Navigating Geopolitics

12 Jul 2019: Geopolitical tension and the tanker market are linked, because there is typically a close relationship between geopolitical events and oil prices. Historically, many of the world’s leading oil producing countries are politically unstable and some are at odds with the U.S. and subject to sanctions. Going back to the 1960s, geopolitical events have been the catalyst for many of the biggest moves in tanker rates and prices. The closing of the Suez Canal on 5 June 1967, at the beginning of the Six Day War is probably the best known and certainly one of most impactful examples. The closure of the Suez Canal was sudden and unforeseen and created an unexpected shock to global trade flows. The closure, which lasted eight years, fast-tracked the growth of the VLCC and ULCC fleet, to take advantage of their superior economies of scale. Freight rates initially skyrocketed, but in later years dropped due to the significant overbuilding of tanker capacity. When the Suez Canal reopened in 1975, it was deemed a non-event for the tanker market, which was already depressed. Another geopolitical event that had a big impact on the oil and tanker markets was the Iranian revolution of 1979, followed in 1980 by Iran-Iraq War which lasted until 1988. The common denominator for geopolitical events that have a significant impact on the tanker market is that it is a surprise event in a relatively balanced market. If we look at the current geopolitical landscape around the world, where is it most likely that we could experience a surprise?

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