Finally some very good news about oil prices. America is going to provide a lot of help in insuring and reinsuring, in other words, guaranteeing the values of oil cargoes passing through the Strait of Hormuz. The sooner we can get those ships safely through the strait, the sooner oil prices will peak and fall again.
There are 120 tankers in the ports of the Persian Gulf, at the top of the strait, paralyzed because Lloyds of London and other reinsurers have broken their contracts and increased insurance rates by 50 to 100 percent – if they even want to write a contract at all – because of the so-called Iranian war risk premium.
It is mainly this problem that drives up oil prices. There is no scarcity of oil; in fact, there is an oversupply of oil around the world. For America alone, we now produce 13.6 million barrels per day, and 24 million barrels per day of oils and liquid fuels, more than Russia and Saudi Arabia combined.
Since President Trump’s ‘drill, baby, drill’ policy during his first term and now continuing in his second term, the taps for fossil fuels have been turned back on. And America has become both an oil exporter and the world’s largest producer.
In fact, America produces almost as much natural gas as Russia, Iran, and Communist China combined, at a staggering 110 billion cubic feet per day. And one of the most important parts of Mr. Trump’s courageous effort to end Iran’s 47-year war on America is that the power to disrupt oil in places like Iran and Venezuela will be taken away.
Treasury Secretary Scott Bessent discusses the United States’ new $20 billion maritime reinsurance plan, the Iran conflict and more on ‘Kudlow’.
That’s why the Trump Administration today announced that the International Development Finance Corporation, through Treasury Secretary Scott Bessent, has a detailed implementation plan, approved by Mr. Trump, to introduce maritime reinsurance, including war risk coverage, in the Gulf region. “In close coordination with” Central Command, the announcement continued, “this plan will restore confidence in maritime commerce, help stabilize international trade, and support U.S. and allied companies operating in the Middle East during the conflict with Iran.”
This is an important development. It is fair to say that the Iranian Navy is effectively buried under deep water at the bottom of the Persian Gulf. Not a factor. A few nitpickers even believe that a few Iranian motorboats with a gun will sink a supertanker filled with oil. I don’t believe that for a minute.
However, the great US Navy will be a player here. Maybe with ships at both ends of Hormuz. And other ships that accompany oil supertankers as they make their way through the waterway to their destination.
So we would insure any losses and provide military protection to get the oil to the right destination.
World oil prices actually rose $30 last week due to the wartime risk premium. I don’t know where the peak is, but if America can get this together, with insurance, naval protection, and lots of ships sailing through the Strait of Hormuz, it will be confidence-inspiring. We will be far from not only a peak in oil prices, but also a gradual decline back to normality, which would be around $60 a barrel, or perhaps the mid-$50s.
Small Iranian motorboats will have no say in the matter.
