If you look at the stock market today,

you might naturally conclude that the

global energy crisis has been

permanently resolved. The S&P 500

recently hit another record high,

climbing past where it was before the

fighting began in late February. Equity

traders seem to have decided that a war

in the Middle East, one that has closed

the world's most critical energy choke

point, is simply a great opportunity to

buy the dip. But if you talk to the

people who actually move physical

barrels of oil, the mood is considerably

darker. Futures markets are pricing in a

swift diplomatic resolution while

physical commodity traders are staring

at a completely different reality.

There's a massive gap between the

optimistic news flow that drives stock

prices and the actual cost of a physical

barrel of oil sitting on a ship in

Northwest Europe. For weeks, we've seen

a bizarre cycle play out. A ceasefire or

diplomatic breakthrough is announced.

The stock market spikes and the price of

crude plunges by 10%. Then almost

immediately, the Iranians announce that

they've not agreed to anything and

prices reverse. Just this week, despite

the announcement of a 3-week ceasefire

extension between Israel and Lebanon,

Iranian forces boarded and seized two

MSC container ships. President Trump

responded by ordering the US Navy to

shoot and kill any boat caught laying

mines in the water. This is not what a

functioning trade route looks like.

Investors seem to be suffering from a

bad case of muscle memory. They're

sitting at comfortable desks in New York

and London, assuming that the

administration will eventually

experience what investors have been

calling a taco moment, where taco stands

for Trump always chickens out. They

expect the president to look at the

upcoming midterm elections, look at the

rising price of gasoline, and simply

walk away from the conflict, much like

he did when he retreated on his

liberation day tariffs last year. The

fatal flaw in this assumption is that a

trade war is fought with administrative

inc. You can cancel a tariff with a

weekend post on troop social. A shooting

war in the straight of Hormuz is fought

with drones, naval barricades, and

anti-ship missiles. You cannot

unilaterally back down from a conflict

where the other side has their own

agenda. The Iranian regime has survived

the initial strikes and discovered that

holding the global economy hostage is an

incredibly powerful piece of leverage.

And unlike a nuclear weapon, it's one

that they can actually use. As I've said

before, it takes two to taco. And right

now, the other side of the table is busy

seizing container ships. For the

commercial ships currently trapped in

the Persian Gulf, the situation has

devolved into something resembling a

high stakes maritime prison break.

Captains are turning off their tracking

equipment and sneaking through the water

in the dead of night just to get their

crews out safely. About 45 ships have

entered or exited the strait since a

temporary ceasefire was first agreed on

April 8th. Yesterday, over a 24-hour

period, only five made it through. At

least 22 other ships have been attacked

and several others seized by the Iranian

Revolutionary Guard since the conflict

began. The situation is now being

described as a dual blockade. Iran has

restricted passage to hostile vessels

from unfriendly countries, while the US

Navy began its own counter blockade on

April 13th. specifically targeting ships

bound for or departing from Iranian

ports. The reality of trying to navigate

the straight of Hormuz right now sounds

less like global logistics and more like

a heist movie. Just this past weekend, a

Greek owned tanker called the ACT

carrying 300,000 barrels of diesel

managed to make a run for it in the

dark. It lined up at the head of a snake

of ships and slipped out just hours

before the Islamic Revolutionary Guard

sent gunboats back into the channel.

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guarantee if you aren't satisfied. Ships

that are being actively targeted, like

those tied to the MSC group, are

attempting to sneak through with their

GPS transponders completely turned off.

Some are hiding behind Omani flags.

Others are navigating demands from the

Iranian regime to pay safe passage tolls

in cryptocurrency, which major trading

houses vehemently deny paying, as doing

so would breach US sanctions. The

resulting backlog has created what one

executive described as a car park of 3

to 400 ships desperately waiting to get

out. It's not just oil tankers that were

trapped. Six cruise ships were stuck in

the Gulf, but managed to make it out

with skeleton crews and no passengers on

board in late February. One of these was

owned by MSC Group, which is business

partnerships with Israel. What's perhaps

most striking about the whole situation

is the complete abandonment of these

merchant vessels by Western governments.

Larry Johnson, the global head of

freight at Mercuria, expressed his

frustration this week, saying that

politicians are simply burying their

heads in the sand. Stateowned vessels

might have access to naval escorts or

back channel communications with the

Iranian regime, but pure merchant

traders are entirely on their own. The

US Navy is barricading the coastline and

has turned around dozens of ships. Iran

is firing on the ones that try to

squeeze through. There's no concerted

effort to formalize a safe transit

mechanism. Instead, the people tasked

with moving a quarter of the world's

seaborn oil are essentially being told

to turn off their headlights and hope

for the best. While investors might

assume that this blockade is just a

temporary glitch in the supply chain,

the physical reality is that the world

has now run out of its safety cushion.

In the early weeks of the conflict, the

market was insulated by the fact that a

near record amount of oil was already at

sea when the war started. But by April

20th, the last few tankers that managed

to cross Hormuz before the fighting

began finally reached their destinations

in places like Malaysia and California.

That seaborn buffer is now completely

exhausted. Physical commodity traders

are warning that a lot of long-term

damage has already been done. Sad Raheem

of Traffic Eura told the economist

earlier this week that a cumulative loss

of 1 and a half billion barrels of Gulf

crude, roughly 5% of annual global

output, is almost unavoidable at this

point. Traders are noting that even if a

ceasefire holds today, the market might

not return to equilibrium until 2030 due

to this permanent loss of supply.

Normally, an American president might

expect the domestic oil industry to

simply drill the country out of an

energy shock like this. After all, the

US is now energy self-sufficient. The

administration has strongly urged oil

executives to increase production to

bring gasoline prices down, but US shale

bosses are actively resisting those

calls. According to a recent Dallas Fed

survey, energy executives are refusing

to significantly increase production,

pointing to the absolute chaos of the

current market. While this may not make

the president happy, it's a perfectly

rational capital allocation decision

made by executives who've been burned by

over drilling before. The extreme

volatility between physical prices and

futures prices sends conflicting signals

to operators. They can't responsibly

plan long-term capital budgets or rig

deployments when the price of their

product swings wildly based on

presidential tweets. Most companies are

taking a do nothing approach to their

2026 budgets. They know perfectly well

that if they spend billions to

overproduce now and Trump secures a

sudden peace deal tomorrow, they'll be

left holding the bag in a crashed

market. If you want to understand how a

geopolitical energy shock actually

trickles down to the real economy,

you'll have to look beyond the headline

price of crude oil and examine the

specific refined products that keep the

world moving. Take jet fuel. Europe does

not produce enough of it to meet its own

demand. According to Politico, its

refining capacity can cover at most 70%

of what airlines need. Any prolonged

disruption to tanker traffic through the

strait will leave carriers scrambling

for supply. Europe is currently sitting

on about 50 days of jet fuel reserves,

which is their typical operating level.

But according to modeling by the data

firm Kepler in association with the

economist, those stocks are going to

fall precipitously if flows through

hormuse don't normalize by June. The

United States could theoretically help

by exporting refined products. But if

the administration decides to prioritize

domestic prices and bans refined fuel

exports, Europe's aviation sector will

be staring at a brick wall. Then there

are the esoteric commodities that most

people don't think about until they run

out. Qatar is not just a dominant player

in liqufied natural gas. It's also one

of the world's largest producers of

helium accounting for roughly a third of

global supply. Helium is a byproduct of

natural gas extraction. And you can't

safely ship it on a plane. It has to

move by sea. When the straight of

Hormuse is barricaded by gunboats, the

global supply of helium is effectively

choked off. This isn't just about party

balloons. Helium has the lowest boiling

point of any element along with an

extremely high thermal conductivity,

which makes it irreplaceable as a

coolant for sensitive equipment. It's

used to cool the superconducting magnets

in MRI machines, as a carrier gas in the

chemical vapor deposition processes used

to manufacture semiconductor chips, and

as a purge gas in clean rooms. There is

no synthetic substitute for helium. If

you're running a chip fabrication plant

or a hospital radiology department, you

cannot swap it out for something else.

The logistical nightmare of this

blockade doesn't stay confined to the

Middle East either. The global shipping

industry operates as a closed loop

because ships can no longer safely pass

through the region. They're being forced

to take a massive detour around the Cape

of Good Hope. This significantly extends

journey times, which effectively removes

a huge chunk of shipping capacity from

the global market. Congestion at the

Panama Canal has intensified too as

buyers have turned to purchasing crude

oil from the Gulf of Mexico to replace

their Middle Eastern supplies. The canal

was already dealing with severe transit

restrictions due to historic droughts.

Now with oil tankers outbidding bulk

carriers for scarce transit slots, the

knock-on delays are rippling through

supply chains that have nothing to do

with energy. According to the FT, ships

carrying lower value cargos like grain

are being pushed to the back of the

queue as oil tanker operators pay

millions of dollars to skip to the

front. Wait times at the canal have

stretched to around 40 days and some

grain routes have already seen shipping

rates increase by 50 to 60%.

Grain is now moving slower and costing

significantly more to transport. Which

brings us to perhaps the most alarming

knock-on effect of this crisis, the

threat to global food security. People

tend to think of the energy market and

the food market as two separate things,

but modern agriculture is essentially a

very efficient system for converting

hydrocarbons into edible calories.

Natural gas is the primary feed stock

for nitrogen-based fertilizers like

ammonia. And the straight of Hormuse

handles roughly a third of the world's

seaborn fertilizer trade. When the

straight closes and gas prices spike,

agricultural input costs explode. Before

the hostilities broke out in late

February and hydra ammonia cost US

farmers around $800 a ton. Today it's

sitting at $1,050

a ton. But fertilizer is only one part

of the equation. To run a modern farm

you need massive amounts of diesel to

operate the tractors, the combines and

the trucks that transport the harvest.

The agricultural sector was already

operating on razor thin margins and this

dual spike in both fertilizer and diesel

costs represents a massive unbudgeted

expense. A recent survey by the American

Farm Bureau Federation found that around

70% of farmers report being unable to

afford all of the fertilizer they need

for this crop cycle. And even if they

could afford it, the supply chain is

working against them. The chief risk

officer of Louis Drifus pointed out this

week that there's growing competition

for other critical agricultural inputs

like sulfur, the fourth major nutrient

after nitrogen, phosphorus, and

potassium. Because of the crisis, sulfur

is being diverted to higher value

industrial uses like copper smelting,

leaving fertilizer producers waiting at

the back of the queue. Zippy Duval, the

president of the American Farm Bureau

Federation and the man with the most

American sounding name I've ever come

across, told the FT that the farm

outlook is bleak right now and farm

country needs help. Look, it's not

necessarily the best quote ever, but I

included it just because I wanted to say

Zippy Duval. Pablo Escobar, yes, that's

his real name, too, the head of LNG at

Vital, warned this week that we're

living on borrowed time, saying that if

this continues, the energy crisis will

rapidly become a global food crisis. But

of course, the term global catastrophe

means different things to different

people. While agricultural traders are

worried about crop failures and food

security, Bernard Arno, the billionaire

head of LVMH, has his own concerns. He

warned his shareholders this week that

the war could spiral into a global

catastrophe with extremely negative

economic developments if it isn't

resolved quickly. His definition of

catastrophe, however, appears to be that

sales of Louis Vuitton and Dior handbags

in Middle Eastern shopping malls have

fallen by as much as 70% since the war

began. One sector is preparing for

famine, and the other is lamenting a

drop in high-end spirits, clothing, and

luxury leather goods. While the US deals

with expensive diesel and unsold

handbags, Europe is facing a much more

structural squeeze. Right as the Hormuz

crisis reached its peak, Russia decided

it was the perfect time to turn the

screws on Germany. Moscow has announced

that it will suspend the flow of Kazak

oil through the Soviet era pipeline that

supplies the PCK refinery, the facility

that provides 90% of the petrol,

kerosene, and heating fuel to the German

capital. By cutting off this alternative

supply line right as seaborn imports are

choked off in the Middle East, Russia is

ensuring that Europe feels the maximum

possible pain from this conflict.

Whenever an energy crisis breaks out in

the Middle East, financial commentators

inevitably start drawing comparisons to

the 1970s. We're immediately bombarded

with black and white footage of cars

lining up at gas stations and warnings

about a return to the stagflation that

defined the era of the 1973 Arab oil

embargo and the 1978 Iranian oil workers

strike. In certain ways, the current

situation is a lot worse than what we

saw in the 1970s. As Daniel Jurgen

pointed out recently on the OddLots

podcast, the absolute volume of the

disruption we're seeing today is the

largest in history. Global oil

production and consumption are roughly

twice what they were 50 years ago.

However, major economies are

structurally much more resilient to oil

shocks today than they were back then.

The metric economists use to measure

this is called the oil intensity of GDP.

It measures how many barrels of oil it

takes to produce a single

inflationadjusted dollar of economic

output. Since the 1970s, the oil

intensity of the global economy has

declined by more than 70%. Our factories

are more efficient, our cars get better

mileage, and our power grids rely much

more heavily on other sources of energy

than they do on petroleum. But while the

physical economy might be less

vulnerable, the financial economy is

standing on much shakier ground. Paul

Krugman noted recently that in 1978, the

price toearnings ratio of the S&P 500

was sitting at historic lows. Today,

equity valuations are stretched to

nearrecord highs, supported by a highly

complex, interconnected private credit

market that didn't exist in the 70s. We

have an economy that requires less oil,

but a financial system with a much lower

margin of safety for a prolonged

inflation shock. This crisis is also

fundamentally rewiring how governments

think about energy infrastructure. For

the last two decades, the push towards

wind, solar, and electric vehicles has

been driven primarily by climate policy.

The closure of the straight of Hormuz

has rebranded the entire green energy

transition into a matter of national

security. You can't fix a 20% drop in

global hydrocarbon supply with wind

turbines in the short term. But the

realization that an entire continent can

be held hostage by cheap Iranian drones

is rapidly changing capital allocation

decisions. In Asia, where countries are

heavily dependent on imported seaborn

oil, the transition is accelerating.

Electric vehicles now make up over 50%

of new car sales in China and 40% in

Southeast Asia. While the US tries to

drill its way out of the crisis, Asia is

looking to nuclear power and electric

vehicles as tools for long-term energy

sovereignty. All of this structural

shifting will take time. In the

immediate present, the Western world is

dealing with the harsh reality that

inflation is back and it's going to be

sticky. The economic fallout from this

war has already started showing up in

the data. Both the United States and the

United Kingdom saw inflation accelerate

to 3.3% in March. In the UK, the Bank of

England is now facing a central banker's

worst nightmare. An external energy

shock that raises the cost of living

while simultaneously killing economic

growth. In the US, the political panic

is becoming palpable. President Trump

has dispatched his top lieutenants,

including Interior Secretary Doug

Bergam, to beg oil executives to

increase production. Meanwhile, Treasury

Secretary Scott Bassand has resorted to

threatening retail gas station owners,

warning them that the administration is

watching to ensure they slash prices at

the pump the moment crude oil drops. If

that rhetoric sounds familiar, it

should. It's almost a word forword copy

of the Biden administration's complaints

about the price gouging at the pump back

in the summer of 2022. President Biden

tweeted at gas stations, "Bring down the

price you're charging at the pump to

reflect the cost you are paying for the

product and do it now." It turns out

that yelling at gas station owners is a

bipartisan tradition. Regardless of

who's in the Oval Office, the political

response to an energy supply shock is

exactly the same. panic, ignore the

underlying market dynamics, and threaten

the guy who owns your local gas station.

The problem is that you can't yell at

inflation until it goes away. The IMF

warned earlier this week that short-term

inflation expectations in the United

States have already moved up and that

the economic fallout from this conflict

will not evaporate overnight, even if a

ceasefire is signed tomorrow. The

increased costs of fertilizer, diesel,

and rerouted shipping have already been

baked into the supply chain. Those costs

will inevitably be passed on to the

consumer, at the grocery store, and at

the hardware store over the coming

months. While politicians focus on the

price at the pump, macroeconomic

analysts are looking at how this crisis

is fundamentally rewiring the flow of

global capital. When the price of energy

spikes, the balance of global trade

shifts. Brad Settzer, an economist at

the Council on Foreign Relations,

pointed out on the FT Economics podcast

last week that you would be wrong to

expect an energy shock of this magnitude

to wipe out the massive trade surpluses

held by countries in Asia. China's

surplus in manufactured goods is so

structurally enormous that even paying

record prices to import seaborn oil

barely makes a dent. While this energy

shock is a big deal, it won't magically

rebalance the global economy. It simply

redirects a portion of the dollars that

were accumulating in Beijing towards

alternative oil and gas exporters.

Some of that money will go to Saudi

Arabia, which has an East West pipeline

and can still get some oil out, but most

of it will flow to the world's other

exporters. Kazakhstan, Tajjikstan,

Norway, Russia, and some South American

producers. The US and Canada

collectively export about 5 million

barrels of oil a day. So what Setser

expects to see is a general shrinking of

the big Asian and European surpluses

with the money flowing instead to

certain oil producing economies. A

reshuffleling of who holds the world's

dollars rather than a fundamental

rebalancing.

Because the United States is now the

world's largest oil producer, a position

it's held since 2018, you might assume

that this shock would ultimately be a

net positive for the American economy.

But the windfall at the wellhead doesn't

necessarily reach the kitchen table.

American oil and gas exporters are

benefiting from higher prices, but the

American consumer is absorbing the pain

on the other side, paying a geopolitical

tax on everything from agricultural

products to transportation, leaving them

with less money to spend on the rest of

their needs. The US trade deficit isn't

shrinking, life is just getting more

expensive.

This brings us to the ultimate lesson of

the crisis. As I mentioned in my video

on Europe's financial nuclear option

back in January, the financial markets

have spent the last 30 years operating

under the great illusion, the belief

that economic interdependence naturally

prevents conflict. We assumed that

because an open straight of hormuse was

essential for the survival of the global

economy, no rational actor would ever

try to close it. But the interdependence

that was supposed to be our safety net

is framed from both ends. On one side,

Iran has discovered that holding the

global economy hostage with a fleet of

cheap drones is a highly effective

negotiating tactic. On the other, the

world's major economies have spent the

last two years actively reducing their

dependence on each other through

tariffs, export controls, and onshoring,

dismantling the very web of trade

relationships that was supposed to make

a crisis like this irrational. When you

control a vital geographical choke

point, you don't need a trillion dollar

military to exert massive geopolitical

leverage. And when your adversaries are

already pulling apart the system that

was supposed to deter you, you have even

less reason not to try. For decades, the

global supply chain has relied on the

unwritten assumption that the United

States Navy would act as the ultimate

guarantor of free trade, safely

escorting merchant vessels from one side

of the globe to the other. That

assumption is now obsolete. The Navy is

no longer acting as a neutral guardian

of open sea lanes. It's an active

combatant running its own blockade. The

merchant marine is on its own. We've

moved from a world of global cooperation

to a highly transactional era where

historic alliances are significantly

less meaningful. A negotiated diplomatic

deescalation might eventually provide a

sigh of relief, but it cannot undo the

realization that the plumbing of the

global economy is incredibly vulnerable

in this new transactional era. The stock

market might be buying the peace trade

today, assuming that a weekend of

strongly worded truth social posts can

fix the supply chain, but the physical

world moves at its own pace directed by

ships, pipes, and turbines rather than

market sentiment. If you found this

video interesting, you should watch my

video on prediction markets next. Since

it came out, we saw headlines about a

special forces soldier betting on

Maduro's removal before the raid was

reported and people messing with weather

data to win a bet. Don't forget to check

out our sponsor, Incogn

using the link in the video description

and see you in the next video. Bye.