As prices of crude oil and liquefied natural gas — key commodities sourced in the war-torn Middle East — soar due to attacks on tankers in the strategic Strait of Hormuz, wealthy ship-owning families, investors and governments are busy calculating costs and risks to financial and political portfolios.
“Shipping owners are not only looking at the next quarter, but they must also be concerned about the next 25 to 30 years,” believes GianLuigi Mandruzzato, senior economist at EFG Bank, a Swiss wealth manager, majority owned by the Latsis Greek shipping dynasty.
Speaking at the Slide2Open Shipping Finance summit in Athens, Mandruzzato said Greek maritime clans are typically concerned about cost of vessel manufacture, plus security and ease of navigation along key trade routes.
“They are looking at evolving routes, such as the Arctic route, which will most likely be available, maybe not next year, but possibly middle of the next decade. That isn’t really a long time when you structure your shipyards for 30 or 40 years ahead.”
But due to fast-changing environments in the Arabian and Black Seas, families have recently refocused on evolving regulatory sanctions against military aggressors and choice of where to locate logistical and corporate facilities to avoid conflict zones. “Given that it’s a long game, they care a lot about financing conditions and availability of capital,” he added.
Both on the stage and in the restaurants of the InterContinental Athenaeum hotel, where shipping brokers and vessel owners were busy doing deals, it became clear wealthy Greek families see themselves caught in a squeeze between political and economic pressures.
While many traditional Greek shippers are used to trading with Russian firms and gas providers, buying vessels in Chinese shipyards and relying on Beijing to finance boats and port facilities, the Greek government is increasingly aligning with American naval interests.
Like other countries in the region, the real economy in Greece is currently torn between these conflicting interests.
“We must not allow Russian gas to enter in the back door,” said Stavros Papastavrou, Greece’s minister of environment and energy in an onstage interview with PWM. The role of shipping families “can become so dynamic, it’s far more than transporting goods from the producer to the consumer”, said the minister, suggesting new routes would allow Greece to achieve “a broader geostrategic dimension”.
Secure long-term trading routes and energy supply agreements have “the possibility to create stability and prosperity in the region and protect the region far more than Nato can do”, said Papastavrou. “Because if you bring prosperity into a region, if you create connectivity, if you can make this 100-million polity as one unit, that is the best security that we can provide to the citizens of this region.”
Vertical corridors
Rather than relying on Russia and China for shipping dividends, his government is backing a “Vertical Gas Corridor”, an EU project facilitating maritime transportation of liquefied natural gas from the US — via Greek terminals in Alexandroupolis and Revithoussa island — to Bulgaria, Romania, Hungary, Slovakia, Moldova and Ukraine.
The minister was in Washington recently to sign the agreement and secure ties with US energy companies including Chevron and ExxonMobil. “I have great faith in the Greek shipowners and the industry they are carrying,” said Papastavrou. “They are the ones who would be supporting the US LNG introduction into Europe.”
His government talks about combining the energy initiative with America’s Maritime Action Plan, aiming to revitalise the US as a shipbuilding and nautical trade power.
Commentators agree that maritime and technological rivalry between the US and China will increasingly define trade patterns. “We are in a race and both of those two countries are at the forefront. I think it’s going to continue that way,” said Arnab Das, an independent global market strategist, until recently a senior economist at US funds house Invesco.
“It’s going to be very complicated, nobody else is going to accept to be subordinated. That’s the unfolding world order and it’s a very interesting world, that calls for a lot of diversification, including in taking risk in your asset portfolios, in your shipping lanes and in your sources of insurance.”
American shipyards, he said, “are only just getting started; it is one area in which they have lost before it’s begun. They will have some success over a long period of time, in becoming more of a merchant, marine and naval power by building out capacity. They have done it before and they can do it again.
“But it’s a question of price and the specifics of the policy. If they can stabilise and have policies that are more set in stone than what we have at the moment, then they can succeed at least to a significant extent.”
No US plan
But the US has had to back down twice in recent trade negotiations with China because Beijing has access to rare earth metals, he warned, with Washington failing to factor this into economic forecasts. Shipbuilding and operation of fleets can suffer similarly, he believes. “Anybody of any significance in the world is going through that calculus.”
Speakers at the summit concurred that Washington’s lack of geopolitical strategy made things more complicated for wealthy families trading across borders. “Trump has done a really good job of upsetting everybody — Canada, Mexico, Asia, the Middle East, Europe — you name it. Everybody’s upset. I am not really sure which strategy this amounts to,” said Edmund Shing, global chief investment officer at BNP Paribas Wealth Management.
Looking at the Middle East, “is there a strategy around Iran? You can talk about decapitating the leadership, OK, if that was it, and that fails, what’s plan B? I am not sure he has a plan B and that concerns me.”
Investors, he says, need to position themselves to back resource-producing economies in the Americas and Asia, singling out Canada and Kazakhstan as major energy producers ripe for partnership.
Winners and losers
“The losers are certainly countries without resources, and that’s unfortunately all of Europe,” said Shing, with Japan having issues around securing enough energy to maintain growth.
“Let’s be blunt. We are moving rapidly to a world where energy security is going to cost money,” he said. “Everyone else in the world, China included, needs to react, so basically you’re joining the race as well.”
Washington has failed to consider the “day after” its strikes and the impact of Iran’s closing the Strait of Hormuz — a crucial route for global oil and gas — according to Louise Tumchewics, research fellow at the Center for War Studies, University of Southern Denmark and a regular contributor to PWM.
She expects continued Iranian missile strikes on shipping in the Gulf. “What I think Iran has learned very well, both from its experiences from the Iran-Iraq War and the Iraq war from 2003, is that they can exploit the cost and material asymmetry.”
While defending against US and Israeli strikes from “rich, sophisticated, high-tech western weapons”, they produce “things that can be rapidly assembled, that can be sold to partners and then indigenised. Their partners and allies aren’t necessarily reliant on Iran for assembly.”
It is unlikely that “we will go back to calm waters” anytime soon, said Tumchewics, as Iranian missiles “are far more cost-effective and far more easily replaced than their western equivalents, which allows them to keep sustaining attacks”.
Continued competition for control of strategic ports, and shipping chokepoints including the Bosphorus, Panama and Suez Canals, and the Strait of Hormuz and Taiwan will shape the foreign agendas of global powers, said professor Athanasios Platias from the Department of International and European Studies at the University of Piraeus.
He believes the sea has once again become a “contested domain”, with a “weaponised shipping industry” now a key part of economic warfare between the US and China. The US war against Iran — as well as policies on Venezuela, Panama and Greenland — all constitute a “roll back strategy” against China.
At least 10 dry bulk and crude oil tankers operated by Greek companies, and at least two Chinese vessels, are reported to have sailed through the strait between Oman and Iran since the start of US and Israeli strikes on February 28. Indian tankers carrying liquefied petroleum gas have also been allowed to pass through.
China cannot afford to “lose control of the sea and the control of the straits” if it is to maintain its status as “number one trading power”, said Platias. “It takes one strait — the Strait of Malacca — to destroy the Chinese economy: the imports of energy and the export of goods.”
But this geopolitical instability can be beneficial to shipping families. “When you close the straits, for example the Suez, you have to go around Africa. When there is disturbance with energy due to the war in Ukraine, you have to go through the sea to bring energy from the US. Everything that creates inefficiency is a bonus for the shipowners,” he said.
“Most of the money in shipping is made when you have war, when you have embargoes, when you have the Iranian Revolution, when you have situations like this.”
