A back-of-a-fag-packet guide to tolls in the Strait of Hormuz
Will the shipping industry prefer to pay protection money or service charges?
Hi there! If you happen to own a Suezmax oil tanker, with a capacity of around a million barrels of oil,1 then a quick calculation on the back of a fag packet will tell you that it contains around about 78,000,000 dollars-worth of oil today, based on the market futures price of Brent crude. Give or take.
Now, with the Strait of Hormuz under Iran’s control, what we’re hearing is that a tanker can pass through the strait for a toll (they call them service charges) of two million dollars. That’s two-and-a-half per cent of the value of the cargo. That’s if Iran controls the strait, which it says it does.
Now, Mr Trump, by contrast, says he controls the strait2 and that passage will cost what he calls protection money, a term that has certain mafioso connotations, amounting to 20 per cent. Now, I’m not sure what that’s 20 per cent of, but I suppose it’s 20 per cent of the cargo value.
20% of $78,000,000 = 15.6 million dollars. As against—slightly—less if you take the Iranian route.
The 15.6 million dollars would be charged to pay for U.S. Navy protection. However, that U.S. Navy protection is required because the Iranians may shoot your tanker out of the water. And kill your crew. Whereas if you go through the Iranian side of the strait, they will not shoot at you, will not kill your crew and will charge you 13.6 million dollars less for your right of passage. Now, is that a no-brainer or is it a no-brainer?
Art of the deal, isn’t it?
The following table is borrowed from Judd at Popular Information:
