Ten31 Timestamp: Closed Straits and Open Models

**Marty Bent** (0:00)
Summer in the United States, typically a time for rest, time for reflection, a time to put your phone down, head to the beach.
The headlines just won't let us rest. It's never ending. We're at an inflection point, John, and no rest for the wicked this summer.

**John Arnold** (0:14)
I don't know, it sounds like you're thinking of summer in Europe. Hit that out of office message right after, right when June starts. Sorry, I'll be back in the middle of September.
You can not reach me until then. No, but we definitely, we have not gotten the summer doldrums here so far, that's for sure.

**Marty Bent** (0:32)
Well, imagine what the Europeans are going to think when they wake up in September and they catch up on everything that's been going on. They'll be like, oh wow, we're really behind here.

**John Arnold** (0:44)
The old inbox is going to be bursting with some bad news.

**Marty Bent** (0:48)
Yeah, and they're going to have to filter through all the AI generated emails that have been sent their way. God bless the Europeans in September. Okay, good luck, good luck. But we're not here to belittle the Europeans in their summer vacation lifestyle choices, I think actually preferable if given the choice. But for some reason or another, we like to grind. We're here on a Monday morning grinding. Going through more charts, John has curated a list of things to talk about. And we mentioned this last week, it was news to John, but the news has developed for seven days.
And it has fermented a little bit. And here we are, Yemen. I mentioned breaking news last week when we last met that Yemen announced that they were going to do a naval blockade of Saudi Arabia in the Bab el Mandeb straight, I guess. And that has happened. And as you can see from this chart that John has curated for us, this was only after this particular straight has been used as an alternative to the straight of Hormuz. And so it looks like the straight of Hormuz is still relatively shut down and the alternative in the Red Sea is now a hot button topic and a hot button part of the, a hot part of the world now with the Houthis getting into the mix.

**John Arnold** (2:11)
Yeah, Marty hit me with the old breaking, all caps breaking on the last episode. So it was news to me then, but the world's gotten a chance to adjust to it.
Since Marty cracked the headline. But yeah, I think this was something that, you know, as soon as this kicked off, this whole conflagration earlier this year, the fear was, the thought was, what are the Houthis going to do kind of on the other side of the peninsula? These are historically Iran linked. So are they going to cause trouble as well and make shipping out of that side just as difficult? And there was noise about that over the last couple of months, but it never really took off until kind of last week when there were more direct overt attacks on Saudi Arabian ships and other assets and terminals on that side of the peninsula.
As you said, kind of leading into both the Red Sea, but then also outward on the other direction, the graph kind of shows it a picture's worth a thousand words, but that route had become one of the main pressure release valves for shipping oil out of the Gulf. So use the East West pipeline to get the oil there and then offtake it to wherever it needs to go from there without being able to be disrupted by Iran. That had been responsible for a massive amount of offtake, millions of barrels. And as you can see on that chart there, which I got from Reuters, the vast majority of that was heading to Asia, different Asian countries, Southeast Asian countries. We probably infer a decent amount was to China, though it's tough to really know. But this is yet another major crimp in the oil market, and especially for the Eastern part of the world. I think it's questionable whether that's totally seen as a downside to some folks in the Trump administration. But either way, oil prices responded quite violently last week. Although, as often happens, we're sitting here on Monday morning and talking about last week's news, and we've gotten a bit of a reversal this morning with both sides deciding they want to give peace another shot. And so oil is down quite a bit from where it was on Friday.

**Marty Bent** (4:24)
Yeah. Not only has this had an effect on oil prices, but it has also affected insurance for the ships that are traversing these straits in the Middle East. And you have a couple of headlines here, ship insurers restrict war coverage for Saudi Arabian cargoes in Red Sea, and new Lloyd's Clause could invalidate tankers' insurance.