Hi there,
I finally managed to see “The Odyssey” this week. Don’t worry, I’m not going to give my hot take on Christopher Nolan’s interpretation of it all on the big screen. My knowledge of Homer doesn’t go much further than The Simpsons. But it did strike me that, like the movie, when it comes to the global economy, right now much of the action is happening on the high seas.
Take the oil market: Its direction is being dictated by the prospects of a reopening of the Strait of Hormuz and the resumption of oil flows through it. Even a proposal to partially reopen the critical waterway and give Iran control over ships entering it has crude prices falling back towards $80 a barrel.
As Ron Bousso points out in a recent column, the market move is a sign of how desperate oil traders have become for some kind of breakthrough. An agreement that gives Iran authority over traffic through the strait would mean the war launched by the United States and Israel in February had resulted in a major shift in the balance of regional power in Tehran's favour. Before the war, the strait was freely open to all ships with no fees.
According to a senior Iranian official, Iran is seeking fees of between 5% and 7% of the price of cargoes from ships using the strait. Oman is discussing fees of around 3%, while Washington wants no fees at all.
Meanwhile, over in the Black Sea, a surge in attacks on ships, ports and export terminals is turning that waterway into another strategic trade chokepoint. Russia and Ukraine have intensified attacks on each other's agricultural export facilities and commercial vessels in the Black Sea area in recent weeks disrupting exports of oil and grains.
Reuters’ shipping correspondent Jonathan Saul reports that average daily Black Sea oil tanker costs have jumped to more than $300,000 a day from just over $200,000 a day a week ago. War insurance costs for port calls to Black Sea terminals have risen to as much as 2% of the value of the ship, from around 1% two weeks ago, translating into hundreds of thousands of dollars in additional costs per voyage.
With higher prices for crude oil and diesel, the loss of fertiliser and this year’s El Nino phenomenon, it’s no wonder the United Nations is warning of another impending bout of food inflation, starting at the end of this year.
I certainly experienced higher prices with that cinema trip. Not just the candy and the popcorn but the tickets, too. Higher ticket prices, premium-format screenings (in fairness, the plush sofa and wine options were a nice touch) and a handful of blockbuster releases are helping box office revenues even if audience numbers are shrinking.
I am heading off on vacation for the next two weeks but this newsletter isn’t taking a holiday. European economics editor Mark John will guest author it. Before I go, a shoutout to this week’s Econ World pod, all about the economics of sick leave. Watch it here.
