If you have not heard of the “Gays of the Hormuz”, there is a viral tiktok where an interviewer ask people if they think its unfair that we only talk about the Straits of Hormuz. What about the Gays of Hormuz he asks people. Its quite funny.
I feel like I SHOULD be worried about the Strait of Hormuz, but part of me just cannot. When I usually see trouble in the market, I am happy to dive in and try and make money from it. And I am inundated with reports of how we have an imminent, oil, LNG, food and economic crisis. I have friends email me to tell me we are about to run out of helium, which will destroy the semiconductor industry, and another that has likened the market to pre-Covid - irrationally calm. I have also had various investors write to me and ask me what I think - and what I am doing.
Here is my take for what its worth - and it is more upbeat or “gay” than most takes. Lets start with the oil market. Brent has surged from USD 60 to USD 110 today - so a big price shock. But it still below USD120 we saw in 2022 and not that much above the USD90 we saw in 2023.
LNG prices to Asia, are at about USD 20, compared to a peak of USD 70. This a MMBTU price - so directly compares to Henry Hub prices. Again, a big jump but not at levels we have not seen before.
In Europe, we are at EUR 53 per MWh - which is up from lows, but same price we saw last year!
When I look at US natural gas prices at sub USD 3, it seems very “Gays of Hormuz” to me.
Chinese thermal coal prices is also giving me a very “Gays of Hormuz” vibe too.
This is not to say that things could go wrong - but when the main energy source for the US (natural gas) and for China (coal) are not spiking - should we really be preparing for a recession? More likely, growth is okay, and inflation spikes.
But what if this crisis drags on you may ask? And here is where it gets complicated. A complete and permanent closure of the Straits of Hormuz today - would probably indeed cause a recession. But lets say, the War in Iran continues for a year as it has done so far. Disrupting shipping, adding political risk to Middle Eastern supply, and then the Strait of Hormuz is closed completely. I would suspect, the world would probably be able to deal with it and move on in a years time. That is the longer that the Strait of Hormuz is an issue, the less it matters. Contingencies are being activated, alternative energy sources are being sanctioned, and deals are being done. And this is just to reiterate a point I made in an earlier post. Iran hurts itself the most in the long run by closing the Straits of Hormuz. Its a short term gain for a long term pain - and probably driven by desperation. To me it explains the conspicuous strength of the Israeli Shekel.
Israel does not seem to be suffering from trouble in the Straits of Hormuz. Israel is also the most gay friendly nation in the region. May it is “Gays of Hormuz” after all….
