Baltic Dry Index Reacting to Iran Oil Embargo

Since Europe banned crude oil imports from Iran on 1 July 2012, the Baltic Dry Index has shot up 10% already from 1000 to 1103 (Chart 1). The reason for this spike isn't because Europe is banning crude oil imports from Iran, but rather the consequence of it. Due to this ban, Iran has renewed its threat to close the Strait of Hormuz. Approximately 20% of the world's oil, which is about 35% of seaborne traded oil, passes through this strait. As this strait is closed down, commodity transport vessels need to make a detour, which will increase the price of oil and increase the tanker rates. The availability of tankers will go down due to this forced rechartering of routes, which will decrease oil supply. As a consequence oil tankers will store oil in anticipation of rising oil prices and this will be beneficiary to the tanker industry. On 4 July 2012, the situation even got worse, with Iran threatening to strike 35 U.S. military bases within minutes. We will see that these events will be beneficial to the Baltic Dry Index and oil prices in general.

To read the full analysis go to my article here: Frontline: How to Profit from the Iranian Oil Embargo.

Chart 1: Baltic Dry Index