Forget the 4% oil price hike jump. Watch what it now costs to insure a tanker through Hormuz, says the CEO of one of the world’s largest independent financial advisory organisations.
Nigel Green of deVere Group’s comments come as Brent crude climbed close to 4% to $94.23 a barrel and West Texas Intermediate rose 3.8% to $87.46, after US Central Command carried out its eleventh consecutive night of strikes against Iran.
Secretary of State Marco Rubio told the ASEAN Foreign Ministers’ meeting in the Philippines that Washington remains open to talks, but accused Tehran of failing to honour an agreement over the Strait of Hormuz.
He warned that allowing Iran to control the waterway would set a dangerous precedent for the rest of the world.
Nigel Green says: “A 4% move in the oil price is the number every headline will carry today, and it’s not the number that matters most.
“The number that matters is what shipowners are now paying to insure a single tanker for the few hours it takes to cross Hormuz, because that price is set by people whose job is to be right about risk, not to trade a headline.”
The deVere CEO points to the scale of the shift already visible in the marine insurance market. War risk cover for a large crude carrier through Hormuz stood at around 0.25% of hull value before this conflict began.
According to the Lloyd’s Market Association, that premium has now settled at roughly 5% of hull value, the new market norm, a rise of close to 1,900%. For a $100 million tanker, that is the difference between a premium of around $250,000 and one running into several million dollars for a single transit.
Nigel Green says: “Oil futures move on sentiment, headlines and speculation, and they can snap back the moment a ceasefire rumour appears. A war risk premium doesn’t work that way.
“Underwriters are pricing an actual probability of an actual vessel being hit, insured by firms that lose real money if they get the number wrong. When that premium rises by close to 1,900%, it’s telling you the people closest to the physical risk think the danger is real and current, not priced in on hope.”
The deVere CEO argues that this gap between the two markets, futures pricing headlines and underwriters pricing physical risk, is where the genuine signal sits for anyone trying to judge how serious this crisis actually is.
Nigel Green says: “Eleven consecutive nights of strikes and a Secretary of State openly saying the two sides remain apart on Hormuz itself should worry markets more than a 4% move suggests.
“Oil traders have been through enough Middle East flare-ups to hesitate before pricing in the worst case.
“Marine underwriters don’t have that luxury. They’re quoting fresh premiums, vessel by vessel, voyage by voyage, and right now those premiums are climbing in a way that should concern anyone holding energy exposure far more than the daily Brent print does.”
Nigel Green says the risk to portfolios is being underestimated because the visible number, the oil price, is lagging well behind the insurance market.
“Roughly a fifth of the world’s seaborne oil and gas passes through that strait,” he says. “If insurers keep repricing at this pace, tankers start declining the route regardless of what freight rates offer.
“A shipping disruption like this turns into a genuine supply problem fast, and a supply problem turns into an inflation problem almost overnight. Investors watching Brent alone will see that shift only after it’s already happened.”
Nigel Green says the wider market has already shown how fast this can spill beyond energy stocks. On the last comparable escalation, the S&P 500 fell 0.79%, and the Nasdaq dropped 1.55% in a single session, while the 10-year Treasury yield pushed higher as investors priced in stickier inflation rather than a flight to safety.
“This isn’t contained to oil traders and shipping desks,” he says. “A 10-year Treasury yield rising on the same day equities are falling tells you the market is pricing an inflation problem, not just a risk-off day.
“A combination like that is far harder for a portfolio to hedge than a normal stock market wobble, and it’s exactly the pattern we saw the last time this conflict escalated sharply.”
Nigel Green points to gold as the clearest sign investors are misreading this crisis.
“Gold should be rallying on a crisis like this, and instead it has fallen more than 20% since this conflict began in February, because a hawkish Fed defending against energy-driven inflation is a bigger headwind for gold than a Middle East war is a tailwind,” he says.
Nigel Green concludes: “Work it out. Oil’s up 4%. Insurance through Hormuz is up close to 1,900%.
“Equities and yields have already shown they move together on this, not against each other. And gold, the asset that’s supposed to protect you from exactly this kind of shock, has fallen more than 20% since the conflict began.
“None of those four markets is moving the same way on their own, but read together, they’re telling investors the same thing.
“This crisis is being priced as real and ongoing by everyone whose job depends on getting that call right, and priced as background noise by everyone still watching the oil ticker and calling it a day.
“Pick the wrong group to believe, and it won’t be the barrel price that catches you out.”
