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Updated: Advantage Sweet -- The games begin!

The Advantage Sweet is a Suezmax crude carrier that was seized by the Iranians two days ago.  In the past, the US would have sent frigates to get the vessel back from the Iranians.  Yesterday, the state department issued a press release!

First, the vessel that was carrying crude which was loaded in Kuwait was owned by a Turkish Chinese company via flags of convenience counties, the crude was owned by Chevron and the crew was Indian diverse (read no Americans) as the vessel was on its way to Texas.  Second, the US has so far shown no desire to take further action.  Third, the sixth fleet is not really geared to rescue tankers.  

This is the Fifth second time in the past three years that a tanker has been seized (by Iran) and the Americans have done nothing.  This is a clear message to the rest of the world, insofar that messages are sent that way.  America is disengaged and will take no action.  

In terms of players here, the biggest potential loser is ChinaTurkey, and it will be interesting to see if they choose to act (and how).  The vessel was "owned" by one of their nationals, but the crude was not going there.  It is also important to note that the news of the seizure of the Chinese vessel is not discussed anywhere in US news media.  It is literally of no interest to anyone there!

Chevron will seek compensation from its insurers, about 900,000 barrels means that if they paid for it already (unlikely) then they will claim about US$40 million.  The implication here is that insuring oil out of the Middle East just became more expensive -- it may become prohibitively so if insurance companies decide not to insure oil tankers in the region.

China Turkey is the first loser but by far, but not the only one!  The Saudi/Iran deal they brokered means that the Chinese want greater involvement in the region.  There is no military option here unless the Chinese can convince the Turks to get involved (the only serious bluewater navy in the region).  The Chinese navy cannot in any way protect shipping in the Middle East (only Turkey or the Brits have the resources) -- for now, China's navy has a maximum range of 1,0000 nm from its own borders

The second loser is Europe faces a problem here since about 20% of its oil comes from the Middle East.  The third loser is the global energy trade.  Already the dichotomy of natural gas prices between America and Europe has created market price differences, but so far crude prices have not been affected in a meaningful way.  Five ships mean a very small percentage of total trade. So it's not yet time to get carried away... 

In terms of repercussions; that's a complex question.  Global companies dependent on crude for their production will either relocate or build new facilities in places where there is "free-flowing" oil and natural gas.  A positive impact on the Middle East, it may lead to serious industrialization.  It will also push a lot of these players to move to the US (also a net exporter of fuel), where there is plentiful domestic oil and gas, and a large consumer market.  

So far the seizing of five vessels has not set off the alarm bells at Lloyds of London -- but it may shortly.  It takes only a few default payments to change the zone designations to from dangerous to war active. It's important to note that five vessels are an insignificant percentage of total energy trade, it is entirely possible that the Iranians have a valid grievance here.   Interesting times 


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