Oil investors spent the week terrified that someone might charge them money to use a different stretch of water. Not the Strait of Hormuz anymore. That's old fear. The Strait of Malacca is the new fear. Progress.
The Strait of Malacca sits between Malaysia and Indonesia. Fifteen million barrels of oil pass through it daily. Nobody charges a toll. Investors looked at this situation and decided the real risk is that somebody might start charging a toll because somebody else floated the idea of charging a toll somewhere else seven thousand miles away.
This is the investment thesis now. Water exists. Someone could charge money to use the water. Panic.
The Strait of Hormuz toll proposal sparked this latest meltdown. Investors immediately began scanning maps for other skinny waterways. They found the Malacca Strait. They found the Suez Canal, but someone already charges for that one so it doesn't count as a new thing to worry about. They found the Panama Canal. Also has tolls. Not scary enough.
Malacca won because it's free and heavily trafficked and therefore represents pure unmonetized anxiety potential.
Here's what actually happens if Malaysia wakes up tomorrow and decides to charge ships fifty bucks to pass through. Shipping companies pay fifty bucks. They pass the cost to oil companies. Oil companies pass it to consumers. The price of gas goes up one-tenth of one cent. A research analyst writes a twelve-page report about supply chain disruption. CNBC books him for six segments. Retail traders buy USO calls at the top.
Nobody builds a ten-thousand-mile detour route around Indonesia. Nobody invents flying oil tankers. The world keeps spinning. Ships keep shipping.
But today investors need to be afraid of hypothetical tolls in hypothetical places based on a different hypothetical toll that hasn't happened yet.
Tech analysts called this forward-looking. I call it buying insurance for a car you don't own in case someone else crashes theirs.
Photo by TONY SHI HOU TANG on Unsplash
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