MARY LOUISE KELLY, HOST:
Iran says the Strait of Hormuz is open again after the ceasefire deal in Lebanon. That is good news for hundreds of ships that have been stuck in the strait for weeks, but big questions remain, especially for the people who insure these vessels.
HENRIETTA TREYZ: Exactly how many ships should be able to go through? What's the safest route for passage? Where are the mines?
KELLY: That is Henrietta Treyz, co-founder and director of economic policy at Veda Partners. She works with insurers to help inform her guidance to investors, and she told us how they're reacting to today's news.
TREYZ: They're going to read the fine print, and the first thing they'll focus on is what the Iranian foreign minister has relay which is that the coordinated route that has already been announced by ports and maritime organization of the Islamic Republic of Iran is what they're declaring completely open. And that's about a third of the strait, not the full Strait of Hormuz. And that is, of course, due to the mines and the other military blockades that have been put up since February 28.
KELLY: Right. OK, so important to pay attention to the fine print. Does what you are hearing from insurers today align with this headline, that the strait is reopening?
TREYZ: It aligns with the idea that there's going to be more flow, and one of the crucial questions that the insurers have been trying to answer is what the United States and Iran are going to agree to around the toll that Iran has been collecting.
Outside of the pure military force and the problem of physically traversing the strait, which is the core holdup in the strait right now, the secondary issues come from the fact that the IRGC is a declared state sponsor of terrorism. So any contact that insurers or the tankers have with Iran immediately poses problems that come with not just fines and sanctions that they would have to pay, but also real hard prison time, 20 years in prison. If anybody dies while you're trying to get through the strait on one of your vessels, you could go to prison for life.
So the core question that I have that we do not have details on as yet is, exactly what did the United States and Iran agree to with regards to how the IRGC is going to be defined under our international sanctions laws?
KELLY: I'm curious to what extent you see the situation unfolding in the Strait of Hormuz as unique to the Strait of Hormuz, or if there are lessons and protocols being set now that may influence other key waterways. I'm thinking of, like, the key shipping route off the coast of Yemen, the Bab al-Mandab Strait.
TREYZ: Man, I hope that it's contained just to the Strait of Hormuz. This is now a case study of a very low-cost way to wage war against the developed nations and the biggest one, which is the United States. So there's readthrough for China and the South China Sea. There's read through for Russia and the Black Sea.
At what point do you have this asymmetric warfare where the United States has extraordinarily expensive Tomahawk weapons and a superior military capacity to bomb, as the president said, Iran into the end of civilization. But Iran was able to get the United States to ceasefire and to call off an escalation of the war purely by closing down a strait that had otherwise been free to navigate for the entire world with no tax, no control from Iran's side. And now it is, as the president tweeted earlier today, probably by mistake, the Strait of Iran.
KELLY: Last question, which is, you know, we have all learned all too well in these last few weeks how critical the Strait of Hormuz is to the global economy and how the ripple effects of that affect all of us. What are the ripple effects if passing through the Strait of Hormuz for the foreseeable future remains either uninsurable or prohibitively expensive for ships looking to cross that waterway?
TREYZ: Think of it as a permanent tax. We haven't even seen the trickle-down effect of the last 48 days of the Strait of Hormuz being closed. We are still, this week, receiving shipments from the Strait that left before the war even started. So the way to think about this is that the cost of crude spikes immediately. It's a global commodity, and the price fluctuates almost immediately when there's an event like this.
KELLY: Right.
TREYZ: But for us watching, say, food prices or when is the price of your goods at Walmart or Target going to increase - that has a 60- to 90-day lag. That's just due to the closure. What we are not also pricing in is a elevated insurance cost. Again, that's 300% higher insurance rates that will be in place for the foreseeable future. And anybody who's trying to make purchases from the strait - how good did they feel about the ceasefire holding, about drones not being launched on a one-off basis? The thing they always say to me is, it just takes one. And the second that there's one misstep, that's when shipping shuts down all over again.
KELLY: Henrietta Treyz is co-founder of Veda Partners. Thank you very much.
TREYZ: Thank you so much, Mary Louise. I really appreciate being with you today.
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