme that goes right down the middle of the street, they want to harass traffic there? Do they mean it's open? As long as you use our new Iranian track from a Mariner, I'm not exactly firing up my

1:01engines. Consider this, hundreds of ships have been stuck in the street for weeks, and even though it's now open, safety concerns remain. I'm Mary Louise Kelly. This message comes from Midi Health. CEO Joanna Strober shares why they started a virtual care platform for women in paramenopause and menopause. Our goal at Midi is to make sure that all women have access to really expert care, starting around 35 and 40, making sure that they get access to all the things that can help them thrive as they're growing older. Midi Health committed to helping women in midlife with paramenopause and menopause care, accessible via telehealth visits. Add join M-I-D-I dot com. This message comes from Invest 529.

2:01Save for more than just tuition. Use your 529 account for many other qualified higher education expenses like housing, meal plans, books, computers, and more. Learn more and start saving for yourself or a loved one's future today. Visit Invest 529 dot com. This message comes from progressive insurance. Insurance isn't one size fits all. That's why drivers have enjoyed progressives and name your price tool for years now. With the name your price tool, you tell them what you want to pay and they'll show you options that fit your budget. So whether you're picking out your first policy or just looking for something that works better for you and your family, they make it easy to see your options. Visit progressive dot com. Active casualty insurance company and affiliates. Price and coverage match limited by state law. It's considered this from NPR. The Street of Hormuz is one of the global economy's major arteries. It had been closed to most commercial traffic for about six weeks up to today.

3:07The reopening is good news for hundreds of ships that have been stuck, but questions remain about the safety of the passage. Questions like how many underwater mines are still out there? Or what happens if the ceasefire falls apart? Those questions are crucial for the people who insure these vessels. Marine wartime insurance for cargo and oil vessels that were stuck in the street skyrocketed after the start of the war because of the enormous risks of passing through it. Here to help us understand what we can learn from people making these decisions is Henrietta Trays. She is co-founder and director of economic policy at Veda Partners. Henrietta Trays. Welcome. Thanks for having me, Mary Louise. I'm so happy to be here. So Veda is at an investment advisory consultancy firm. You work with insurers to help inform your guidance to investors. I guess my first question is the headline that's out there today. Iran says the Street of Hormuz is reopening. How quickly do insurers react to something like that?

4:09Iran says the street is open, do insurers rush and adjust rates? They rush to read all the fine print is what they rush to do. They are going to be the ones to follow and really get a handle on exactly how many ships should be able to go through what's the safest route for passage, where are the mines? They're going to be naval envoys from the United States that are provided to get these guys through. They're going to read the fine print and the first thing they'll focus on is what the Iranian foreign minister has relayed, which is that the coordinated route that has already been announced by ports and maritime organization of the Islamic Republic of Iran is what they're declaring completely open. And that's about a third of the straight, not the full straight of Hormuz. And that is, of course, due to the mines and the other military blockades that have been put up since February 28th. Great. Okay, so important to pay attention to the fine print. Is what you are hearing from insurers today align with with this headline that the street is reopening?

5:10It aligns with the idea that there's going to be more flow and one of the crucial questions that the insurers have been trying to answer is what the United States and Iran are going to agree to around the toll that Iran has been collecting outside of the pure military force and the problem of physically traversing the street, which is the core hold up in the street right now. The secondary issues come from the fact that the IRGC is a declared state sponsor of terrorism. So any contact that insurers or the tankers have with Iran immediately poses problems that come with not just fines and sanctions that they would have to pay, but also real hard prison time, 20 years in prison. If anybody dies while you're trying to get through the street on one of your vessels, you could go to prison for life. So what the core question that we do not have details on as yet is exactly what did the United States and Iran agree to with regards to how the IRGC is going to be defined under

6:12our international sanctions laws. That's what the insurers want to know. They don't want to start having dialogue with the Iranians while the United States is also classifying them as a potential sanctions violation, which is a huge headache that they'll have to deal with for months if not years to come. Fascinating. Two of tolls. What else are you watching for over the next 24-72 hours as we watch to see if this sticks? I want to see exactly how many ships come through. On average, we were getting 130 ships a day. At most since this war started, this particular strip of the street that's now open has gotten 20 ships through. So the markets are responding and going gangbusters today. Crude prices are coming down on the assumption that we're going to have this massive flow of ships through the street right now. But the insurers are the most important ones to watch again because they're going to be concerned about the safety of the crew. How can you get through the street? How many at a time is the full eight-mile strip open? Is the full 21-mile strip open or is it just that little portion that's able to accommodate

7:16at most 20 ships a day? That's going to be the most important piece. And then, secondarily, how do they go about coordinating with Iran? Do they need to speak with them? Do they need to pay them a toll? How, if at all, are they to pay the toll? Is it going to go through cryptocurrency? Is it going to go through the Iran? What are the Western banks going to allow? That's really the critical question for the insurers and the tankers themselves right now. How come some ships have managed to move through the street even before this news that it's reopening? Like, why have some ships been able to get insurance and others not? The insurance is available if you want to go through. The insurers will tell you and they will be very quick to tell you that they know how to price war risk. They've been doing this for generations. So everybody could get insurance, you just may be paying way more than it would be worth it? Correct. So the insurance is available. It's roughly 300 percent more than it was before the straight closed, but you can absolutely get it. They know how to price risk. What they don't know how to get through is the tankers comfortable with actually sending

8:19their captains in crew through the straight-of-formers. So the Lloyds of London of the world, the Chubs of the world, they'll tell you that they know exactly how to price the risk of a mine, of a missile, of a drone, of pure risk associated with war. This is not new territory for them. What they cannot do is tell you where precisely the mines are. And so there's no price that the shippers themselves are willing to pay because they don't know where the mines are. And that too date is still true. Any particular considerations with ensuring American vessels? There are different issues ensuring Western banking vessels. And by that I would say the United States, the EU, NATO nations, Canadians, as opposed to the Asian shippers. So Asian ships, the ones that you're talking about that have gone through, we've maybe seen 10 to 14 ships go through since the ceasefire was announced on a daily basis. Most of those have been Chinese ships, ships that are willing to negotiate or have a pre-existing

9:19relationship with the Iranian Revolutionary Guard. And they have been willing to pay in cryptocurrency. They paid the toll, what we were calling the IA toll, to get through the straight. And that roughly equates to about $1 a barrel per ship, which means $2 million on average, they've been paying to get through the straight. But that's mostly been delineated in non-Western bank exposure. So if you are China and you can do the trade with your own currency, that's all fine and well. The United Kingdom, for example, is not trading in cryptocurrency or in yuan. So they are not able to traverse the straight in the same way that Chinese ships and Southeast Asian ships have been by coordinating directly with Iran. This may be a naive question, but is going without insurance an option? And my knowledge going without insurance is not something that any of the big tankers will do, absolutely not. They will try different routes like turning off their radars so that they're not detectable

10:23necessarily and try to preserve a little bit of safety. But even then, I believe those ships are still insured. I'm curious to what extent you see the situation unfolding in the Strait of Hormuz as unique to the Strait of Hormuz? Or if there are lessons and protocols being set now that may influence other key waterways. I'm thinking of the key shipping route off the coast of Yemen, the Bapalmond upstreet. Man, I hope that it's contained just to the Strait of Hormuz, and you nail a critical component and a setup here that I think is really important for global peace and trade going forward. This is now a case study of a very low-cost way to wage war against the developed nations and the biggest one, which is the United States. So there's read through for China and the South China Sea. There's read through for Russia and the Black Sea. At what point do you have this asymmetric warfare where the United States has extraordinarily expensive tomahawk weapons and a superior military capacity to bomb, as the president said,

11:29Iran into the end of civilization. But Iran was able to get the United States to cease fire and to call off an escalation of the war purely by closing down a strait that had otherwise been free to navigate for the entire world with no tax, no control from Iran's side, and now it is as the president tweeted earlier today, probably by mistake, the Strait of Iran. And that is now giving an example that I am afraid will apply or give a template to China, Russia, and other nations, as you mentioned Yemen as well. Henrietta Trace is co-founder of Veda Partners. Thank you very much. Thank you so much, Marylies. I really appreciate you with you today. This episode was produced by Avery Keatley and Karen Zamora. It was edited by Barry Hardiman and Courtney Dorning, our executive producer, Sammy Yenigan. Thank you to our consider this plus listeners who support the work of NPR journalists and help keep public radio strong. There's also here every episode without messages from sponsors and unlock bonus episodes

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