No End in Sight
The Trump administration continues to press its point in the Iran war and, despite some initial signs of wavering earlier this week, there are not yet any signs that this crisis is anywhere near over.
What a week: petroleum flow through the Strait of Hormuz remains throttled to a mere trickle and there is no visibility on when the Iran war will end or normal Middle Eastern petroleum supply will return to global markets.
Despite the ongoing sanguinity in oil markets, the situation in the Middle East remains a truly existential threat to global fuel supplies and, by extension, the broader global economy. To share some of my growing anxieties, I had the pleasure of rejoining Joe Weisenthal and Tracy Alloway on Bloomberg’s Odd Lots podcast to discuss the Iran War, the closure of the Strait of Hormuz, and how the market would attempt to “solve” for such a sharp, sudden, and massive loss of supply via ever-higher prices.
I encourage you to check out the podcast (Bloomberg link, Spotify link) in addition to our latest update on the disruption in the report below.
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We’re now nearly two full weeks into this mess and the Middle Eastern oil trade remains functionally frozen. Fundamentally, the normal flow of traffic through the Strait must resume or the oil market will break the global economy. Every day the global oil market gets 15+ million barrels tighter. We’ve already lost more than a quarter billion barrels of oil supply, thus far, in the Strait of Hormuz stoppage—that’s not a sustainable pace, and no US president will tolerate for long the price spikes that are bound to follow.
Meanwhile, the White House is wavering and the market seems shockingly sanguine? Crude prices did rocket ~$25/bbl higher when Asian markets opened Monday morning, as Brent reached almost $120/bbl before pulling back, but prices bled back toward $100/bbl through most of Monday trading. Then, prices cratered more than $15/bbl in the span of 30 minutes on Monday afternoon following President Trump’s proclamation that US military operations against Iran were “very complete, pretty much”. Shortly thereafter, Trump backtracked, saying that the US would “go forward more determined than ever”, Confused, yet? The market certainly is.
Today we’ll cover what Trump seems to want out of the Iran War, efforts by Gulf exporters to divert shipments around the Strait of Hormuz, and the latest record-setting strategic petroleum reserve release coordinated by the International Energy Agency.
Let’s dig in.