00:00Even as the White House contends that there is activity resuming in the strait, the data we're looking at here
00:06at Bloomberg would suggest otherwise it is just a handful of vessels and all of them pretty much have ties
00:11to Iran.
00:13And Iran, of course, is maintaining that you need to have clearance and coordination with the armed services to transit
00:18this waterway.
00:20So has anything materially changed since this ceasefire began?
00:25We haven't seen anything materially changed.
00:27What we are hearing is the same as what you're hearing.
00:30But there was a note that came out today that Iran would allow 15 vessels to pass through the strait.
00:37That's in comparison to over 40 vessels prior to the war.
00:40So even when the strait opens and through during the ceasefire, this two week ceasefire period, 15 vessels is not
00:49very many.
00:50And it certainly doesn't clear the backlog of the vessels that are sitting currently in the Middle East Gulf.
00:57Well, so then are energy markets right now mispricing what the reality actually is?
01:04We're below $100 a barrel on oil once again, at least in the futures market.
01:09Obviously, we've seen something very different in the in the physical market, Michelle.
01:14But I wonder if if if you kind of share the optimism we've seen reflected over the last few days.
01:19I actually don't share the optimism in the front of the market.
01:22Sure, there's going to be it's it's certainly possible that part of what we've already seen has been priced into
01:28the front of the market.
01:29I think that when you look even even like two months back, because this curve is in such steep backwardation
01:35that the back of the market is certainly undervalued relative to the risks that still exist inside of the marketplace.
01:44In addition to like, even if we can assume that the straight goes back to some sort of working capacity
01:49and maybe it's 50 or 60 percent, that's still a significantly slower rate in a time when every single country
01:58in the world is going to be focused on energy security and restocking their reserves.
02:01So I think that the back of the market is certainly mispriced. And when I say the back, I mean,
02:05like, deck 26 through deck 27.
02:08I mean, those those months are certainly underpriced unless someone unless you're expecting some sort of recessionary action that's going
02:15to happen in a global in the global market.
02:19Well, and it's one thing to consider just the idea of flows resuming through the straight.
02:24It's another to consider the actual production capacity of these Gulf states in the first place, as we've obviously seen
02:30some infrastructure damage in places like Qatar and LNG facilities.
02:33But we also have seen production shut-ins. That's just not a light switch that can turn on and off.
02:38Right, Michelle?
02:39How long is it actually going to take for production that we were seeing to get back up and running?
02:44I think we'll see some countries be able to come back fairly quickly, like the Saudis will be able to
02:49come back fairly quickly.
02:50I think that the UAE, there may be some infrastructure damage that needs to be repaired.
02:55But if they just shut down their wells, I think they can come back quickly.
02:58Iraq is going to take a long time. So we could it could take a while for us to see
03:02Iraqi production come back online.
03:04And Kaylee, one thing I want to mention is that everybody's looking at the ships leaving the straight.
03:10But I think one thing we really need to focus on are ships going back into the straight.
03:14So once you evacuate from the straight and you're in you're floating around the global world,
03:19do you want to go back into a war zone that has significant risks of the ceasefires falling apart or
03:27ships running that risk of getting getting bombed again?
03:31So I think really the risks that we're going to see going forward are ships reentering the straight,
03:36because I think once you evacuate, you probably don't want to go back in.
03:41Well, so then obviously what we're talking about here potentially could be, at least in the medium term,
03:47a structural change in the way in which energy is able to flow freely throughout the world.
03:53Obviously, we've seen efforts toward workarounds, be it the the east-west pipeline, for example,
03:58for Saudi Arabia efforts to kind of focus more on output through the Red Sea.
04:04Is this going to be potentially permanent, Michelle, even if we do see eventually a reopening of the straight
04:09and an ultimate long term deal reach between the U.S. and Iran?
04:15Yes, because it's Israel and Iran.
04:17So I think that the risks are going to continue to remain.
04:20We're going to continue to see high risk.
04:22People are going to be insurances are still going to remain high.
04:26I would guess that it will take at least a year of consistent, normal activity for people to feel comfortable
04:34transiting the straight.
04:35I think what we're going to see in response to that are all of the countries that have been impacted
04:41are going to build infrastructure away from the straight.
04:43So I think that's one thing that's going to happen is just the inflow of capital to build infrastructure to
04:49to transit away from the straight so that they don't have access to that.
04:53Kind of like what the Saudis they've been preparing for a number of years with the east-west pipeline is
04:58certainly paying off for them now.
04:59I think the toll, the Iranian toll is also something that's going to change, not just the straight in Iran,
05:07the Hermuz straight, but it could potentially change other straights as well.
05:10If they start charging a toll, what makes China not charge a toll or Turkey not charge a toll?
05:16So are we going to start to see global trade change just through just because this will set a precedent
05:24for the rest of how other choke points are valued?
05:29Well, as we consider you raised the Chinese, obviously Russia, of course, has been a large focus of conversation as
05:35well as it has been a net beneficiary of what's happening in the Middle East, given its own energy products
05:40and the removal of sanctions that we have seen.
05:43What happens if we see material removal of sanctions on Iran in a negotiated agreement?
05:48How does that change things for the global market?
05:51Well, Iran exports before this happened were at all time highs.
05:56So Iran barrels were still making it to the market.
05:58They just weren't making it into the market that was for unsanctioned barrels.
06:03So Iran exported out and it went all to China.
06:06Now their barrel will move from a sanctioned barrel to an unsanctioned barrel, similar to Venezuela.
06:11If Venezuela was a sanctioned barrel, now it's essentially a non-sanctioned barrel, which means that it moves from one
06:17pool, which had one buyer, to a pool with many buyers.
06:21So it will potentially raise supply marginally across the world, assuming that China doesn't try to replace that Iranian barrel.
06:32If China continues to replace the Iranian barrel, then we will see demand for the sanctioned barrel as well as
06:38the unsanctioned barrel.
06:38So you too.
06:39Everywhere.
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