It has been a while since I did a top 10 list, so I thought maybe this was an opportune time to do one given that we are stuck in the doldrums of April and there isn’t much going on in the world. Except the NFL draft.
Not to mention that I am still a bit choked I wasn’t selected by our illustrious Prime Minister Mark Carney to be a participant in his Canada-US advisory panel (surely an innocent oversight) nor was I invited to the upcoming Canada Investment Symposium where 100 of the largest investors in the world are to convene in Toronto to… I don’t know, hang out and eat steak? Details on both initiatives remain sketchy. The trade one makes a bit more sense – soliciting some thoughts from trade exposed industry leaders to guide you negotiation strategy with a mercurial and unpredictable counterparty is good tradecraft. Unless of course you forget to invite anyone from the oil and gas producer industry (like a producer, or an M&A firm). The investment one is missing the mark with me. Maybe because the details are scant. Is it a trade-show? A boiler-room? In my books, a “match-making” affair requires multiple potential matches and, crucially, matchmakers. For example, a giant investment fund, a skookum infrastructure project (like a pipeline) and an intermediary to pitch the project. You know, someone like, to be self-serving, me.
Oh well. I guess I’m just not important enough. Us small guys swimming upstream against all the economic adversity that surrounds us.
Speaking of adversity, none of these initiatives would likely be needed if we had a little more normalcy south of the border and a few less black swan events on the other side of the world wrecking our winter blues.
The big one of course is Iran and the little excursion the US is involved in there and the economy wrecking (and weakness exposing) impacts it has set in motion.
As I start writing this, the cease fire has been extended indefinitely but the blockade remains in force. Schrodinger’s Strait of Hormuz remains defacto closed and open at the same time by all parties and the markets are getting simultaneously creamed and revived, swinging on a daily basis from bull to bear and back again.
Look, I’m not going to get into a long drawn-out data-heavy run down of what has happened and what this means for jet fuel in Bulgaria or naptha in Indonesia or diesel in Australia. Instead, I’m just going to make a top 10 list of the things we have learned or I have been thinking about over the course of this, at this point, 8 week longer than “first hour victory” war. Sorry, little excursion.
- The Strait of Hormuz is neither straight or straightforward
This narrow body of water acts as the entry and exit point from the Gulf to the Indian Ocean and is the main shipping point for oil, fertilizer, aluminum, LNG and most any other cargo that transits out of the Gulf nations. Somewhere between 120 and 180 ships pass though the Strait every day. This represents about 20% of global crude deliveries and a similar amount of LNG. Not even going to talk about helium, urea, manufactured goods etc. This is, as they say, a big deal. Hormuz is important.
I know this has been written about elsewhere by smarter people than me, but it is beyond shocking to me that the US was caught with its pants down here. Sure the Americans aren’t “dependent” on Hormuz shipped oil, but it’s a global market so everyone is going to feel the impacts as they radiate out from a 28 km wide maritime chokepoint to Bob in Oklahoma’s neighbourhood Philips 66 service station or Yvette from Quebec’s European vacation or fuel protests in Ireland or forced rationing in Japan or popping champagne bottles in China, which actually loaded up its SPR in anticipation of this very same conflict.
There are no real alternatives to shipping out of the Gulf except through the Strait (question is it the “Strait” of Hormuz or the “Straits”) so the Americans need to solve it or leave and let a multi-national coalition act as guarantors of safe passage. If I had to guess that coalition will ultimately be led by China – they will be the only party that Iran will trust. And the longer this goes on the more likely it is that everyone will pay the fee to get their ships moving. Just this past Wednesday South Korea’s special envoy to Iran met with the Foreign Minister in Tehran seeking to have their 24 cargo ships stuck behind the Strait release. One more level of American power projection weakened by an “excursion” as countries go around the United States to look after their own self-interest.
2. Every day the Strait remains closed or at reduced capacity is another nail in the global economy
I mean, this is stating the glaringly obvious and clearly the Americans aren’t really caring about this, but as I said elsewhere – this “excursion”, the closing of the Strait and now the selectively enforced blockade and cease-fire with no end are all pre-cursors to a slow-moving global economic calamity. The amount of oil that is not coming into the market and thus being drawn from inventories or euphemistically “disrupted” is unprecedented in history, exceeding the 1973 Arab oil embargo by several magnitudes. It should be noted that every significant supply disruption in history has resulted in economic chaos in the form of recession or runaway inflation and this one will not be different. According to the Federal Reserve Bank of Dallas a three-month closure of Hormuz will be a 2.9% hit to global GDP – we are 2/3 of the way there already, so this excursion has knocked global GDP back 2% or 0.25% a week. What are we doing?
That 2.9% is around $3 trillion of global GDP. It’s like as if over the last 8 weeks, Canada just disappeared from global GDP.
Alternatively
Every 4.5% loss in global energy supply (the total of oil and LNG through the Strait) correlates to roughly a 4% drop in global economic activity.
Every sustained 10% rise in oil prices is estimated to reduce global GDP by up to 0.2 percentage points.
We are doing both at the same time.
This is a big deal.
3. Americans not directly involved in the industry know surprisingly little about how the energy sector works on either a global or local basis. Even some experts seem confused.
As someone who spends way too much time on social media, I can attest to the fact that far too many people know far too little about the energy sector either at home or overseas. As the joke goes – the Venn diagram of infectious disease specialists, vaccine deniers, inflation analysts, political prophets, Trump whisperers, Russophiles and US energy sector triumphalists is a circle.
Here is a primer. A reduction in supply in one region will lead to increased prices across the entirety of the industry. It doesn’t matter if one producing region doesn’t import oil from another – it is all affected. Oil is a global industry and because you can put it on a boat and ship it from point A to point B and refine it into the same product, that means that EVERYONE can bid on it. And since ENERGY IS THE ECONOMY, it is in every country’s interests to make sue they have adequate supply so they will bid up the price to keep their economy going. Countries that have excess supply will export at those higher prices. This is to the benefit of the country in the case of countries that have nationalized their oil industries, the benefit of fat cat oil and gas companies in the case of countries that have big private sector participants and to the benefit of the Trump family in the case of Venezuela.
There is not enough spare production outside of the Middle East to offset this supply shock. Even when the Strait reopens, it’s going to take months for the industry to normalize, if it ever does. This is because ships take a long time to get where they are going. The longer the shutdown, the bigger the drawdowns in inventory and the longer it will take to refill. This means that prices will remain elevated. Even if the Strait re-opened tomorrow, all the tankers are in the wrong place to start the process of normalization.
The longer the shutdown, the more pressure on prices. Globally. The more it will affect everything from food prices (wholesale up 7% this past month – impacted by rising diesel costs), to airlines (thousands of flight cancellations and projected 10% to 20% fare increases because of the increase in jet fuel costs) to summer vacations (rising gasoline prices for road trips) to MRIs (guess who uses helium) to agricultural yields (rising fertilizer prices due to locked in LNG).
Nobody is immune. Let me repeat that. Nobody is immune. Nobody.
By mid-summer it is a full-on crisis.
4. The US produces a lot of oil. The US does not produce enough oil to offset the lack of barrels from the Gulf
This is kind of a follow up to number three and the crazies on social. I see this chart making the rounds every once in a while about how the US produces more oil than “Russia and Saudi Arabia” combined and that “hundreds of ships” are abandoning the Gulf to head to the USA where they are going to load up with this bounty of US oil and the world will be saved because of American greatness or whatever. This drives me bonkers. The US produces 13.5 million barrels a day of crude. They import between 5 and 7. They refine generally around 17 into a myriad of products which are then consumed domestically, exported or stored and then they export between 3-5 million barrels of crude that they aren’t refining due to the configuration of their refineries.
The US energy industry is a powerhouse. And it needs to be, because the beast it serves is very thirsty. But it is not going to “save the world”. US barrels are for most part already spoken for and allocated for domestic consumption. The barrels imported from Canada are already spoken for and aren’t going anywhere else due to egress constraints. Even the not insignificant amount of barrels exported are typically contracted months in advance and can only feed certain refineries given how light they are.
Any growth in exports from where we are in the short term is coming from the announced releases from the Strategic Petroleum Reserve.
So yes, the US has crude available for export. 4 million already spoke for and maybe another 1 – 3 million incremental capacity depending on how much comes out of the SPR. But the last time I checked, 5 to 7 million barrels is about half of 13 million barrels, which is the current daily shortfall. No amount of tankers or wishful thinking is going to change that fact. It’s math.
5. US producers are NOT going to significantly increase production and “save the world”
The other claim I keep hearing is that US producers are the swing producers, the buffer, the safety valve and that they will soon be riding to a price-motivated rescue by materially ramping up capacity, especially now that the Trump administration has signed the Defense Production order declaring energy a national emergency.
Well, I hate to burst that bubble, but my gut feeling is that even if they wanted to, this is an unlikely outcome.
The energy intelligentsia is split on whether the Permian and other basins have it in them to create one last production boom. I am currently sitting in the no camp.
The current production levels in the US feel very much plateaued, especially as it regards onshore. Since producers discovered capital discipline in the wake of COVID, production levels have been maintained at their elevated levels thanks to the exploitation of tier one acreage across the various basins such that the inventory of available spots has declined materially. At the same time, rigs have been parked at an increasing rate as producers do more with less and a material portion of the workforce has left for greener and more consistent and predictable pastures.
To ramp up any significant production increases will take months and require billions of dollars of investment which are likely not to enthuse a shareholder base that has gotten fat on buybacks, dividends and risk avoidance disguised as discipline.
In order to even think of materially expanding production, a company would need to be convinced that the price deck is going to be sustained at the current levels for at least a year if not more, because a scenario where they put up the dollars and the Strait opens to a tsunami of Saudi and other OPEC oil looking to recover lost revenues ($750 million per day!) will crush prices below the notional $60 (likely higher) breakeven and be existential – not just for the companies, but also the CEO’s who thought they could win the lottery.
So all that leaves in the immediate term is low-hanging fruit. And those fruit are not plentiful. The DUC inventory (drilled/uncompleted) is at historic lows – so there is little available inventory. As mentioned before, there is a lack of staff and equipment, tariffs make buying new equipment expensive, costs to move everything around is rising. Land-based rig counts drilling for oil in the United States are exceptionally low and haven’t moved since the excursion got underway.
There is zero evidence that US producers are mobilizing to increase production or that they are planning to. Regardless of how many “hundreds of boats” are steaming toward the Gulf (of Mexico) coast. And any initiatives being undertaken by the US government to open up more drilling are years away from fruition, if they ever happen.
And don’t even get me started about Venezuela.
6. The biggest winner of the past 8 weeks is… Russia.
Let’s face it, is anyone surprised? Russia has gone from global pariah, mega-sanctioned invader of Ukraine and world’s number one bad guy to invader of Ukraine in the blink of an eye. Prior to the excursion, Russia was in deep economic trouble. The sanctions on their oil exports were finally starting to bite, reducing the critical funding needed to support their failing war efforts. At the same time, battlefield losses and a war of attrition against their energy producing infrastructure was having a huge impact. But all of a sudden, we need the oil and in short order, sanctions come off and Russia is again able to sell oil in the open market at (elevated) global prices.
It is estimated that Russia is getting a monthly incremental windfall of $9 billion a month with daily export revenue increasing by 50%, while all the while the Russian government continues to do arms deals with Iran and is rumoured to have assisted the regime in targeting American troops.
Russia also produces aluminum and fertilizer which have been limited by the closure of shipping. The estimated impact to the Russian economy is between $45 billion and $150 billion depending on how long the disruptions continue. Finally, the lack of focus on Russia as a bad actor due to its actions in Ukraine is a public relations coup for Putin.
Not a bad gig if you can get it.
7. Conspiracy alert – there sure are a lot of refinery fires since the US started their excursion
I didn’t want to mention this here, as my foil hat isn’t fitting all that well but there have been a lot, and I mean A LOT, of energy industry disasters since the excursion started and this is exclusive of all the carnage inflicted by Ukraine on Russia’s energy assets.
In just that past month there have been four major refinery fires:
- Geelong Refinery (Australia): A massive fire on April 15, 2026, burned for 13 hours and significantly reduced fuel output.
- Valero Port Arthur (USA): Experienced a fire on March 23, 2026.
- Olmeca Refinery (Mexico): Reported a major fire on April 9, 2026.
- HPCL Refinery (India): A fire broke out at the crude distillation unit on April 21, 2026.
While it could all be a glorious coincidence arising from shoddy maintenance, poor construction and overuse, there is the equally compelling reasoning that this is due to sabotage and is entirely driven by the excursion into Iran and is intended to further undermine the global energy industry enough to pressure the US into settling with Iran.
Something to ponder.
8. Someone is making A LOT of money off this war.
I know the BBC had the big expose about all the frontrunning of markets that have occurred over the course of the excursion and the ceasefire/no ceasefire/civilizational annihilation/TACO Tuesday/blockade/Schrodinger’s Strait/America has all the oil in the world/ceasefire again forever/Dow at 50,000 merry go-round but I feel that it is being lost in all the noise.
The reality is that there are market abnormalities that show up with disturbing regularity concurrent with any major announcement from the White House and, more specifically, tweets/truths from one Donald J Trump.
There are no coincidences when it comes to market manipulation. Especially when you involve prediction markets like Polymarket (special advisor DT Jr.) and a lack of rules around trading for government representatives. It’s kinda like Howard Lutnick setting up his sons to reap the rewards by buying up tariff refunds from importers for pennies on the dollar mere months before the absurdly high tariffs he set get reversed by the Supreme Court – like he knew something in advance…
Most of these trades center around the price of oil and its movements before and after ceasefire announcements.
March 23: Traders placed $580 million in bets on the oil futures market 15 minutes before a Trump social media post regarding “productive” talks with Iran, which caused oil prices to drop.
April 7: Emboldened by how easy it has all been, investors placed roughly $950 million on falling oil prices just hours before a US-Iran ceasefire was announced.
April 17: Traders sold over 7,990 lots of Brent crude futures ($760 million) about 20 minutes before Iran’s foreign minister announced the reopening of the Strait of Hormuz.
Feb 28: Six accounts on Polymarket placed bets that the US would strike Iran by the end of Feb, earning $1.2 million, with accounts seemingly created just before the event.
“Magamyman” Trade: A user known as “Magamyman” gained over half a million on Polymarket betting on the removal of Iran’s Supreme Leader shortly before his death.
These and other trades remain highly suspect and it is estimated that the “out of the ordinary” trades have generated well over $1 billion in profit for these unnamed front-runners.
There is nothing normal about any of this and if any investigation were to occur, there will be figurative blood-letting.
9. The blockade is not likely to work as well as the US thinks it will.
The mantra I hear about the blockade (and Schrodinger’s Strait) is that it is a low cost way of squeezing Iran into surrendering and just giving up. The logic here has some soundness to it. A full blockade is estimated to cost the Iranian economy up to $500 million a day, causing inflation and hardship for the Iranian citizenry including the IRGC rank and file who are missing paycheques etc. In addition, restricting oil exports means that Iranian storage is filling up and eventually that will lead to shut-ins in the oilfields and the apocalyptic scenario of years to recover from restarting, reservoir damage and all that.
Seems logical, but as with anything in this excursion, it’s asymmetrical. The question that should be asked isn’t “how resilient can the Iranian economy be?”, it’s “how relatively resilient are Iranians to economic deprivation versus the Americans?”
The answer to that might be surprising. Iran has been under pressure and various versions of economic sanction and blockade since 2017. It’s a shit show. It’s already as bad an economic disaster as can be, which is why all those protestors were in the streets to begin with.
America on the other hand is fat. It has gorged itself on cheap money and asset inflation for decades and is led by a leader who has a desperate need to be popular. And there are midterms coming up and approval ratings are in the tank. Speaking of tanks, those gas tanks are getting more expensive to fill every day. The blockade, which squeezes Iranian oil sales and keeps the Strait closed will with 100% certainty lead to higher fuel, food and all other costs in the United States – higher inflation, less employment, recession and a wipeout for Republicans in the mid terms.
Iran meanwhile has seen its economy underperform by any metric over the last 10 years. In 2005, the Iranian economy grew by 0.6% while inflation ticked up by 40% and the Rial (currency) collapsed.
The economic impact of the blockade is going to take months to really be felt by an economy and populace that is already used to hardship.
Plus they are led by a fanatical death cult that is fully prepared to outlast the Americans.
So a 10% decline in the economy isn’t going to affect them as much as a 1% decline in the American economy will be felt. That is the asymmetry.
In a nutshell – I don’t think the Iranians really care as long as they survive. In Iran, they don’t do regime change based on the price of eggs and $1.50 rise in the price of gasoline.
As it regards the triumphant call on the oilfields, if there is one country that has vast experience with shutting in and restarting production, it’s the oft-sanctioned Iran.
If the geology is similar to KSA and the rest of their gulf buddies then the reservoirs should be fine, even after an extended shut-in. These are not off-shore or super high pressure fracked wells such as those that exist in the United States. Degradation of the surface and downhole equipment is where the actual risk resides (the irony of course being that the people saying it’s such a concern aren’t drinking the same Kool aid for the decades long underinvested Venezuelan oilfield equipment).
Fortunately for them, the Iranians aren’t too picky when it comes to safety. Restarting gas wells is probably a bit trickier given the volatility of the molecule, but again, experience matters.
The biggest issue with a drawn-out shut-in is still the economic one. But again, Iran has resisted that before. And when the blockade is lifted, the cash gusher resumes.
As I said, the damage from the blockade is asymmetrical.
10. At some point, the Trump administration will get bored and move on.
This is the crux of it. The excursion has already gone on longer than Trump’s attention span appears to be typically measured. The expectation was a big, easy win not the drawn-out boredom of chasing tankers across the Indian Ocean and non-TV worthy boardings and interdictions.
It’s just not fun anymore and as mentioned above, the damage is asymmetrical. Iran is digging in, the GOP is floundering politically, gas prices are too high and the economy is in the crosshairs. At some point, the rest of the world is going to move into the Gulf and assume responsibility for getting things back on track and the US and the Trump administration will move on.
It will be sold as something other than a draw-down but the reality is that this will be a strategic retreat. Even the Iranians will get bored – they are already running out of ideas for their LEGO videos.
The Strait will re-open. The regime will be intact. Iranians will still be oppressed by a state sponsor of terrorism. Nuclear material will still exist as will the ability to enrich it. The world economy will be poorer, nations will be angrier and less trusting. Oil will be permanently more expensive. America will be diminished globally and will turn its attention back towards its own hemisphere and set its regime change sights a little less ambitiously and tip Cuba over.
Why do I say that? Easy. Cuba is a lot sexier than Iran what with the Havana Social Club, cigars, rum, salsa dancing, yummy sandwiches and beaches. Plus, Trump has always wanted a casino there.
Pessimistic? Maybe. But I live in the real world.
Final word goes to the last few sentences of something I posted on Facebook when I was feeling even less upbeat than I am now.
…Canada can help but it will take time, money and pipes.
Eventually the only cure for these high prices is demand destruction. Shutting things in, rationing. Layoffs. Reduced economic activity.
It’s a disaster.
This excursion and the closing of Hormuz is a global economic catastrophe and possibly the biggest strategic blunder in American history.
