Iran and the impact on the global economy

Oil prices rose nearly 9% toward $73 per barrel today, the highest in over eight months, as the joint US and Israeli strikes on Iran sharply escalated tensions across the Middle East. And it seems that the narrow Strait of Hormuz, a vital chokepoint that handles roughly one-fifth of global oil shipments and significant volumes of natural gas, is now being blocked (despite Tehran insisting the strait remains open).  Shipping companies are rerouting vessels away, and insurance companies are sharply increasing premiums.

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Although China relies for much of its oil from the Middle East (mainly Saudi Arabia), it has been building up its strategic stockpiles for just such events and because of worries about US sanctions.  So China is well placed to deal with any shortages; and it can still turn to more oil imports from Russia and from South America, where it has been increasing supply in recent years to avoid the Middle East. The US has plenty of strategic stockpiles and, of course, its own domestic production.  However, for many parts of the Global South and for east Asia (Japan and Korea), as well as Europe in general (where Russian oil supply has been ended), the situation could be much tighter if the conflict continues for a long time.

Another factor helping to keep oil prices from exploding is the coming into supply of Venezuelan oil. Licences have been granted to US trading companies to export oil. Much of the oil transported previously bound for China, is now going to terminals around the Caribbean before being sold to US Gulf Coast refineries.  Venezuela’s oil production is likely to be back at pre-US sanction levels soon.

Trump is hoping and expecting a quick conflict that will bring the Iranian regime down or force its current leaders to submit to US terms.  Then oil prices will come back to ‘normal’  – in effect the ‘Venezuela outcome’.  But Iran is not Venezuela.   The history of US imperialist and Israeli ‘interventions’ in the Middle East suggests prolonged chaos, this time in a country of 90m people.  There is no organised opposition to the regime within Iran and, so far, the new leaders of the regime seem determined to retaliate for some time ahead.

Related:

Is the “glitch” in the system actually a signal of what’s coming next? 🚩

Just as tensions boiled over with the attack in Iran, the Chicago Mercantile Exchange (CME) experienced a mysterious “server farm” shutdown—but only for Natural Gas, Gold, and Silver. Coincidence? Or was the “plug pulled” to prevent a massive price spike as the drums of war began to beat?

In this emergency market update, we dive into:

The Missile Math: Why every Tomahawk missile uses 500oz of Silver and what kinetic conflict means for supply.

The CME Mystery: Why did servers go dark the day before “First Notice Day” for the second time in six months?

The Hormuz Hedge: How the threat to the Strait of Hormuz makes Venezuela’s oil the ultimate backup plan.

The Inflation Offset: Why “Hard Assets” are the only way to survive the price spikes coming to your grocery store and gas pump.

The world is getting “scattered” and the temperature is rising. If you aren’t watching the connection between the Middle East and the Chicago trading floors, you’re missing the real story.

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