Norwegian Cruise Line Holdings (NCLH 4.84%) stock tumbled 9% through 11 a.m. ET Monday after war broke out in the Persian Gulf over the weekend.
There are at least two reasons why.
Image source: Getty Images.
Closing the Strait of Hormuz
The first reason is that Iran responded to attacks by Israel and the United States by announcing it will "close" the Strait of Hormuz, the waterway between the United Arab Emirates and Iran, through which one-fifth of global oil supplies travel by ship.
Although tankers are still moving, Oilprice.com reports Hormuz traffic is down 70%. Passage has also become more perilous, with insurance rates on tankers up as much as 50%. Combined with near-term supply pressure, this is pushing up the cost of oil that cruise ships burn for fuel.
WTI crude futures are up 6.5% to $71.38 per barrel, and Brent crude is up 7.7% at $78.45. Reports from JPMorgan predict prices could hit $120 per barrel, roughly twice what oil cost just Friday.
Travel disrupted
The second reason cruise stocks are suffering today is a disruption in travel plans, as Middle East travel becomes more hazardous. This affects not just cruise companies' ports of call, but also air flights that get passengers to and from their cruise ships.
Airlines are understandably nervous about flying into a combat zone, and are canceling flights throughout the Mideast. Key airports in Dubai, Abu Dhabi, and Doha are closed or restricted, and "tens of thousands" of passengers who had planned connecting flights in the region are stranded around the world.
NYSE: NCLH
Key Data Points
What it means for Norwegian stock
I suspect investors are overreacting. Although the company is likely to lose some revenue short term, things will turn around for Norwegian in short order. A 9% sell-off today seems extreme.
