The Impact of the US-Iran Peace Deal on the Gulf Economy

**SPEAKER_1** (0:00)
It's the Morning Drive, this is Mira Business FM. The US-Iran Peace Memorandum of Understanding announced includes the reopening of the Strait of Hormuz, easing concerns over a major disruption to global energy supplies. But while markets are cheering, it's probably fair to say, the breakthrough, economists are warning the recovery in shipping and trade may take some time yet. Azad Zangana is the head of GCC Macroeconomic Analysis at Oxford Economics and he's back with some of their latest research. Good to see you.

**Azad Zangana** (0:37)
Good morning.

**SPEAKER_1** (0:37)
Morning to you, Azad. Let's start with immediate market reaction.
Are these kind of whoops and cheers? I'm overdoing this a little bit, I know. Is that premature or is the reopening of the Strait of Hormuz the signal that the Gulf economy is back on a stable footing finally?

**Azad Zangana** (0:57)
Not quite yet, but certainly a lot of the downside risks in terms of the range of outcomes that we could possibly have, many of those downside scenarios have been taken away, we hope.
It looks like the right people are now speaking to each other and progress is being made towards an eventual peace deal. And that was quite a major concern for a lot of people, that why had this war gone on for more than the initial two weeks people thought, why has it gone into, I think we're approaching 100 days if we haven't already passed it. So there was a fear that this could become a forever war, as we've seen with some of the past US military conflicts that happened. So taking that away, showing that actually no, both sides are trying to find a solution to end the conflict, is good news for the markets, it removes that downside risk.

**SPEAKER_1** (1:56)
I mean, we've been in, we've been in a state of ceasefire for 6 weeks, 7 weeks, however long it is, haven't we? So the political link is drying, I was going to say dry, that's not quite true. The operational side of shipping is a different beast, of course. Markets are more positive. Recovery in shipping and trade is going to take a good bit longer, months rather than weeks, you've noted that.
What are the specific hidden friction points? Insurance, crew availability, vessel positioning, that are going to delay the return to a sense of normalcy in the strait?

**Azad Zangana** (2:34)
Well, you mentioned a few of those straight away. So, when the strait initially closed, we had ships trapped outside of the strait looking to come in, so traveling from east to west to essentially collect goods, collect oil and gas and so on. And they hung around for a little while, but of course, every day that a ship isn't moving and transporting, it's losing money. And so, a lot of those ships were eventually diverted or called back to go do something else.
It takes somewhere between three and six weeks to travel to some of the Eastern Asian destinations where a lot of these ships originate from or where they go to. So, that in itself is a long time to consider. And then you've got, of course, all the ships that were trapped inside the strait. Now, when the shipping lanes are deemed to be safe enough to travel, those trapped inside will leave straight away. So, we will see an initial jump in the number of cargo ships, tankers and so on exiting certainly the strait. But, I think it will take some time for them to eventually come back. And like I said, we need to be certain that this deal lasts a good length of time.
Even 60 days might even be too short for some countries. Because like I said, it's going to take weeks for some of those tankers to be lined up, rebooked to travel all the way back to the Middle East to go through, pick up what they need to pick up and then exit safely. That's quite a big risk for a shipping company right now. And they have to think about that. Layer on top, the insurance costs, which of course have shot up. Now, US government has said that they're going to step in and bridge the funding gap in that market. We'll see how long that takes to get going and whether that materializes. But ultimately, it's a combination of the cost of doing business has gone up, but also the uncertainty about whether you're going to be successful in making those journeys, those transportation legs that is going to hold things back for a while. And then finally, the other element that I don't think enough people are talking about is, it will take time to restart production of oil and gas for the region. This doesn't just switch back on straight away. Now, there are inventories that were built up through the conflict period, and those can be exported pretty much straight away.