The Great Simplification with Nate Hagens - It's Not Just Hormuz: The Chokepoints Changing Global Shipping Forever with Sal Mercogliano

Episode Date: July 15, 2026

Roughly a fifth of the world's oil and more than a tenth of all global trade has been navigating a literal minefield, a wary insurance industry, and whipsawing geopolitics since late February of this year. But looking beyond the Strait of Hormuz closure itself, the same pattern threatens every critical chokepoint: passages open to all shipping for the past 80 years are becoming strategic assets within a geopolitical power struggle. If we continue this trend, what does a more fragmented, higher-cost, higher-risk maritime system mean for the norms and safety of the shipping industry, and what are the ripple effects for global trade?  In this episode, Nate is joined by maritime historian and former merchant mariner, Sal Mercogliano, to break down what the ongoing events in the Strait of Hormuz reveal about the state of global shipping and trade. Sal traces how the rise of unregistered "dark fleet" tankers and increasing risk – and subsequent cost – of maritime trade are reshaping the safety and stability of shipping across the globe. He also walks through who actually "owns" the Strait of Hormuz, the improvised insurance and security arrangements now propping up tanker traffic, and the human toll on the roughly 20,000 mariners who have been stranded, attacked, or killed since the crisis began. Ultimately, Sal examines how the 80-year-old norm of 'freedom of the seas' is being tested by this standoff, exposing the fragile foundation of our hyper-complex, just-in-time shipping system.  Why does the volume and velocity of modern trade make a conflict like the one in the Strait of Hormuz so much more consequential than at any other time in history? Is "might makes right" becoming the central pillar governing the world's oceans, and if so, what does that mean for the cost of everything that arrives by ship? And what does this conflict reveal about the stability of our highly interdependent system as global powers continue to fracture and isolate? (Conversation recorded on June 29th, 2026)    About Sal Mercogliano: Dr. Salvatore R. Mercogliano is an associate professor of history at Campbell University in North Carolina and adjunct professor at the U.S. Merchant Marine Academy. He holds a bachelor of science in marine transportation from the State University of New York Maritime College, along with a merchant marine deck officer license (unlimited tonnage 2nd mate), a master's in maritime history and nautical archaeology from East Carolina University, and a Ph.D. in military and naval history from the University of Alabama. He is also the host of the popular podcast What's Going on With Shipping, which focuses on Maritime Industry Policy, current events in the Maritime Sector, and Maritime History.   Show Notes and More   Watch this video episode on YouTube   Want to learn the broad overview of The Great Simplification in 30 minutes? Watch our Animated Movie.   ---   Support The Institute for the Study of Energy and Our Future   Join our Substack newsletter   Join our Hylo channel and connect with other listeners  

Today we're moving over 12 billion tons of cargo. And we do it at a volume and velocity unlike ever before. If you look at the map showing you where ships are moving around the world, it's like the circulatory system of trade. When you have an incident, it's like being in a car wreck at 5 miles an hour versus 80 miles an hour, particularly when they happen in these key, what we call choke points. And when you pinch off the Persian Gulf or you pinch off the Bob El Mandeb, or if you choke off the Black Sea, it's like putting a clamp on the femoral artery of your leg. If you leave it

on there for too long, you're going to damage it. And that's kind of what we're seeing with these impacts on shipping right now. Maybe this correction will force people, this kind of change the way they do business and consume. You're listening to the great simplification. I'm Nate Hagen's. On this show, we describe how energy, the economy, the environment and human behavior all fit together and what it might mean for our future. By sharing insights from global thinkers, we hope to inform and inspire more humans to play emergent roles in the coming great simplification. Today I'm welcoming shipping expert and military historian Sal Mercogliano for a deep dive on the subject of shipping, especially through the lens of increasing pressure on key bottlenecks and choke points,

both in the Strait of Hormuz and beyond. Sal is an associate professor of history at Campbell University in North Carolina, an adjunct professor at the U.S. Merchant Marine Academy. He is also the host of the popular podcast, What's Going on with Shipping? Sal holds a merchant marine deck officer license as well as a master's in maritime history

in nautical archaeology from East Carolina University and a PhD in military and naval history from the University of Alabama. In this episode, Sal gives what might be considered a brief 101 course on maritime trade, including how the role of choke points and militaries have evolved over the last century, the surprising influence of insurance, and what the future of international trade might look like in an increasingly fractured world. While this episode might on the surface seem slightly disparate from this channel's usual topics, I think you will quickly surmise and see the relevance of Sal's expertise for understanding where our hyper-complex interconnected global system is headed.

Before we begin, if you enjoy this podcast, one of the biggest ways you can support us is by subscribing to it on your favorite platform. be it YouTube or Spotify or iTunes or wherever. We believe in making this content free and accessible to as many people as possible. So we appreciate your support with that. Please welcome Sal Mercogliano. Welcome to the program, Sal. Thanks for having me, Nate. Thank you for coming on short notice.

I have invited you on because you are an expert on a subject that I've long been interested in. That has become especially relevant amidst world events, the last few months, which is shipping trade transportation. So to begin, I want to ask you a question very relevant to the current situation in the Strait of Hormuz. I will timestamp this moment. It is 1237 central time on June 29th. We've heard a lot about the U.S. or Iran or other parties controlling the ship's passage, but who really owns the Strait of Hormuz? And how is this being tested in current events. Well, thanks for having me.

And that question is one I've been dealing with now for 17 weeks since this all started back in February 28th. Technically, I mean, territorial waters reach out 12 nautical miles from shore. And since the straits 21 miles wide, I mean, it's kind of owned by Iran and Oman, kind of split down the middle. However, there is an international treaty which builds upon previous international treaties that reserve the right of what's called. called transit passes. So the UN Convention of the Law of the Sea, Unclaws, it's its nickname,

basically specifies that ships traveling into other countries have the right to transit through territorial waters if they're doing it for the purpose of commerce. So if you're Bahrain, an island in the middle of the Persian Gulf, you can't be prohibited from getting out into the ocean. So under Unclaws, you should be able to do it. Now, I will note that there's a couple of caveats to this, not the least of which, is that Iran is not a signatory to unclos, and by the way, neither is the United States, kind of two of the big ones that don't belong to this international treaty. But the issue right now is really a fight for Iranian control over the Strait of Hormuz. What they really want to do is exert their ability to permit and not permit ships

to come in. They've created this entity called the Persian Gulf Strait Authority, which gives them kind of the air of legitimacy, which it really isn't, but they're trying to control that trade. And that is where we find ourselves right now. The straight of Hormuz itself, the center part has been mined. We know that because the Iranians have said it, the U.S. have said it. You have these two competing channels now, one in Iranian waters, one in Omani waters. And what we're trying to do is get to some sort of resolution where we can restore trade back to where it was pre-February 28th. Okay, so now I have lots of questions. So if the strait is mined, people know where the mine section is and they stay away from that, but don't the mines drift over time?

Well, they do. Once you unleash a mine, it's very hard to keep that mine in place. We believe that the Iranians have mined the center part of the strait. That's where the internationally recognized what's called traffic separation scheme. It's kind of the lanes for going in now like highways on the road, you have highways on sea, and so you have these inbound outbound lanes. So the U.S. is working on clearing those mines. The International Maritime Organization, which is the U.N. shipping arm, identified about 80 mines, they believe, to have been laid in that region, and mines are notorious for breaking loose. They are anchored to the bottom. They float, but they tend not to stay there that long. And so they do become hazards to navigation. We haven't had any mine strikes at all up

to this point, we've had sightings of mines. Oman had a visual siding they posted online, and the U.S. has been conducting anti-mine countermeasures to kind of neutralize those mines. Problem in minefields is you actually need zero minds to create a minefield. You just need the threat of mines. And just once you start talking about it, it creates the problem. And that's what Iran has done.

So I don't want to diverge too far from what will be our main topic. But you mentioned the UN clause. the Convention on the Law of the Sea. And you mentioned maritime shipping laws. There's 18 miles off the coast, you said. In this world of increasing might makes right, what value are all these UN and other international treaties if someone just chooses to go and bypass that 18-mile rule?

Or, I mean, is that happening? Is that a risk? What are people saying about all that? Yeah, it's a 12-mile rule, so it's 12 miles. The old standard used to be three miles because that was the range of cannon. So we went to 12 miles out because that's basically the control you have. And I have argued this quite a bit that one of the things we're seeing, and I'll take you beyond the Persian Gulf, go over to the Red Sea with the Houthis, go over to Ukraine and Russia with the Black Sea, is we're seeing kind of a bifurcation on the world's oceans. We're seeing really freedom of the seas challenged in the first meaningful way.

Since the World Wars, I mean, since the end of World War II, 1945, we have had literally the open oceans, the Blue Commons, that has led to really the greatest amount of trade the world has ever seen. At the end of World War II, we're moving about a half a billion tons of cargo. Today, we're moving over 12 billion tons of cargo. And we do it at a volume and velocity unlike ever before. I mean, we're just moving goods. I mean, literally, whether it's containers or it's the earth, it's bulk material. It's coal, it's iron, it's oil, in record numbers. And one of the things we're starting to see is a challenge to that because one of the things that allowed us to do that was, hey, you can register your ship in a country like Liberia.

Liberia, the Marshall Islands and Panama are the three biggest ship registries in the world. Over 50% of the world's ships are registered there because it's cheap. It's cheap and affordable. And they don't have a Navy because they don't need one because flying a flag really was irrelevant for most of the period. since the end of World War II. That's changing now. We're seeing that change. And this challenge to freedom of the seas, I think, is one of the biggest ones that's taking place. Russia, Ukraine, have been fighting it out on the Black Sea now for, you know, for quite a while. And we're seeing that they're attacking ships that aren't Russian or Ukrainian. They're attacking ships that are

going into their ports. The Houthi did it in league with the Hamas in Gaza against the Israelis. And now we see the Iranians doing the same exact thing. We had two ships just attacking. this week. And so really it's a challenge to world trade is what we're seeing take place. So I don't know that you know these numbers, but I'm curious, what percent of global GDP is international trade now and what percent of that international trade is transported via ships? I don't have those numbers, and I apologize for that. But it is one of the things that we do see, and I always recommend everyone if you really want to get a good snapshot. snapshot of this because I love data and I love information. The UN Conference on Trade and Development

does a review every year, the review of maritime transport where they look at this. And one of the things we see is the correlation between trade and global GDP. And that's a big thing. It was we see as trade goes up, so does global GDP go up. And what we do see is that trade is increasing exponentially. It's just one of those great things. Again, half a billion to 12 billion tons here in a period of, you know, since 1950. And we're seeing that transpire. And what we do see is that when you start having slowdowns in the economy, 2008 is a perfect example. Same thing with 2020 with COVID. Global trade suffers for that. But then again, one of the things we do see is that global trade can also pull up the global economy. And thanks to some technologies,

we see that, something as simple as containerization, the idea of the modular shipping box, revolutionized the way we move goods around the planet. What happened, what did we do before those big containers? You moved everything the same way the Phoenicians did, piece by piece. It was basically you literally, by hand, would move pieces on and off a vessel. And it was time-consuming. One of the big things about shipping was you spent more time in port than at sea. Today, it's the exact opposite.

You spend more time at sea than in port because when, and one of my former professions was, as a merchant mariner, when you come into port, you throw the lines and you're moving cargo. and it's no longer the day where you come into a port, you're there for three, four days, and then you leave. Now you're in for hours. You're in, you offload, load, and you're off again moving. It's a seamless, smooth change. I talk about that idea of volume and velocity. One of the reasons why we've seen so many high value issues with shipping make the news is because we move cargo at such a rapid pace that when you have an incident like Evergiven in the Suez or the Dolly hitting the bridge coming out, of Baltimore, it has a greater effect. It's like being in a car wreck at five miles an hour versus 80 miles an hour. And that's what you're seeing when these incidents take place, particularly when they happen in these key, what we call choke points. This is where trade gets funneled into this narrow little area where if you pinch it, it has a greater effect. So for example, the Persian Gulf, you hear the stat that 20% of global oil comes out. Well,

11% of global trade comes in and out of the Persian Gulf, not just oil, but, but, but, you hear the stat that 20% of of global trade comes in and out of the Persian Gulf, not just oil, but helium, fertilizer, sulfur, you name it. And if you look at the world's oceans and you look at the map showing you where ships are moving around the world, it's like the circulatory system of trade for the world. And when you pinch off the Persian Gulf, where you pinch off the Bob El Mandab, which is the straight, the Houthis attacked, or if you choke off the Black Sea, it's like, you know, putting a clamp on the femoral artery of your leg, you know, you, you, you, you, you, it's going to have an impact over time.

And if you leave it on there for too long, you're going to damage it. And that's kind of what we're seeing with these impacts on shipping right now. Okay. So first, let me ask you this. As a former merchant Marine, can you give me a day in life psychological assessment of these poor sailors and employees on these ships that have been stuck there since February? Yeah. So, you know, I sailed as a merchant mariner. I went to the State University of New York Maritime College, which is one of six state maritime schools.

is also a federal academy. I will tell you that the biggest issue, and I've talked to merchant mariners who were stuck out in the Persian Gulf, there was about 20,000 at the peak there that were stuck in there. One of the biggest things is boredom. Working on a ship is Groundhog Day.

It's the same day every day. It's just there's no holidays. There's no vacation. It's every day's Monday because you follow a routine. You know, most ships have very small crews on board, 20 to 30 people on board. And so obviously, you know, being stuck in port means you're not doing, you know, you're not at least sailing anywhere.

You're stuck in one place. Obviously, security was a big issue. Risk was one. There was a lot of fear out there that they would be attacked. We tend to focus on the Strait of Hormuz quite a bit, but the entire Persian Gulf, you're no more than, you know, at different points the most 100 miles away from Iran. Some points a lot closer because Iran takes the entire northern shore. So there was a continually security issue.

There were logistics issues. When you're not sailing, you can't make water on a ship. You actually need to be underway generating heat for the ships of what's called evaporators to evaporate salt water and create freshwater. If you're not sailing, you're not making water, which means you can run out of water. If you're sitting still, you're collecting barnacles. You're going through your stores. You're consuming food.

So for a while there early in March, a lot of ships were running low on food. They don't have enough food for, you know, prolonged periods. They expect to pull in the port. there's a couple of pallets of fresh food waiting. They load them on board and off they go. They didn't have that and they couldn't get into port. So that was an issue. You couldn't get online.

Some ships have Starlink and they can connect to shore. But there's a lot of concern about going online because that would show your position of where you were. So for a lot of crews, they were really feeling, you know, the loneliness, the anxiety of being a ship. They couldn't do crew reliefs because flights were shut down for quite a lot of. a long time. So maybe you're due to get off the ship in March or April, but you can't get off now because you're stuck on there. Very much similar to what happened to these crews during COVID, when a lot of ships' crews were on board during COVID, they couldn't get off. And so they were on for protracted long periods of time. This comes with the risk. We just had two ships got attacked.

Grand total, 14 merchant mariners have been killed since the start of this conflict, 11 by the Iranians, and three, unfortunately, by the U.S. in a strike. against a commercial ship out in the Gulf of Oman? In a weird sort of way, as risky as this all is, and as potentially enormously cascading risk to the global economy, like the Ukraine war, like COVID, it does open up, especially in today's media and conversations like this, people's awareness of a peak under the hood of how our system works and the risks that are associated with. that I have a follow-up to that, but do you have any thoughts on that?

No, it does. I mean, one of the reasons I started my YouTube channel five years ago was because Evergiven got stuck in the Suez, a container ship sailing north in the Suez, rammed its bow into Asia, got its stern hung up in Africa. And for, you know, six days, 15% of global trade was pinched. And, you know, one of the things it did is reflect to the world that, listen, this is the thin margin of our shipping, you know, of our global trade, that one ship can get stuck in the Suez and all of a sudden everything backs up and it's, yes, that's exactly the way it works.

There are nodes which are very dangerous. And shipping because of that volume and velocity demonstrates it a lot. We do see it quite a bit. And one of the things that I've talked about, you know, kind of since I started my channel, is that issue is how shipping relates to everyday life. Why is it all of a sudden during COVID their, you know, toilet paper goes, you know, short? Why do we see this massive inflation kick in because of, trade, we've talked about tariffs. I mean, it really does kind of pull the mask back on it. And I think

one of the things about shipping was it was very much invisible. You took it for granted. It just disappeared. Back in the day, you know, back before containerization and these huge massive ships, you know, ships would dock along the piers of Manhattan. I grew up in New York City. You would have the finger piers there. Ships would pull up right along the piers in Manhattan. Ships would offload right there. Well, today we move that away. You know, you move it. to a container terminal in New Jersey. And nobody sees anything that happens in New Jersey. So you get it over there.

No one sees it. You move these ports out. And so they're outside the norm. And you take it for granted. And it's really when an incident happens. Now all of a sudden, you have to react. And now you start finding out about it. And one of the things I've tried to do is really make it understandable to people

who don't have a background in shipping and sailing. So we're heavily dependent on global transport and shipping. But we're also incredibly dependent as one of the core precepts of my channel on oil and hydrocarbons. Let me ask you this. So like you, I used to teach college. And one of the exercises I did was on the theory of comparative advantage in economics, where if each country specializes, even if one country is better at both things than the other, if you do the thing that you're least bad at,

the whole world ends up with more. And we did a real-time experiment with oranges and chocolates, and autarky would be no trade at all. And then we had like a world that went over time. And what ended up happening is I made an assumption that later in the game, the cost of oil would double or triple, and the cost of oil was measured in chocolates in this game.

And all of a sudden, those countries that had pursued autarky with not a lot of imports and exports, but self-sufficiency, suddenly did better. And I wonder what your thoughts are in there being an expert on shipping and transportation is how much have we become utterly dependent on the six continent just in time supply chain? And these ships run on available bunker fuel coming from oil, coming from refineries, that are also transporting that to the refineries. What are your thoughts on all that?

Well, you know, globalization and being a historian, I talk about globalization a lot. I mean, you can find Chinese coins in Pompeii. That doesn't mean that that was frequently that there's a mass of goods from China in Roman Empire. That means there's an indication of it. And one of the things that I talk about quite a bit, and I talk to a lot of companies about this, too,

is that if your entire trade goes through, nodes, and especially if 100% go through single nodes, you are vulnerable. You're vulnerable to the two issues during the supply chain crisis. One of the things I was talking about was ever given. And then I started talking about the global supply chain crosses. I talked about the fact that we had a crisis off the port of L.A. and Long Beach, where there were 109 ships at one time waiting to offload. And I remember, you know, an analyst is talking about we have a shipping crisis. Like, we don't have a shipping crisis. We got plenty of ships. The issue isn't the ships. The problem is that a lot of people had banked that L.A. in Long Beach was

the way to bring your cargo in. And the issue was in shipping, it was actually the infrastructure ashore that was the problem. It was trying to get the cargo out in the volume necessary because you were running, and I started learning about drayage and class one rails and warehousing and everything along those lines. You have to build redundancy in. You have to have provisions in place so that if you're 100% committed to a certain point, you have to understand you have 100% vulnerability. And that means at some point, it's going to come bite you in the butt. And that's exactly what we see happen. The problem you get into is you build resiliency into a system and you build redundancy into the system that's cost.

Things get more expensive. And what we saw was during the supply chain crisis, shipping companies started to adapt. You know, if I'm an importer and all my stuff is coming into L.A., I'm going to change. I'm going to start bringing stuff through the Panama Canal, through the new lane of the Panama Canal, open to 2016, that you can bring bigger container ships through. And I'm going to offload my goods in Charleston or Savannah or New Orleans or Houston. And I'm going to build some redundancy into my system. And what we saw, for example, is when the Houthi staged their attacks at the end of 2023 and the 2024, those shipping companies and those importers who had redundancy built in could very quickly adapt.

They can shift the flow of their goods from going from Asia via Europe to the United States to going from Asia to L.A. or via the Panama Canal. But I do think having an inherent capability within a country is very important and to have other resources. I would argue that one of the things that China looked at in the beginning of the 21st century is how to build that. You hear a lot about built-in-road initiative and what they're doing. What they were doing was building a lot of redundancy into their areas. One of the reasons why when the Persian Gulf happens and you all of a sudden cut off oil out of the region, you would hear analysts sit there and say, well, this is going to hurt China the most. Well, China has redundancy built in.

They built in redundancy to it. And what they were able to do was find alternative sources and literally reduce the amount of their imports because they could go switch over to different power as needed. They had stores of oil. I mean, they had massive, you know, strategic petroleum reserve they could tap into. And so they build into it. And it's very funny because my initial studies as a historian were military logistics. And military logistics talks about this all the time. you want to have this kind of redundancy built in because the military can do that.

Commercial wants to be just in time. I want to, you know, I want to move the product as seamlessly as I can, as cheaply as I can, you know, in the back door of the store, out the front door, into the hands of the consumer. And one of the things we're learning is, okay, we need to build some, some resilience into this. I am willing to pay a little bit more for more reliability. The problem is this, we all know in the business cycle is very short term, because one, Once this is kicked into the system, within a few years, people are going to go, I need to cut funds. And I don't remember this because we've changed personnel and AI is telling me I need to cut funds.

And one of the things I could do is streamline my supply chain. And we find ourselves into a very vulnerable situation. And I think this is going to put a new floor on oil prices globally, generally. I mean, who knows what the short-term ramifications are. I just don't think that all the wells are going to come back online and where the oil goes and who's got the contracts and things like that is going to be affected by this. I would add real quick on that, Nate, I think once you damage a supply chain like has been damaged in the Persian Gulf, it's very hard to reset it back.

Why is that? Well, we see it with the Houthi in the Red Sea. I mean, you know, by September of 2025, you had a ceasefire in place between Gaza and Israel. Even the Houthi had announced, hey, you know, we're done. We're not going to attack ships anymore. But commercial shipping didn't come back. They were like, there's always the chance.

There's what I call the dumb and dumber. You're telling me there's a chance. There's always a chance that there's going to be an attack of some kind. And, you know, commercial firms are much different than the military. They look at risk differently. And this is the problem I have when I talk to a lot of military. If you tell a military person, well, you know, you get a 99% chance of success, they're going to do that mission in a second.

That's a slam dunk. You tell a commercial firm, there's a 1% chance of total failure. They're going to sit there and go, ooh, how do I hedge that loss? Yeah. And they're going to look at different ways to hedge it. that's what we see. And I think even if tomorrow, you know, Bibi Netanyahu, President Trump, and the Ayatollah, you know, hug and make up, if you're a shipping firm, you're going to go, well, wait a minute, the same three guys are still in charge. This can happen again tomorrow. And it's like,

how do I offset my potential downside to this? And that's going to be insurance and higher cost. So you have on your channel spoken in length about the role of insurance and shipping in the Strait of Hermuz. So can you explain how the insurance industry could still act as a limiting factor going forward to typical traffic through the straight, even if the U.S. and Iran, like you just said, completely settled all conflict, and how long that unfolding might take. Well, Nate, I'm happy to talk about insurance, but this may be the part where we lose audience right here, because this is always... Give me the cliff note version.

Such an exciting topic. Well, I will say this. One of the things I learned, you know, I was a merchant mariner saleships. I understood the business, but I did not... I did not understand insurance the way you probably need to. And I would tell you to understand shipping is to understand insurance. That's the bedrock of everything. And, you know, the most famous insured shipping is Lloyd's.

And Lloyd's was a coffee house where owners went in and bet against the arrival of their ships. That's what they would go into. They would bet against their own shipping. And which sounds crazy, but when you think about it, if their ship doesn't arrive, they win the bet. And so they have something to start with. And that's what insurance is when it comes to shipping. So when the incident in the Persian Gulf happened, February 28th and the U.S. Israel attacks Iran, one of the things, one of the narratives you'll hear is it was insurance that stopped everything from happening. And that's not true, I would tell you. What happened was is all of a sudden the war risk to go through and war risk is an insurance on top of insurance. You have the normal protection and indemnity, which insures the cargo. And then you have the hull and machinery then ensures the ship. War risk is kind of like flood insurance. You need this in case you get attacked. And what happened is, is everyone realized, okay, the chance of attack has increased. And it did.

On March 1st, the Iranians started attacking ships. And what most people don't understand is the insurance for shipping, what comes out of these 12 international P&I clubs, and they cover about 90% of all shipping. They're owned by the ship owners. And so the ship owners formed these clubs. And so they were cognizant of the fact that we need to get more insurance. We need a greater insurance pool in place to insure the vessels. And so what they did is they held the ships in place. They didn't go through the Strait of Hormuz. They got new insurance, which was at high rate, which created a bigger reservoir pool of money should a ship get hit. And then they were ready to sail, but what was missing was security. And that's where the U.S. failed, I would argue.

The U.S. was not prepared to really step up and provide the protection that was needed to get the ships through. You know, during the tanker war of the 1980s, from 1980 to 1980s, from 1980 to 1980s, there was what was called the tanker war. It was an offshoot of the Iran-Iraq war where Iran and Iraq started shooting at tankers. And it got progressively worse over the 10 years, roughly the decade. And by the time we got to the end of the tanker war, rates to insure vessels was through the roof, 5, 10%, the total value. Pre-war going into the Persian Gulf in this year, you were talking about maybe a quarter of a percent of insurance or maybe 0.15 percent. Now you're talking about 1 to 5%. What is the value of one of those full VLCCs full of oil, roughly? This is where you start getting into it now. Now all of a sudden you have a very large crude carrier that's $100 million. And so, you know, what was 0.15% is now 1%. Well, you know, if it's $100 million, that's a million dollars. You have to pay, which isn't a lot when you're carrying two million barrels of fuel on board, if you think about it. It isn't really significant. But you also need the security

protection. And this is what I would argue is, is insurance is in place on the commercial market. What is in is the security. And that's the big thing. Because what insurance provides you is, okay, your ship, your ship, you lose your cargo, you lose your crew. Here's your replacement money for your ship. What you're not getting insurance for, in many cases, is the potential environmental damage that's being done by that cargo. And more importantly, you're not getting the replacement of that ship over the next life of that ship, 10 to 50,000. 15 years. And it's three to four years out to get a new ship. And so you potentially lose it. So if I'm a shipowner, I'm going to sit there and say, do I want, you know, the million dollars in insurance isn't that bad.

I can pay a million dollars to go through the Strait of Hormuz. But do I want to take the chance of losing the ship's income over the next 15, 20 years? So every answer you give me, I think of three more questions. We're going to be here a while, mate. So who, when we talk about insurance and risk, is it the ship's captain that's making the call or is there some owner in Greece or L.A. that's saying, no, you phoning them up and saying, okay, you can go now. How's that work? Well, I would always love to tell you that captains are the ultimate authorities on the ships and they have the absolute command. But in truth, it's the owners. The owners are always the ones in charge. And that's what you see. You see the owners doing this. And, you know, shipping is very, I argue shipping is very, is very strange in some ways. I mean, one of the largest shipping companies in the world, Mediterranean shipping companies, the largest container liner in the world is a mom and pop store. It literally is. It's owned by the Aponte family. There's no, there's no board of directors. There's no shares. They own the entire thing. Nearly 30% of all containerer shipping is that family. They own it. It's very strange. It's a very weird thing. Then you get companies that are containers, you know, and pure Board of Directors, Maersklines, for example. So it's very different. And one of the things we saw early on is some Greek ship

owners took some risk, but they got paid well for their risk. They saw opportunity where normally, you know, the charter rate for a tanker, a very large crude carrier, maybe you're making $50,000 to $100,000 per day for that vessel. They were making offers on those ships to get a cargo of oil out for $750,000 per day. And, you know, it doesn't take a lot to sit there and say, I can make seven times my normal value. I'm going to go ahead and take that chance and risk. How likely is it, do you think there's going to be a toll or a fee to pass through the Strait of Hormuz in the years ahead? Well, if you look at what the Persian Gulf Strait Authority has released, and I have, I mean, you look at what they have out there. They're requiring ships to complete documentation and paperwork, including an insurance issue. Now, they're saying there's no insurance right now. We will provide you free insurance. And what's interesting is they're insuring you, they're providing you war risk insurance against a list of things, which is all the things Iran has done, by the way. So it's literally an itinerary of everything Iran has done. But the MOU does have this provision where, after, 60 days, fees can be levied. And one of the most interesting developments this week was a meeting

between Iran and Oman about that, because Oman controls the southern half of the strait, Iran the northern half. And I would argue that Iran cannot arbitrarily lay fees and in charges for this. However, if you bring Oman in, that's a little bit different now because now you've got both sides of the Strait, both countries that have the territorial waters in play here. And there's some historical analogies of that out there, the Turkish Straits, the Danish Straits. So from your perspective, how might our global modern supply chains that we've gotten used to and our shipping systems change amidst an actively hostile and brittle world with more uncertainty in the years ahead? Well, I think, number one, what we're seeing is it's more expensive to do.

everything on shipping right now because bunker fuel, the fuel, the fuel ships is, it got up as much as three times as much. It's falling back down now. It's about twice as much. But there's that cost is being added to it. We're creating delays. We're creating new supply chains all of a sudden. You have to go different areas. So one of the things that was touted about is like, hey, the U.S. is open. Come to the U.S. load your tanker here and we'll sail it. Well, that's great, but it's 22 days from the Persian Gulf to the east coast of China. It's 55 days from. Houston to the east coast of China. You know, in that same voyage from Houston to China, you can sail twice from the Persian Gulf.

You know, so you need twice as many ships at least to be doing this. And so what we're doing is redrawing supply chains around the world. You've got a country like Russia, for example, who sees an opportunity here to sell its oil on the world market and its liquefied natural gas on the world market because we desanctioned it because we need it on the global marketplace. You know, yes, you're in Ukraine and you're doing these horrific things, but, you know, the global economy needs to keep running. And so we're going to go ahead and turn our, you know, back on this so that you can go ahead and ship it. Well, at the same time, Russian ships are being attacked in the Mediterranean by Ukrainian forces. And now, you know, if you get a Russian liquefied natural gas carrier, you really don't want to sail through the Mediterranean because we had an example of one

their ships, the Arctic metagas, being struck by two unmanned surface vessels and very nearly sinking the vessel. So now you've got to go through the Arctic route. And we saw one of the earliest sailings through the Arctic route this year. So we're redrawing lines on how we move goods. You know, I joke, one of the areas that's doing the best because of the shutdown on the Strait of Hormuz is the Panama Canal. Panama Canal is record business right now. They are literally lines waiting to go through the Panama canal because of commodities coming out of the Gulf Coast of the United States through the canal. I just don't think this is over. And I think the result in your field in transportation and shipping is it's going to be a higher cost.

There's going to be a new baseline cost for oil. There's going to be a higher floor. Of course, we could have a depression and low demand and things like that. But net net, we're going to have a higher floor for oil, a higher floor for oil products, and a higher floor for shipping. What do you think? No, I think you're right. In the first part there, I think you're exactly right. that they did not factor that in. I would argue that the United States, particularly in the government

level, does not understand shipping, does not understand global shipping at all. I think they went into this conflict thinking this is going to be July 2025. It's going to be quick. We didn't see a appreciable drop in shipping during that time, yet everybody involved in shipping knew exactly what was going to happen. And very easy to tell that because one of the things we started to see was stockpiling of oil at sea, literally the highest level since COVID. And COVID was in, and unintentional. Which probably really saved our economy, that stockpiling. It did. And, you know, what's one of the interesting things is commercial read this very well. They saw this. They were able to adjust. Now, I would also argue, too, that one of the things we see is oil is a little bit more

flexible when it comes to this than other commodities. Fertilizer, for example, that's a tough one, because you don't see the impact of that until the end of the next growing season that comes out. But to the second part, I think you're exactly right. I mean, what we're seeing here is this kind of bifurcation of global shipping. I talked a lot about the dark fleet. This is a fleet that was created as a result of the Russian, Russia's invasion of Ukraine. This is that fleet that was a hauling sanctioned oil. Initially it was Venezuela and Iranian, but then it became Russia because the U.S. and the G7 and the EU came up with this idea that, listen, we need Russian energy, but we don't want Russian the profit from it, so we'll come up with this idea of a price cap.

and the method we'll use to enforce it is insurance. We're going to use the insurer. We'll tell the 12 big P&I clubs don't insure any ship carrying oil or diesel fuel over, you know, $60 or $100 per barrel. And what they failed to understand is like, well, the Russians came up with a system to get around that. They came up with their own insurance. They registered their ships in countries that were, listen, give me money and you can fly my flag. I don't care. And they got around the system.

Right. So it was Russian oil, but it was flown by Liberia or some other. flag. Even Liberia wouldn't touch it. I mean, we're talking about, like, Mongolia and Madagascar and St. Kitts, you know, and then the other thing they've created was this idea, like, we really don't even need a, we'll just fly a flag. We won't even register the ship. And then you get these ships sailing around the ocean that are not even registered, you know, you know, hey, you're registered in Kamaas. Like, no, you're not. It's like, we don't have no record of your ship. And so you literally have stateless vessels sailing around. And I believe

this is the danger we're talking about here. It's getting to be expensive. out there because of the diversions, you've got to spend more on fuel, you've got to spend more on insurance to do it. But then you have these ships that are sailing out there that are really dangerous, I would argue. They are, because they're not being inspected. They're not being insured. And so, you know, you have two million barrel tanker and it loses its oil cargo because it's uninspected. It hasn't gone through the due diligence to ensure the ship is meeting all the compliance necessary. And it spills, you know, a million barrels off your coast. Guess what? That's yours. You get to own it and you get to clean it up.

And there's no procedure. If you think about the Dolly, when the Dolly hit the bridge coming out of Baltimore, that ship had insurance. There's insurance on that ship up to about $3 billion. And, you know, so that they can cover literally almost any contingency. These ships are operating outside the bounds. It's one of the reasons why you saw the U.S. You know, grabbing tankers going in and out of Venezuela because they were unregistered. And it's the same reason now you see countries like.

Great Britain and France and others seizing some of these tackers because they're sailing in their waters and they're viewed as dangerous. It doesn't give me a warm, fuzzy feeling, Sal, that might makes right in the advent of soft piracy with no environmental buffers. And it just feels like we're cascading towards a blue team, red team world where there's going to be more war and violence. And there's a shortfall risk because of this Rube Goldberg machine of international commerce and dependency that we've built over decades. It is very dangerous. You know, two of the best books written about this is the Outlaw Sea and the Outlaw Ocean. And, you know, they share that common theme, which is that, you know, once you go 12 miles out, it's the Wild West out there in certain ways. And the way it works is by acknowledging international law and conforming to it.

And in truth, you know, the UN Convention on the Law of the Sea is a 200-page treaty, but in truth, that's not a lot. And, you know, the U.S. Federal Code is 194,000 pages. You know, we legislate everything. And so, you know, there's a lot of gray area. And one of the things that we wanted have is these international conventions to ensure that it's safe out there on the high seas. And it requires everybody to acknowledge it. Even though the U.S. is not a signatory to unclaws, it does acknowledge unclaws. And it says, okay, this is the acknowledged thing. Our issue with it has to do a deep sea mining and the fact we can't get 67 senators to agree to anything. So it just winds up being, you know, an unratified treaty for us. But the issue you create is if you start jeopardizing that, if you start turning the high seas into an area where you can shoot first and ask questions later, which is, which is happening on both sides. It's not just the Iranians. I mean, the U.S. is kind of doing this off the coast of Venezuela with drug boats. It creates problems because if you set that precedent, other nations will set that precedent too. of the dangers with, for example, if Iran wants to set a toll going through or a fee going through

the Persian Gulf and the Strait of Hormuz, what stops China from doing that through the Taiwan Strait? What stops Japan or Korea doing it through the Zashima Strait? What stops Indonesia from doing it through the Malacca Strait or Morocco through Gibraltar? You start creating these areas, and literally we start regressing on the world's oceans, not back to World War I, World War II, but to the age of sale and mercantilism and the golden age of piracy. So we mentioned oil and bunker fuel. We mentioned insurance. You mentioned infrastructure and redundancy, and those are all costs. How much of a cost is trust in the global economy? And how could that change? Well, I think trust is really the de facto thing we operate under. I mean, in truth,

one of the things that we have built up over time was there was a lot of trust actually initially in shipping. And you had that because if you come out of World War II, the world's merchant Marines were national merchant marines. They were recognized the U.S., Great Britain, Norway, Greece, Japan, Germany. I mean, they were all there. And there was, you know, kind of reciprocation between them. We all expected that. Then you had the proliferation of the open registries, Panama, Liberia, the Marshall Islands. And we had a, you know, period in the 50s and 60s where things were getting a little bit bad. And you started creating these conventions through the International Maritime Organization that eventually allowed you, for example,

to go on board these ships and inspect them. So, you know, a ship comes into the United States. Doesn't matter what flag it is. It's in U.S. waters. The U.S. Coast Guard, which is our designated agency, can go on board and ensure they're meeting the pollution standard, the life-saving standard. You know, all those kind of verification. You know, it's kind of verification. You know, we don't inspect every ship. There's about 80,000 ships come in to the United States every year and about 10,000 are inspected because we have limitations in what we can do. But you want to be able to have that. think that's part of that trust that you're talking about. The problem you have now is when you start creating these separate networks and you start kind of bifurcating and you create these parallel fleets,

some people call them the dark fleet, I call them parallel fleets. This creates a problem because now all of a sudden you're operating in two different environments. You know, if Iran, Russia, China, other countries are in this one group and then you have the U.S. and these other countries and those other group, that's going to be detrimental to trade. And I think if you start seeing global trade go down, then you see global economy go down. And it's kind of got that, you know, kind of reciprocal agreement that's kind of, you know, parasitical to each other. They live off each other. And when all of a sudden they start declining, that's a problem. And if you look since the 1950s, they've followed hand in hand, maritime trade and global GDP kind of go right in sync with

each. There's a couple of times when they fall out, but that's largely due to shocks to the system, 2008, 2020, but largely in sync. And I think. And I think. think trust is a really important element because what we're seeing now is ships operating out there that are just outside the bounds. And we had an example a few years ago off the coast of Malaysia where we were we were experiencing this what we call ship-to-ship transfers. Ships were operating in this gray area. So you'd get Russian ships loaded with oil. They would come out of the Black Sea in the Baltic. They're sanctioned. They loaded oil above the price cap. So, That has an alert with it now.

Now you know those ships are sanctioned. But they would meet up with ships off the coast of Spain and Greece and dump their loads into these bigger vessels. And then these bigger vessels would set sail from that anchorage and go to another anchorage off the coast of Malaysia. And then they would dump their fuel into smaller tankers and those smaller tankers would disperse to other ports. And what you're doing is kind of wandering the oil.

You'd mix it with other oil and you'd get rid of it. But off the coast of Malaysia, we had a ship that blew up because the inert gas system, the system that prevents the buildup of explosive vapors, wasn't working. And that would have been caught in port, but it wasn't because the ship never comes in a port. And what you had is the killing of two crew members on board. And that's going to be magnified over time. Ships are getting older. The ships on average now are about 23 years old, and they're getting older by the year, not just yearly, but, I mean, the average age of the fleet's getting older.

we're not replacing ships fast enough. And the demand for ships is increasing. And so we're having this problem with the fleets out there. How long does it take to build a ship? Well, that's another interesting parallel we're seeing is we're seeing how ships being built and where they're being built is changed. So, you know, back in 1999, China was building 5% of the world ships. The big shipbuilders were Europe, Korea, and Japan. By all estimates, latest report has China in 2025 with 70.9 of all commercial orders for ships. So, I mean, China has become the behemoth of building ships. Japan and Korea have a good chunk of that, but they're losing percentage to the world. And so is Europe and so is the rest of the world. So China is the absolute kind of master of this.

They started off very badly, I would tell you, building ships. It was really a kind of a cluster. But right around 2010s, they realized, okay, we got to clean this up and they consolidated. And they've created businesses, the biggest shipping company, shipbuilding company in the world, the Chinese shipbuilding, state shipbuilding corporation, CSSC, builds 40% of the world ships. 40%. It's bigger than any other nation in the world except for China itself. Right now, orders are such that you can't get a ship for three to four years. It takes about two years to build a ship, two to three years. But orders are so pushed back right now that if you order a ship right now, you're not going to get it to 20, 29, 2030.

And if we had to, with maintenance and repair and such, how long might one of those new ships be functional? So that's another interesting change we've been seeing in shipping. So back in, you know, not too long ago, I mean, you look back at the end of the 20th century, ships were good for 30, 35 years, 40 years. I mean, you can get some good lifespan out of ships. Ships today being built in China and other places are designed for very short life spans, maybe about 15 to 20 years. And there's a couple of reasons for that. One has to do with propulsion. The International Maritime Organization has come up with a plan, what's called the Net Zero Framework,

where they're trying to get ships to a point by 2050 where we can get net zero in carbon emissions. Basically, we're not adding any carbon to the atmosphere based on these vessels. I will tell you that's a challenge. Ships are the largest objects ever made by humans, and we're trying to get them down to net zero. It's hard to do that with cars. It's hard to do it with trucks. It's hard to do it with planes. It's really tough to do it with ships.

The only way to do it with ships, and I have the solution, it's called the sailboat, but you can't quite move as much cargo with it. And what has happened is China is part of their strategy, and I would argue it is a strategy in their taking over and really becoming the shipbuilding entity on the planet is they want a short lifespan for a ship. They want 15 to 20 years so that you have to go back and get another ship And so they can keep that cycle going.

Ships are designed not to be scrapped anymore. We used to use that phrase scrap. You get rid of it. You scrap and you turn into razor blades. Now it's recycled. And, you know, you build it in China, you run it up on a beach in India, Pakistan, Bangladesh, and you recycle a lot of it and rebuild it because if you build a ship today in 2026, is that engine going to be legal to use in 10, 15, 20 years?

I don't know, because they're changing the rules so fast. the Trump administration has really pushed back against this. It's one of the interesting things that the U.S. has gotten more involved in the International Maritime Organization. We've really seen them kind of back away because U.S. shipping is very small. It's a fraction of a percent percent of total global shipping. But they've pushed back on this net zero framework because they believe it gives China a lot of power. But also, it's very costly.

You're forcing shipping firms to come up with new alternative fuels. So everything from liquefied natural gas, to methane, to methanol, to one of the most interesting and I think most dangerous is ammonia. Amonia is carbon-free. It's fantastic. However, carbon leaks are really, excuse me, ammonia leaks are really dangerous on a ship. It's not just flammable. It can kill the crew. And so we're seeing a lot of push to make these green corridors, routes that are just being used with this very clean fuel. And it's really raising costs because now, you've got to come up with this new bunkering system.

I can't use diesel anymore, so I've got to come up with lukify natural gas. I got to source green methanol. And it makes it more expensive to operate chips. Thank you for that. I know that some ships last a very long time because in the Kevin Costner movie Waterworld, they were still using one of the big VLCCs.

So you have deeply studied the history of shipping and trade because so much of the central thesis on this channel is based on oil being kind of the hemoglobin of the global economy. What are some other influential goods that shape the formation of global trade and how do they compare to the influence of oil? Well, oil for a long time was probably the commodity we moved the most by ship. I mean, that was the big thing. I mean, oil was always it. And what's been interesting is how oil has changed in that trade. I would argue that literally the closest we have to an analogy to what's happening in the Persian Gulf,

you got to go back to 1968 in the shutdown of the Panama, excuse me, the Suez Canal, because of the Six-Day War, when the Suez Canal was closed from 1968 to 1975. And it absolutely revolutionized the way we move oil around the planet. We created the super tanker. We had already been developing larger and larger tankers. World War II, you had what we call the handy-sized tanker, maybe a 10, 15, 20,000-ton ship. We then got up to behemots of 100,000 tons, but when you shut Suez down, well, sky's the limit. We can go much bigger because we're not constrained by the Suez Canal anymore.

And you were building very large crude carriers, 200, 300,000, tonne, up to ultra-large crude carriers, 400,000, 500,000 tons. And so we changed that. We had a revolution when it came to moving goods around the planet with containers. You know, the very first container ship, the Ideal X in 1956, moved 58, containers. The biggest ship moving containers right now, about to be christened in France, is a ship called the CMA, CGM, Notre Dame, almost 25,000 boxes getting ready to come into service. On one ship? On one ship.

25,000 of those, like, railcar size boxes? Yep, 25,000, 25,000 TUs, 20-foot equivalent units on board. Just a behemoth of a ship, massive. And especially when you think about the fact that the total crew on board is probably about 25. That's what you need on a ship that size. So what is the economic value in some cases of those? It's probably higher than oil because there's electronics and TVs and other things, yeah? Oh, the value of the ships are astronomical. I'll give you the example. One of the reasons why you haven't seen ships return to the Red Sea is because of the value of the ship.

So those big, what we call ultra-large container ships, these are ships over 18,000 boxes. They are almost used exclusively on the Europe to Asia run. That's where you see them used. Are those bigger than the big oil tankers? They are probably similar in size, maybe not as much in tonnage, but they're up there. They're very close. You're talking about ships roughly around 400 meters in length. They've got to be just under 400 meters, so 1,300 feet, probably displacing somewhere in the

range of 200,000 tons, so maybe not as big as an ultra-large crude carrier. but some of the biggest ships. But to give you an idea, in 2013, there was a ship called the MOL Comfort. This was a ship that carried 8,500 boxes. So about a third of what we see in these ultra-large container ships, that ship broke in half, sank out in the Indian Ocean. The insurance value of that ship was a quarter of a billion dollars. So that was over a decade ago, a third of the size.

When you start looking at a ship the size of an ultra-large container ship, a 25,000 box container ship, you're talking about a value over a billion dollars. That's why when your insurance rate is of 1%, that's $10 million you're paying. And so that starts to change everything. But the commodity that we're moving more than anything else is bulk right now. It is literally the earth. That's what we move more than anything. And I was just back in October in Australia. I gave a talk out in Perth, Australia for an entity called Pilbara ports. Pilbara is the northwest coast of Australia. there's a port up there called Port Headland.

No one's ever heard of this place. It's Port Headland. It's the middle of nowhere. You go there, you land at Port Headland. It's like being on the ground in Mars. Everything's red because what they ship out of there is iron ore. It's iron ore. It's lithium.

It's copper. It is the earth. It is just the earth. They move on average out of that port, 750 million tons. So wait a minute. I'm naive about this, but I thought that in the mining areas and Australia as one of them, they did the refining of the earth there. You're saying they ship the raw ore

and then it gets refined elsewhere? They are. It's part of it. They do some refining there, but in this area, they are shipping the raw ore there. So when I was in Port Headland, it was the most amazing, and I've been to ports around the world, but this was phenomenal to me, about 20 ships, massive bulk carriers in there. And they load 750 million tons a year. That is 5% of the global tonnage. Five percent. So it's 2 million tons a day. And all of it sails north out of that channel and heads up to China, Korea, Japan.

It's like a line of ants. And it runs. And that's what we move. I mean, it is amazing to see. Amazing and terrifying to realize how dependent the world is on this cross-border trade. continuing seamlessly. And when I was in Port Hedeland, that was rammed home to me. I actually got to ride one of the ships out.

And when we were riding the ship out, the channel into Port Hedlin is about 40 miles long. And it is narrow. I mean, they literally blasted through a rock escarpment. And they are escorted out by five tugs. And the mission of those tugs is not to save the ship, but to save the channel. They don't care if the ship sinks as long as it doesn't sink in the channel. That is their overriding goal. because then the channel would be closed.

Right. And then they're losing $2 million an hour, something like that for every closure they have. So I have a few more questions down this line, but you mentioned fertilizer earlier, and I was well aware in March and April, the sulfur, the fertilizer, some of the other things that were downstream of oil.

But is the fertilizer situation, is that going to be a big deal for the next planting season, even if the thing is over, the conflict is over? It is, because especially when you see where that fertilizer goes, and especially the fertilizer coming out of the, no, let's add this on top of the fact that we're getting fertilizer disruption still out of Russia, Ukraine. We're still not having quite the loads coming out there from the Black Sea. But this is going to be a big issue.

Eritrea, the west coast of Africa, India, Australia gets huge amounts of urea, map, Dap, all from this region. and it's going to impact that ability to get in. The question is going to be how much is prepositioned and stored already in place? Where is it going? You can adjust and change, but it takes time to do that because of the physical limitations of a ship moving at 12 knots. It's got to get to the other side of the planet, and then it's got to get back around. And a lot of these ships are so big they can't go the normal routes, you know.

So we got ships going around the Cape of Good Hope around the southern tip of South America, which is the worst place in the world to be on a ship going through the Drake Passage. Why is it the worst place in the world? Oh, because it's the worst water in the world. The Southern Ocean is the absolute worst piece of water you ever want to be, and it's the only ocean on the planet that goes completely around the planet. It circumnavigates the planet, and you get the worst waves and seas you've ever seen these massive rollers. We've seen spikes in the loss of containers going around South Africa during the winter months down in South Africa.

So, you know, January and February, we will see. The ships actually hove to wait for the weather to abate to get around the Cape of Good Hope. It's worse around the Drake Passage. You couldn't pay me. I get seasick on the little fishing lakes around here. No way. You ain't get seasick. You'd be too terrified to get seasick.

You wouldn't have to worry about that. I mean, the waves are right. I mean, the Southern Ocean. And people do this for recreation. They go down to Antarctica on these little voyages. And it is a rough passage to Drake Passage. If you ever have a smooth one through it, you're very lucky. Well, let me ask you this then.

In a warming world, the Arctic Ocean is projected to significantly warm, possibly resulting in an open ocean at some point and new shipping lines. How might that change some of the things you're talking about and the current choke points and trade relationships? Well, I mean, we're seeing that impact. I mean, back in 2023 and 2024, for example, we had low water on the Panama Canal because of an El Nino that took place. The Panama Canal is fueled by a freshwater lake, a Toon Lake. and, you know, I walk around on my phone with an app that gives me the water level at Catoon Lake because I'm a huge geek and this is the life I have. But I keep track of this because when you get below 85, 86 feet, then you don't have enough water to run the canal efficiently. And what we saw happen was some of the big ships had to, they had to restrict the number of vessels go through.

32 to 36 ships a day go through the Panama Canal. They went down to the 22. Well, we're about to have another super El Nino likely this summer. It is already taking effect. Matter of fact, we're already starting to see the restrictions start hitting because the Panama Canal is trying to be preemptive. They're trying to get ahead of this and restrict some numbers going through because when they built the new lane of the canal in 2016, they misjudged the water usage. And they're spilling more water out into the Atlantic and Pacific than they need to. Their reclamation process wasn't as efficient as they thought.

On the Arctic, we saw last year the highest amount of throughput through the Arctic Ocean by the Russians, over 30 million tons. And we just had one of the earliest Arctic passages this year. The Russians ran through an Arctic strengthened liquefied natural gas carrier. The Russians have about a dozen icebreakers, including several nuclear icebreakers. These are behemas. These are massive vessels. And one of the things that the Russians are trying to advertise the Arctic route is it avoids all the choke points. It avoids everything.

You know, the only choke point you've got to go through is the Bering Sea, which the U.S. isn't going to. contest and literally a couple of islands that are Russian. And the Russians have been trying to make this route more. The Russians have some issues coming up. 2027, January 1st, Europe says they're going to cut themselves off from Russian liquefied natural gas. We'll see if that happens. But Russia has got to try to sell that liquefied natural gas on the open market somewhere. They've had that liquefied natural gas carrier attacked in the med, so they don't want to sell their ships through the med for fear of attack. So going the Arctic route is their best way.

They were able to go directly to China to East Asia and do it, but it's a longer route. It is it's longer to go to Asia and it is to dump it into the Europe. So what have they been doing? They've been buying ships on the open market. And so Russia wants the Arctic route to be the most efficient one. And so what they call the North Sea route or what we sometimes refer to as the Northeast passage has been very viable for a long time. Now, a lot of commercial shipping firms have said, we're not going to do that. route. We, you know, the big ocean carriers, you know, Marisk lines, hop hog, and a few of the big ones

say, no, no, we're not going to do that. We're not going to go in the Arctic because there's issues with pollution and we don't want to do it. And I firmly believe them until it's cost effective for them to do it, then they will. And as soon as they can make a profit, they'll be there. So why is Greenland important in this scenario? So Greenland is interesting because Greenland does have you access into the Arctic, but it's not really astride the Russian route. This is, it's more of a foray up into the Arctic which the U.S. wants. Now, the U.S. has a presence in Greenland. We've had one since 1940 when we put the first Coast Guard teams on the beach there after the fall of Denmark.

And we've been operating bases there ever since. Tully, I can't remember the new name for it under the Space Forest, but it's a different name. But, I mean, have been in use by the U.S. for quite a long time. The U.S. has an Arctic presence. Alaska is obviously one of the biggest Arctic presence, but Greenland is another one because of a variety of reasons. Obviously, the rare earth minerals are a big one there, but also for monitoring Russia. It makes Russia nervous, the U.S. being in Greenland, because it puts us astride that northern sea route. And that's an area that the Russians are very protective of because one of the things that the Russians are seeing is they're losing mechanisms to where they can freely move ships.

They're being challenged. Russian-owned ships are being, you know, grabbed by. by Great Britain and France because they're flying false flags. They're being attacked in the Mediterranean by Ukrainian forces, both the Arctic metagast and a tanker was attacked. So this route is one that the Russians feel like they can protect quite a bit, and any threat to them is a challenge. So as the warming happens, it's likely the Northwest Passage

would open between Asian and North America, and my understanding is that would be controlled by Canada. So how would this change the power balance between the major players, especially the U.S., China, and Canada? So Canada is a really interesting one on this because Canada, in many ways, looks at the Northwest Passage, kind of the way the Iranians look at the Persian Gulf. They claim it as their territorial waters. And they control that passage. Right now, we see ships go through. Matter of fact, we had a very visible issue last year where a ship going through ran a ground on a Mark Scholl. It's very weird that it happened, but it did. And this is very late in the season.

As a matter of fact, the Canadians were really scrambling to get that ship out before it froze in for fear that it frees in. The ice would crush the ship and you would have an environmental disaster. The Northwest Passage is not as usable as the Russian passage. I will say this. It does have a lot of constraints into it. It's narrower. It has some issues. However, it is a viable passage.

And the problem is Canada is declaring it because it's within entirely Canada's war. orders as their own. But under that provision of unclosed, the UN Conventional Law, the C, Article 37, transit passage, if you can use it for commerce, you should be able to do it. It is not really viable yet because it creates a lot of difficulty. It's not exactly fully ice-free all the year. You do need some assistance sometimes to go through. And it doesn't exactly save you a lot of distances from going through as long as the Panama Canal is open. and others, I would argue, it doesn't save you a lot, but it has a potential to become more viable, especially as if we see more contested seas out there.

Which I think is a fair, fair assumption. I do too. So in my work, I am projecting that the world is headed towards what I refer to as a calving, a fracture into two or more blocks that primarily or exclusively are trading with each other. And I think the Strait of Hormuz situation has accelerated that dynamic. How do you think this schism or potential schism, the relationships involved, is going to impact global trade and shipping? And do we have any historical analogs in your study to draw upon? Yeah, cabbing is a great term, especially because we're just talking about ice.

That's what we refer to when an iceberg comes off, you know, a large glacier or something. So the analogy I come back to is the Cold War. And one of the things that was very interesting about the Cold War, Cold War 1.0 if you want for this, was you had two different economic systems. You had a capitalist system and a communist system. And in truth, they didn't really overlap or interact very much. And that was the thing. The communist system was very close, the old Soviets and their trade. They had a merchant marine and they did a lot of trade.

But, you know, every now and then you would overlap a bit, maybe in the third world where you would overlap a little bit, but not too much among the first and second. world, the capitalist versus the communist world. The second one is a little bit more difficult, I would argue. This is one of the big issues is that makes this, if you want to call it Cold War 2.0, a bit different because the world does trade together largely. It is really a very overlapping route. Now, we can make the argument that China is not capitalistic. They're very mercantilistic, in my opinion. They operate almost like the British East India Company or Great Britain of old in the way they operate. I don't think you can get too completely isolated. systems. I think there's going to be overlap between them. There's going to be nodes where they

meet up and overlap. I think the issue really becomes in those areas where the system for competition exists. Who do you want to use? It's very hard for me to fathom. I'm not one who sit there and say it never can happen because anything can happen, especially when you have, you know, a leadership like we do today in some countries. But, you know, China is extremely dependent on U.S. for trade. You know, One of the things that I would argue hasn't been examined a lot. So one of the topics I looked at prior to what's happening in the Persian Gulf right now was the tariffs. When tariffs hit last year, it was a really interesting topic to watch and the impact it had, not just in the United States, but in China, I would argue. I don't think there's been a lot of enough studies for how the tariff impacted China.

And one of the things I think is you do have some overlaps, but you can definitely start throwing some walls up between those. And you can definitely see some changing of those global patterns, you know, that the big map of the world. world with that global trade moving along. You know, that's a kind of a circulatory system that feeds the world, but now all of a sudden you may start dividing that up a little bit, and you may have, you know, the return and the artery and the venous system kind of in work here, where you're seeing two systems kind of overlapping each other a little bit, but with different functions. The problem's going to be is can you wean yourself off everything? One of the things we saw with the tariff, can we wean ourselves off of China? Very difficult to do. I talk to. I talk to.

importers. Even when we put 145% tariffs on goods coming from China, some importers were telling me, it's like, I'm still going to go to China. It's still cheaper for me to do that. It's still the place I need to go. Or they're the ones who production system can match. I can't go anywhere else and do it. I may be able to get some other sources here and there, but it's never going to replace what that is. And so the resilient of the system is going to be a really tough one, I think, to come over. But I do agree with you. I think my fear right now is if you look at what's happening in the Persian Gulf, look at the Red Sea, look at the Black Sea, look at the Strait of Hormuz, that's impacting maybe 20 to 25 percent of global trade. The other 75 is moving along very well, I would argue. It's going along. But you can definitely start seeing the degradation in the system. And I think that's where you start seeing these competitions create. You're also getting shipping firms and countries sitting there going, hey, we need to rebuild ourselves. We need to rebuild ourselves. We need to rebeardation. build our national merchant marine. Australia is talking about this. France is talking about this. South Africa, the United States, Canada. And I don't think they're going to go 100% back to creating

their own fleets, but there's a recognition that maybe we got a little bit too over-reliant on this third-party system. And we need to kind of build some resiliency into our system. So how does the importance of maritime choke points such as the Strait of Hormuz, but you mentioned the Black Sea and the straits between China and Taiwan and the Red Sea and elsewhere. How do those choke points change in this scenario? And what actions and policies do you think that countries around the world would take in a world where these choke points become so essential that they're too important to lose? Well, I think one of things is number one,

choke points are historically choke points for a reason. I mean, it's not new. I did a talk not too long ago where I talked about the Portuguese coming into the Indian Ocean in the 16th century and they found this world of trade, but they couldn't tap into it because they had nothing to sell to buy. They didn't have gold or silver. They did their commodities were terrible. So they implemented, you know, what was known as the Cartez system, which is basically a passport system. And they did that by grabbing the choke points and forcing ships to basically give up part of their cargo to be able to flow because they had a technology. weapons, they had cannons on their ships. So they had no commodities except their technology was to take a commission because they had the geographic choke points. That's it. And so those choke points remain. And I think one of the things that we're seeing really is, you know, nations around the world are realizing why you have navies in the first place. It's really to protect trade. I mean, that's really it. I would argue the U.S. has kind of gotten away from that. I have an argument a lot with a lot of navalists who talk about this. And they think, well, the reason for a Navy is projection of power. It's like, no, it's to protect trade.

This is the inherent nature of what you have. This is what Mahan was talking about, Alfred Thea, Mahan talking about, and you can't get the Navy to read past decisive battle. But when they go beyond that and they realize what he's talking about is economics and trade and commerce, that's what made the Royal Navy great. It wasn't the Royal Navy. It was the British merchant marine and that British trade that made them great. And the reason the British merchant marine was so powerful is because they controlled the choke points. You know, almost every one of them was British except for Panama, which the U.S. created. And so I think it raises the concern for navies around the world, militaries.

I mean, really, you need to do it. I think this is something that Europe is finding out very much the hard way that they don't have the ability really to influence what's happening in the Strait of Hormuz too much. They can have arguments with President Trump all day long. And I understand that. You know, one of the problems that the president is having is it's hard to call for assistance with trade when you started off your second administration with a little bit of a trade war. It's kind of hard to do that.

But I think everyone has to understand that what's happening in the Strait of Hormuz has the potential to expand. And we've been seeing that with the Red Sea was a precursor to the Strait of Hormuz, much like the Black Sea was a precursor to the Red Sea. And, you know, if this keeps going, you could see China, for example, trying to control choke points. One of the reasons for the building of the islands in the South China Sea is because a vast majority of Chinese trade goes right through the South China Sea. And what they get concerned about isn't really the U.S. stopping their trade. but Singapore or the Philippines or Vietnam or some other nation interdicting them, and then it costs them a lot of money. And so I think there's a beginning of an attention that, okay, maybe we need to be refocusing our eye on these choke points.

And I would argue, too, you can't do this purely by military. You've got to be involved in economics and politics and social. There's more to it. I don't think there's a clear-cut military answer lots of times. when the U.S. had a deal with piracy at the beginning of its creation with the Barbary pirates. Yes, we went in with a military formation. We attacked Tripoli, the shores of Tripoli, which are in the Marine Corps hymn. But at the same time, too, we use money. We use politics. We used, you know, a mixture of those elements to achieve a solution. And I think the U.S. fails to realize that at time. I think the Chinese are much better at understanding both the soft power and hard power application of shipping with the PLANs.

the People's Liberation Army's Navy, but also their merchant fleet and their trade. The U.S., not so much. So I'm to understand then from what you're saying that the global choke points could mean that the maritime, that that is the maritime equivalent of tariffs to our economy. Like we had tariffs, and it just seems like the cost is inevitably going to go up, for lots of reasons of global trade and transportation. Well, we've seen that happen time and time again. I mean, the Panama, Suez Canal, charges a toll to go through.

And granted, they're created. But we've seen at different times throughout history going through choke points have those elements. You've got to kind of pay to go through. It's, again, geography plays that role. Is there some nationalistic way that militaries might just try to own some of these choke points? Well, I think the issue isn't so much owning them. It's going back to really a core tenant, which is the idea of Hugo Grades back in the 1600s, of the idea of freedom of the seas. Maybe no one should own the choke points. And this is kind of the issue with fighting back against Iranian control of that is that we fight for that issue of freedom of the seas. Now, Freedom of the Seas is a very dicey issue to talk about because it has had some repercussions in the past. Woodrow Wilson made it the second of his 14 points, you know, in 1918 when he was trying to end World War I. It brought us into World War. World War I because we were being attacked by the German Navy on the high seas.

He talks about German pirates and the attacks on them. When you read the Declaration of War against the United States by Nazi Germany and World War II, they cite the fact that U.S. Navy ships were escorting ships across the Atlantic. So Freedom of the Seas is really a core principle. You can make the argument that the U.S. is literally founded on freedom of the seas and shipping, you know, whether it's the Mayflower or it's the ships that bring the, the colonists to Jamestown. But I would argue that, you know, it's impossible to control all the choke points. The British tried that. It was their British Empire. That's what they did. They

controlled the choke points because they wanted to do it. And they still have vestiges left of that with Gibraltar. But I don't think you can control the choke points anymore. Instead, the argument should be freedom of the seas because I think that has the world on your side. So before we close, I'd like to segue with what you just said and bring us back. where we opened with the United Nations Convention and the Law of the Sea, UN Clause. So we've talked about the likelihood of increasing fragmented trading blocks because of the Strait of Hormuz and other such events. How do you see this shaping the future of international agreements like the UN Clause? And how would you like to see a change to decrease risk and increase stability for the future?

The mechanism we're using today is dated. The unclosed in 1982. And one of the issues I have, and I talk about it a lot on my channel, is the International Maritime Organization, which is the UN shipping arm, is focusing a lot on issues like pollution and net zero framework, which is great. But I think freedom of the seas is probably the bigger issue. I think we need to be talking more about that. We need to be talking about how do we resolve these issues? Because the problem is there's a lot more confrontation on the seas. than ever before. So I think, you know, we've seen these issues. We see it with everything from,

from not just international shipping, what we're talking about, but fishing, for example. We've seen countries bring in fishing fleets and depopulate areas off their coast and actually go into their exclusive economic zones and be a challenge. And one of the things we want is kind of a form to have discussions about this, to be able to discuss this so that we don't return back to the period of time where we're fighting over key pieces of land and spin. of land in the middle of nowhere to control trade. We want trade to move. We want everything to be good. Same time, I listen, I 100% agree. We need to maybe we've gone too far with globalization, and we probably need to resure some things back. We may went too far. I would argue, you know,

the U.S. says it's a sea power, but it's very hard to be a sea power when you have the number one Navy in the world than the number 23 merchant marine in the world. China gets to be a little bit better with that when they have the number two Navy and the number two merchant marine in the world. They have a little bit more standing about that. So I think we need to have this kind of discussion. But the biggest one I would argue, too, is educating people about this. They don't understand where things come. The normal American orders their, you know, goods online. They go on their phone. They order something from Amazon. They see it's at a warehouse, maybe a state, you know, away. But it'll be here in 24 to 48 hours. What they don't understand is that good has probably been moving for

six months before they ever hit that button. And the elements for it are moving around the United States, around the planet. It's being manufactured. It's being shipped. It's being hauled all over the place. And they just don't quite have that visibility at times. And I think it's really important to do that. I would love the option that when you order something on Amazon, you can see it's coming from overseas or better yet. You can make the option like, hey, I want to move it on an American ship. I want to get it from the United States. And then you build some resiliency into the systems. But we unfortunately live in a world we do live in, which is a very interconnected world where if you disrupt trade in the Persian Gulf, the gas at your gas station is going to go up a dollar

a gallon because, guess what? We trade gas on the international market, not just the national market. This is also fascinating. I'm aware of our addiction and dependence on global trade, but this is the first conversation I've kind of had on the actual logistics, so thank you. I don't think you know much about this program, but we're talking about that global human society is dependent on the carbon pulse,

which is this short and geological time, a few hundred years where we're drawing down this incredibly potent ancient sunlight and applying it to all the things in our economy, including shipping and all the products that are on the ship, And I think that that period is peaking and ultimately ending. I call it the metacrisis or the more than human predicament. So I don't necessarily ask you to subscribe to that.

But just as a human being, you're a college teacher. What sort of advice do you have to general listeners that are waking up to some of our environmental, economic and geopolitical challenges. Well, I think, listen, all resources are finite. Everything's finite. We're finite. Resources are finite. And we need to understand that.

The idea of the unlimited kind of, you know, economy where we can just be wasteful and spendful isn't true. I mean, we just need to be aware about it. I would say this about shipping, but, you know, one of things that I've seen in my lifetime is how much shipping has changed from where it was in the 1980s to where you. to where it is today. It's safer. It is much more environmentally friendly. It's adopting different methods for how it's used in propulsion.

It's gotten more and more efficient over time. And I think that's the kind of medium I'd love to see. I think it's really interesting that we set these goals on shipping for obvious reasons, and yet we don't set the goals in other mediums of transportation quite as much. again, the idea of going net zero by 2050 is very, very much a great goal, I would argue. However, making the largest objects ever created by humans, you know, net zero is going to be a very tough one. You know, where we're having difficulty doing that. And I think you're right. I study, I'm doing a study right now in World War II, and oil is the absolute critical resource in that war. You could, you know, if you have it, you're going to win. If you don't have it, you're going to lose. And then that's kind of the issue I see.

And so I think shipping fits this role really nicely. We could be inefficient with it because we had such an abundancy of it. We can kind of overcome the hurdles by throwing more at it. But one of the things we start to find out is, okay, there's a point when throwing stuff out a problem is not the solution. It becomes actually a reduction. And that's kind of where we're at, that oil tanker that was built that was 400, 500,000, tons was too big. And then we actually started reducing them. We saw that decrease in size and, you know, till we get to kind of what's the right size?

How do we right size this element? So I would argue that the shipping industry is really at the forefront of how we really change our way of doing business and how we consume things around the world. The problem we had maybe is we made it too easy to move things around the planet for a while. And maybe this correction we're seeing right now will force people just kind of change the way they do business and consume. Are you teaching right now? And what's the name of the class that you teach?

So it's summer break for me. So I do embrace my summer break as much as possible. I just came off from teaching two courses. One was on the American Revolution. One's on the American Civil War. And then this semester coming forward, I do a general U.S. history class. And I do two classes.

One's going to be on the World Wars and another is American military history. I'm a military historian, too. So I teach those courses. And I just did a class with the U.S. March Marine Academy on maritime industry policy, where I get a master students coming in and we talk about policy and a lot of issues that are shaped by engineering because they're engineering students. So we talk a lot about that. I won't end on this question. I'll ask you one more after.

But as a military historian, could you take a stab at being a military futurist? how are we going to navigate the next 10 or 20 years without a nuclear war or World War III, given all the currents and cross currents that we're seeing? I think the danger is probably, the threat of use of a nuclear weapon is probably as gray as there ever has been. I think that the threat of, you know, what we lived under during the Cold War is not as prevalent with the U.S. and the Soviet Union destroying the planet. But I do think that the danger of a nuclear weapon is very prevalent. I do. I think Indian Pakistan are always on that teetering element, Israel and Iran, North Korea. I mean, there's always that perception that it can happen. And I think, you know, we've kind of lulled ourselves into this idea that it can't happen. And we've built enough deterrence so that it can't. And my fear is that once it's used as a weapon, it'll be used again as a weapon again. I think that one of the biggest issues done by the United States post-World War II was to create a weapon that that

they demonized to the point that nobody ever wanted to go back and use it again. Except it's a long time ago now, and I think people in power now have forgotten the emotional pulse of that. I 100% agree. And nobody quite understands what the implications of that are. And again, you know, it goes back to the issue that once it's used, it can be used again, and it becomes very common at that point. It's really breaking the seal, which is the danger.

I would argue that, you know, one of the things that, you know, one of the things that we we see is more visibility than ever before. People are watching things in a way that never before existed. And so I think as much as, you know, we can decry the breakdown in freedom of speech and freedom of press and, you know, maybe the breakdown of organizations, there's channels like yours and mine that get out there that really touch people that would be very difficult to do in the past. I am optimistic when I comes to history because I always argue that you can find a lot of lessons. My fear is we're becoming very polarized. We're becoming very much in our own little kind of, you know, silos. And I think one of the things is I talk to one of the things I teach historians today is the problem with history today isn't lack of history. It's too much history. How do you go through the volume of information that we are producing on a daily basis? It's astronomical. When you think about the fact, that I teach the Egyptians in a day, you know, the Egyptian civilization, which is, you know,

three thousand years long, but it only consisted of a million people, you know, so you have, you know, a very small amount of history and in the span of three thousand years, how much does Egypt evolve? Whereas earth population, today, eight billion people, you know, we make as much history that the Egyptians made in three thousand years in three months. And, and we're kind of always churning it out. So it's a really tough one to challenge. I want to ask you one more question related to that. I mean, we talked about the UN clause and the law of the sea and might makes right. And we kind of fly up and take an aerial view of the planet right now. And the first and second largest oil producers in the world, the U.S. and Russia are de facto at war via Ukraine.

then there's the Persian Gulf situation, Israel and the U.S. versus Iran and China and Russia kind of behind the scenes. How do we have an international, all the countries, sort of governance structure for the decades ahead? Yeah, we have the U.N., but I mean, they don't have the teeth and respect that it once did. What are your thoughts on that, just with an aerial view to the future? Well, one of the things that I've studied and learned with shipping right now is, and I hate to say this, but it really is, is that corporations and businesses have a lot of influence a lot more than ever before. I would argue that some of these companies are akin to the East India Company of, you know, the 1700s. They're quite powerful and they want to keep trade moving and it's in their best interest to do that. And I think you're right. I think one of the problems we have is in the United States in particular is we don't quite understand. some of the impact of our actions when we do things. And it's very hard to talk about freedom and seas, free to trade, and free movement when you're acting unilaterally against ships in the Caribbean, for example. It's extremely difficult. It makes you hypocritical beyond all things. And I talk

about this all the time. And I have a lot of comments about it on my channel. Well, you're an American, and you don't understand this. I got it. I understand. I do. And so it's very difficult. And again, I think one of the big things is understanding interest. I think the European Union and G7 undertook a flawed measure to try to prevent Russia from trading oil in the way they did because they were trying to use a system of trade against them and the Russians found the way to work around it. And this is what happens with trade. Business and trade will find different ways to work around it. It is always going to happen. And I think, you know, you have to be more direct if you want action in some cases. And I don't think, you know, might makes right by any way. But I don't think, you know,

might make's right by any means because again, my study of history will tell you that the biggest, most powerful country doesn't always win. And I just thought the American Revolution, where by all accounts, the British should have won that war many, many times over. The Americans should have turned on themselves, which they did multiple times. And yet, we fail to learn that lesson when we go into Vietnam, for example, and you're fighting a nationalistic war. And, you know, we stack up, like, the British versus the Vietnamese in that scenario. So I don't know what the futurist element is, I do say that looking at the past does give you some insight, but it doesn't give you all the answers. One of the things I always tell students is you come to a fork in the

road, it's 50-50, which way to go? That's it, 50-50. What history allows you to do is get a little bit of a read so that maybe it's 80-20. Doesn't mean you're going to get the right answer, because we are humans and we're going to do stupid things. But it helps you make that final decision. Thank you for helping to make people understand vital points of how the world works. And it was nice to meet you and to be continued, Sal. Nate, it was a pleasure to talk to you. I really enjoy it and I had a great opportunity. So thank you so much.

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