Thirty Dollars and No Takers

Iraq spent this week trying to give oil away.

Its state marketer offered Basrah Heavy and Basrah Medium at discounts close to thirty dollars a barrel for August loading. Refiners in China and India noticed and went looking for tankers to lift it. By Friday no vessel had been fixed. Owners were unwilling to send a hull into the Gulf at any discount presently on the table.

Thirty-three ships crossed the strait between Monday and Thursday, against fifty in the same window a week earlier and somewhere between 130 and 140 before the war. Six crude tankers came out across the whole week. Twenty-one went in, most of them by the Iranian route.

Now set that beside the argument the governments are having.

Iran is asking for five to seven percent of the value of every cargo that transits. Oman has floated around three. Washington wants nothing. Those three figures have been described as the last unresolved term in the negotiation, the one number standing between a finished draft and an open waterway.

Against a barrel in the low eighties, a discount near thirty dollars takes more than a third off the price. It failed to clear. The market published a number this week for what it costs to cross that water, and the number was refused by everyone it was offered to. Seven percent is a rounding error beside it.

There is a second reason the percentage is doing less work than it appears to.

Washington has sanctioned the authority Iran created in May to run the waterway, and has barred American persons from receiving Iranian government services tied to a guarantee of safe passage. In late July the Lloyd's market issued wording that ends a vessel's war cover the moment it pays a transit fee, toll or charge for the strait. An insurer writing that clause owes nothing on a hull that has paid. The largest shipping associations in the world then wrote to the UN's maritime agency, calling any compulsory charge a toll in all but name and warning that it would set a precedent capable of unpicking the legal regime governing straits used for international navigation.

The money side of this deal arrives pre-encumbered.

Read one way, that is temporary. Every instrument in the paragraph above belongs to a party at the table or moves with one. Tehran is openly asking for the naval blockade and the oil sanctions to be lifted, and a settlement delivering that would carry the encumbrance away with it. On this reading the fee remains a live revenue question, the empty water reflects a shooting war rather than a compliance problem and the percentage matters as much as everybody says it does.

Read the other way, the shipping associations and the maritime agency are asserting something with no connection to sanctions at all. A right of transit passage free of charges is older than this war and is nobody's to trade away in a bilateral text. If that holds, the fee stays awkward to operate whatever Tehran signs, and what Iran is really buying is a recognition it can convert into revenue later, on a timetable of its own choosing.

Both readings survive the evidence available today. A single small fact would separate them: whether any of the twenty-one vessels that entered the strait this week paid anybody anything. It is the cheapest missing number in the file, and nobody has reported it.

Meanwhile the barrels sit at Basrah at thirty dollars off, and nobody is coming for them.