Iran’s biggest weapon may not be missiles—but tolls
The prospect of a permanent toll on ships transiting the Strait of Hormuz has become a credible risk for global markets, and could prove far more consequential for investors than the latest military escalation, warns Nigel Green, CEO of financial advisory giant deVere Group.
His warning follows reports that the US has received a proposal under which Iran and Oman would jointly administer the Strait of Hormuz, including the introduction of administrative transit charges for commercial vessels.
The proposal comes after last month’s temporary agreement between Washington and Tehran guaranteeing freedom of navigation through the strategic waterway for 60 days.
Around 20% of the world’s traded oil passes through the Strait of Hormuz, making it the world’s most important energy corridor.
“Everyone’s focused on missiles, air strikes and the next move in oil,” says Nigel Green.
“I think investors are missing what could become Iran’s most powerful economic weapon: permanent tolls on one of the world’s most strategically important maritime corridors.”
He says the investment implications extend far beyond the energy market.
“Closing the Strait would be economically damaging for everyone, including Iran.
“Charging the world to use it is a far more effective strategy. It creates recurring revenue while imposing a permanent new cost on global trade.
The deVere CEO argues that markets are conditioned to price geopolitical shocks but not structural changes to the cost of international commerce.
“Every tanker paying a toll to transit Hormuz raises the cost of moving oil before a single barrel reaches a refinery.
“This additional cost then works its way through freight rates, insurance premiums, manufacturing, aviation, food production and consumer prices. It becomes embedded across the global economy.”
He believes investors are underestimating how rapidly even modest transit charges could affect corporate profitability.
“Margins are built on assumptions about transport costs. Change those assumptions permanently and you change earnings forecasts, valuations and capital allocation.
“Businesses that depend on cheap energy, efficient global supply chains and low shipping costs become more vulnerable overnight.”
Nigel Green says investors should be reassessing sector exposure now.
“Companies with strong pricing power, resilient domestic supply chains and inflation-linked revenues become more valuable in this environment.
“Airlines, transport operators, manufacturers with globally fragmented supply chains and businesses operating on thin margins face a much more difficult landscape if moving energy through Hormuz carries a permanent price.”
He rejects the view that the issue is simply another Middle East flashpoint.
“The market has spent decades assuming the Strait of Hormuz is an open artery of international commerce. If that changes, investment strategy has to change with it.”
The deVere CEO: “Everyone’s watching for a closure of the Strait of Hormuz.
“I think investors should be watching for something potentially far more significant: the day it becomes a paid gateway instead of a free one.
“It would change the economics of global trade far more profoundly than another temporary oil spike.”