Long blockade in the offing, I guess

Industry Discussions Oil and Gas
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Note to Motley Fool, below. For now, today’s lead story in the Wall Street Journal is macro-enough for anybody:

Trump Tells Aides to Prepare for Extended Blockade of Iran

Trump Tells Aides to Prepare for Extended Blockade of Iran

The president prefers decisive victories, but none of the available options provides him with a swift exit from the conflict

President [Trump] has instructed aides to prepare for an extended blockade of Iran, U.S. officials said, targeting the regime’s coffers in a high-risk bid to compel a nuclear capitulation Tehran has long refused.
In recent meetings, including a Monday discussion in the Situation Room, Trump opted to continue [squeezing Iran’s economy] and oil exports by preventing shipping to and from its ports. He assessed that his other options—resume bombing or walk away from the conflict—carried more risk than maintaining the blockade, officials said.

Yet continuing [the blockade] also prolongs a conflict that has driven up gas prices, hurt Trump’s poll numbers and further darkened Republicans’ prospects in the [midterm elections]. It has also caused the [lowest number of transits] through the Strait of Hormuz since the war began.

https://www.wsj.com/world/middle-east/trump-tells-aides-to-prepare-for-extended-blockade-of-iran-da3be7a4

The Journal has this as their lead story today, indicating they think it’s rather important; as gas and oil stocks are about to start running out (particularly in Asia, but also elsewhere) we can expect to see continued pressure on prices, shortages, and downstream effects in industries where petro plays a non-energy role such as plastics, pharmaceuticals, and fertilizers. Many think it has the legs to kick of a recession as well.

It’s tough negotiating with religious zealots, but I guess that cuts both ways, eh?

Note for Fool overlords:

I typed the topic headline in “Long blockade in the offing, I guess”, and was presented with the ever present “your topic is similar…” Here are the topics your superdumb software thought it was similar to:

“A view of Long Beach”
“Mounties arrest 11, guns seized”
“Who suffers from long covid?

So… close? Why not just kill this feature, which has NEVER ONCE come close to convincing me to add to a different thread because the choices are so ridiculous.

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From the NYT: Brent crude prices have hit $119/barrel. A high since the war started.

As I understand it, some countries are close to depleting their oil stores. Some Asian manufacturing is “load shedding” or shutting down entirely already. Flights in Australia are being canceled or hit with fuel surcharges.

The Dallas Fed and others have projected that fuel rationing will be required in Europe and elsewhere if the Strait remains closed until mid-summer.

Fuel rationing is unlikely in the US, but fertilizer prices have spiked and are likely to remain high through the fall buying window for the spring 2027 planting.

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From what I understand, there will be fuel rationing no matter what. Opening the Straight today would shorten the time of the most painful rationing, even after the Straight is open there will be a time between 1 and 2 years that half of the oil that would flow through the Straight will be unavailable.

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You ain’t seen nothin yet.
$150/b in May, $200/b in June, $250/b in July
In August US ends blockade or war erupts all over the world

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Longer term, there was an important item in the news this week. Effective May 1st the UAE is leaving OPEC and OPEC+. They have been capped at some 1.4 million barrels/day below their capacity.

DB2

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The UAE and US are negotiating a currency swap. Basically, they give us Dirhams and we give them dollars, which we hold and then return after a set period.

The issue is the Dirham is pegged to the dollar, but they are having trouble maintaining the peg with an influx of oil dollars. Without a backstop, the UAE may have to liquidate their massive US treasury holdings which may drive bond prices down and interest rates up. This is bad for both us and them.

The UAE has threatened to settle payments in Yuan instead which would threaten the dollar’s hegemony.

https://www.wsj.com/world/middle-east/u-a-e-asks-u-s-for-a-wartime-financial-lifeline-3f9ea3a0

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