The 1 Billion-Barrel Hole in the Global Economy | RoryJohnston

I am. Yes. >> That's fantastic. Even better. Are you? That's what I'm saying. Are you Canadian? >> Talk. Start recording. There we go. >> I I'm already recording. Are you Canadian? Yes, Rory. So, >> are you really Canadian? >> Uh, so where am I from? I'm from I was born and raised in Kingston, Ontario, and I went to Queens and then I went to UFT for grad school. Uh, so I'm about as far from the oil patch in Canada as you can get. >> Yeah. >> Uh, which is why it's very strange that I devoting

my life to the uh the study of petroleum liquids. That that's amazing. And so where where are you right now? Like where are you? >> So I'm based in Toronto now. So I live in I live in in in Toronto uh kind of in Midtown. Um I I moved here originally For grad school. I worked at Scotia Bank for a bunch of years and then kind of just haven't left. And I should say you guys are are very popular with Canadian government officials. Uh, I I just wanted to give a shout out to my my

buddy Dave who was the one that initially uh highlighted before I listened to the episode the call out of of of my work and both both in a good way and then some side sass. So, and now I'm here to address it. >> Well, let's Well, first of all, let's fix that popularity problem because as the only American on this podcast, how do you guys feel about becoming the 51st state? Are you looking forward to it uh speedily in our days? >> Deeply no. Is there any other way to put it? Um, again, it's funny.

I and and Marco would know this. I I would say my whole life growing up, there's always been this like undercurrent of like American skepticism in Canada, you know, The the whole like meme of what is a Canadian? Well, we're not an American. But I would say that I I always imbued the kind of more pro-American side my entire life. I I lived and interned in DC when I was in grad school. And yeah, it's been a bit of an unwelcome shock. uh to feel like our our closest trading partner. I mean, this time last

year, I was writing entirely about trade war and potential tariffs on Canadian oil, how ludicrous it seemed at the time. There Was even a couple days where it was priced into the market. So, it's like, so hopefully now this all kind of goes, you know, hopefully it all rolls over and we end up in happy times again. But I would say no doubt that the any any nent pro-Americana that had been rising in Canada through the past years has been you know stifled in the cradle and now it's you know all about trade diversification pathways

to the Pacific. Uh how can we get our oil to market Without having to go through the states? >> Canadian nationalism baby. That's what >> Canadian nationalism baby. >> Yeah. I mean like uh yet it's yet another thing that President Trump has uh managed to do uh to do. All I would say uh I'm just going to use that old great Charlton H line from my cold dead hands. That is the attitude of a lot of people in Canada. You know, people are [ __ ] studying topography. They're studying invasion routes. They're Studying egress lines.

Like I got buddies who are in construction, lumberjacks, you know, the kind of dudes who like don't drive Honda Ridgeline trucks, you know what I mean? Uh yeah, we have those too in Canada, just FYI. Like, you know, it's not all just Lullemon wearing like latte sippers who speck out their next Arcturix jacket. Although there's also a lot of that. >> That's just Midtown Toronto where I Live. >> Yeah, that's right. And like and by the way, there there you go, Rory. That's that's my that's uh where my loyalties lie. That's uh UBC uh Little

Football, which is ironic >> because of course the UBC Thunderbirds don't really play football. But anyways, like the point is, yes, I claim British Columbia as my adopted >> uh motherland. Now, >> Rory, >> we've got a game for you, my friend, because I have been enjoying I've always enjoyed uh your presence on social media. I think you're really thoughtful. But what I've been enjoying is your increasingly like ri like your >> your level of angst is is approaching, you know, so like like light myself on fire level which which I we're throwing shades on

you out of love because >> well entirely deserved right now to be Clear. Like I mean we're two months into this and crude just broke back above 100 bucks a barrel on Brent. So what are we doing here? >> Listen listen. So, this is the gimmick we're going to do with you because um you know, you obviously have a great presence um uh on social media. People may not know you, people know you. I mean, Rory is here because he knows infinitely more about uh energy than either Jacob or myself. Um you know, Jacob and

and and me, we use geopolitics to kind of think about the markets. Obviously, energy is always at the middle of that. So uh we are uh energy expert adjacent but you are an actual expert and uh so the game we have here is can we make Rory light himself in fire? >> There are four efforts. It's pretty easy these days with my current sleep deficit that's currently matching the barrel deficit in the market. >> So I'm going to MC this uh Jacob's going to be uh the Charles Barkley. He's going to pivot into that role

which I usually have. I love it. So I'm usually the Charles meet up and you know it's great. I'll I'll talk about those big women in San Antonio every once in a while as a complete nonsequittor. >> So usually I do that. Usually Jacobs at DMC. We're going to flip this around. I'm going to ask you a series of questions and then you're going to Answer them and say which of the four stages of lighting yourself on fire. You are. The first is Rory sends a snarky tweet about how that reality leads to energy doom.

So, the first one is just like, I'm sending a tweet like, "You guys are [ __ ] crazy." >> The second is Rory makes himself a stiff drink with Crown Royal naturally cuz # Canada. >> The third is Rory like slowly begins to douse himself with Gasoline. >> Okay. >> Assuming assuming that gasoline supplies are available. I mean, >> they may not be. >> This is why we're doing gasoline, not diesel. Yeah. Or or kerosene. Yeah. >> Or kerosene. >> And then finally, Rory lights himself on [ __ ] fire. Like that's the fourth level.

So I'm we're going to start off The first question. Um and by the way, the whole idea here is the world is too complacent. Now I am more with the finance bros which is where like there's a there's a tension here like just builtin tension which is cool. I love it. We're going to play on that. Uh but I agree with you. I think the world is complacent. If things don't change, if we stay on this trajectory linearly, uh what I the the term I'm using, Rory, is we're going to be in the world of

of uh Canisters and cannibalism. >> Yeah, I think that's about fair. And I think that sounds pretty doomy, Marco. Uh >> if I've been accused of being the doomer. >> No, I know. It's funny. SOMEBODY JUST SAID THAT LIKE, OH DOOMER. >> I know. Um, and I will say I'm going to play this game and then I'm going to tell you afterwards why I because I just published a piece this morning about why I think the market reaction has been relatively sanguin kind of steelmanning the market's reaction. Um, you know, again, meet the market where

it is, but I'm going to do that afterwards. So, let's play the let's play the royal lights himself on fire game first. >> And by the way, we may we may get to that through the questions, but before we do that, you know what I hate? I hate when you get a guest on and you wait until the end to tell the people where To find your wisdom. So, where do we find your wisdom? >> Well, uh, my snarky tweets are on Twitter at rory_jston. I'm also on blue sky for the more progressively uh, inclined

among you. Um, and then you can also follow all of my formal less snarky work, not always non- snarky, but less snarky at kamariontext.com. I have a a weekly report, three monthlies I publish, and a bunch of thematics. This morning was one of those Thematics. And I also uh host the oil groundup podcast where I mostly just riff on, you know, barrel counting and kind of deep wonky oil and gas stuff with uh with other analysts. So I encourage you to join me on all of those platforms. >> Awesome. >> And if I'm doing my

job correctly as Charles Barkley, I feel like this is where I would interject and say any of you who are looking at Rory on social Media anyway. I mean, the only people who use social media are losers in their basements who don't have anything to do with their time. Is that right? That's why >> Charles Barkley isn't on social media. I am tweeting to what I'm supposed to be doing here. >> All right. So, let's go with the first question and uh Jacob like if you have uh questions obviously throw them in there. I've got

about five six. We're Going to run through this. The first one is uh for those of you who like need need a very quick lesson. Walk through us how important Hormuz is. What are the numbers here? like just basic numbers of what makes Hormuse so special and what makes it important. >> Yeah. So just for the base context for people that aren't used to following the oil market, we measure the oil market supply and demand typically in millions of barrels a day because the whole thing Is a gigantic flowing kind of constant chemistry set that

can't stop and start. So flowing barrels a day roughly right now in the world prior to the war I should say we had roughly 105 million barrels a day of production and consumption in the market. for ease let's just say 100 makes the math really really easy. So out of that 100 million barrels a day of supply Hormuz prior to the war was shipping roughly 20 million barrels a day or 20% of the world supply 15 million of that was crude oil 5 million was products mostly diesel uh jet fuel which is important we'll get

to uh and then also natural gas feed stocks uh and liquids for petrochemicals in Asia. So that's the that's the first chunk. That was the first thing we lost was that 20%. Now thankfully we have not had to process the entire 20% supply loss. There have been successful reroutes uh both you know physically rerooted as well as some barrels still Up until very recently getting through. So the largest single reroute was the Saudi eastwest pipeline. And again I know that you guys have talked about this a lot over the past couple episodes but just to

kind of reiterate here >> um we please do. Yes. So the the Saudi East West pipeline was built in the 80s specifically to hedge against this exact kind of risk. They saw the tanker wars during the Iran Iraq war. They worried that that the strait could be closed Even though notably it was never actually closed to transit through through the 80s when there was actually more fighting and more damage to tankers at the time. So I think behaviorally the market has changed fundamentally since then. uh but it was built during that period specifically as this

existential hedge against Iranian control or any control or or blockage of the straight of form. So that is a 7 million barrel a day pipeline that runs between uh the East coast of Saudi Arabia in the Gulf to the west coast of Saudi Arabia at the industrial port of Yanvu. So that terminates in the Red Sea. Um there was about 2 to 2 and a half million barrels a day flowing in that prior. So you know 7 - 2 to 2 and 1/2 you have 4 1/2 to 5 million barrels a day of switching capacity

from the Gulf over the Red Sea. So that's the biggest single chunk that reduced us from 20 to let's say 15. Easy math right there. In addition, you have An Emrodi pipeline that terminates at the uh the port on at the Fujera port on the the Gulf of Oman. Uh and you've also had Iranian oil continue bizarrely through this crisis thus far continue you know you know transiting the strait at 1.5 to 1.8 million barrels a day. All that together out of that initial just more than 20 million barrels we had going through Hermuz we've

successfully rrooed or you know allowed through roughly seven. So the most important Number in the market right now is the barrels that haven't been able to be rerooed and that is roughly 13 million barrels a day across the six non Iranian Gulf states and that has been pretty much steady uh on shutins since mid-March and that is essentially if you think about it this is the debt we are accumulating in the market every day Hormuz remains closed we drop 13 million barrels more in kind of total stock level of the global of the global oil

Market. As of today, we're sitting at roughly 550 million barrels of oil that were supposed to be produced this year that now will not be produced, accounting for restart times and everything else. Even if we get hormones reopened on May 1st, that total because it takes, you know, weeks to months to restart these production facilities and you need to get tankers back in, etc., etc. In total, if we reopen on May 1st, which I think is the most optimistic Scenario we can have right now, um that total yield of unproduced barrels rises to nearly a

billion barrels. That's a nice big billion with a B number. Now, people will say, okay, there are roughly 8 billion barrels of stocks in the global oil system. And again, >> what do you mean by that? Like like in the ground like strategic reserves? >> No. Oh, so this is so when I say stock, when I think about the oil market, I think of it as the world's largest stock And flow model. I guess you could say maybe treasury or something actually the larger stock and flow model, but physically big stock and flow model in

global oil. So any for a stock it's any barrel that has been produced but has not not yet been consumed or burned. So but that includes basically all oil and water of which there's more than a billion barrels in water. That includes all oil in pipelines. That includes strategic stocks, commercial stocks, Everything everything in between. In total, the most important pool or type of stock is what we'd call commercial inventories. And that's the actual private sector stuff that after everything's said and done, there's a surplus or a deficit in the market. Eventually, it's caught by

or or or kind of satisfied by these commercial stocks of which there's roughly 2 and a half to three billion barrels. Now, that's a lot, right? That's a lot of cushion Relative to even a billion barrel loss. But I should note that the working capacity of that probably more like one to two uh because you're always going to need stocks in the system to kind of continue to to lubricate and kind of make up for timing mismatches and everything else because the system has to always flow even if you don't have a barrel arriving that

day. So you need stocks to kind of even that out. If that billion barrels falls entirely on on Commercial stocks, that's where the pricing in my humble opinion, that's where we're sangling. That's where and I think there are ways to soften that, right? I think that SPR releases of which we've already had the IIA announce 400 million barrels, the largest by more than more than double thus far in history. That I treat in my model as supply, not an inventory draw down. So that comes and if that can catch a lot of that then you

can take 400 million Barrels out of that billion barrel loss. You've also had declines in oil on water. So this is and and what we mean as I was saying you can't draw oil and water to zero because if you did it means the oil market no longer exists. >> But these are ships transiting. Exactly. >> And you can't just be like whoa >> you're not going like you know like a lot of the oil and water is just oil going somewhere. It's already bought. >> Exactly. It's not it's not stored, but there is some

that is just floating in space cuz it's like a sanctioned barrel of crude or something. >> That's exactly right. And I think that to the Trump administration's credit, prior to the Iran war, they had done considerable uh kind of uh they had progressed considerably in tightening the noose around both Russian oil uh Russia's oil industry as well as Iran's and as well as Venezuela's. Uh so you Venezuela's oil and water excess because that's again it's not just total but it's the excess of normal oil and water that's effectively a stock that can get drawn down.

Venezuela was mostly kind of, you know, we were rid of that prior to the Iran war. That drew down really quickly after, you know, the the revolution and Caracus and and and and Trump's takeover of the Venezuelan oil industry, but we still had relatively high Russian and Iranian oil and water. And that was explicitly kind of forced into the global system or facilitated into the global trading system by Treasury's decision to remove sanctions on both Iranian floating storage for one month and now Russian flowing storage uh for at least two months. That's what we know

so far even after Bessent said two days prior absolutely will not extend Russian uh oil sanction relief and then he did two days later very quietly on the side. Um >> Scotty doesn't know. Don't worry I I understand. So in total I think that's so you need 200 million barrels 150 million barrels of excess Russian and Iranian oil and water and the SPR release. I think if and this is an important if. If we get another SPR release of the same size which I is increasingly kind of my base case scenario I think that the

IA will release another strategic release of roughly 400 million or so. Um for Perspective out of the total 400 million uh they stayed was out of a total uh government controlled explicitly strategic and then commercially you know mandated essentially of 1.2 billion. So they could do that two more times. If they did that, you could absorb the lion share of the deficit um out of commercial stocks and you could kind of get out of this without a total kind of rip roaring oil price on the other side of this. That said, In doing that, you

would have drawn down global strategic stock piles by 2/3. Uh you would likely be in a situation of ongoing strain and a higher risk environment. But I'm very curious to hear how you guys think about the future of Hormuz and if this you know I've been talking like now that Ron has broken the seal of of kind of closing Hormuz like I would say this if you would asked me 3 months ago what the odds of hormones being Closed I said like less than 1%. Now on an annual basis is like 10%. Uh that's much

higher than I would be comfortable with 20% of the world's oil flow on any given on any given year. So I think that's and so out of that you're going to actually want more strategic reserves on the other side of this crisis. most notably out of nonIA countries in Asia. Um that you know that's going to have to rebuild. So that will manifest on the other side of this crisis as demand in The same way that SPR releases or supply SPR builds are demand at least in my mental model of the industry. So overall, it

is not completely unreasonable that oil prices today are still relatively sanguin, particularly after we've shaved off the true tail risk of >> I got to say I got to say Rory, sorry to interrupt you, but like you're cooking and love it, but I got to say like doesn't sound that like you know, sorry If I'm financ I have a sharply pointed question that I I want to because I want to stress test what exactly what you're saying please >> and I this is going to be impossible but I'll ask you to do the best you

can >> I mean we said May 1st was the most optimistic scenario at what day of closure of the straight of Hormuz do we go from oh like reserves like market blah blah blah blah blah to actual shortages like how long does this Conflict have until we're no longer speaking about market minations and IEA this and SPR this where it's just like literally there is no there's no oil to buy because the system has exhausted itself. Do you have a sense of what what D-Day is from that perspective? >> So, I've I've been pretty resistant

against an idea of like a point of no return because I think the system has always kind of dynamic responsiveness. So, I think that there is some there. But in terms of let's say we don't get another IEA release in this piece I I released this morning, um I essentially modeled what the oil market both the level of the futures curve and the shape of the futures curve. very basic oil futures 101 and any futures curve 101. People will normally think if they see the futures curve and it's pointing down, you know, further in time,

they think of that as a bearish signal because they're like, "Oh, well, the Market's saying the price is going to go down." It's actually the opposite. And it's not that they're charging a discount for future purchases. It's that they're charging a premium for prompt, you know, ASAP deliverable barrels. Um, so what we're in right now is a very, very steeply backward market. And that is exactly what you'd expect if you have a massive hole in the market. Essentially disincentivizes and creates an opportunity cost to hold inventory Rather than just releasing it into the market. So

what you would expect in this moment is roughly more or less what we've seen. I think arguably we've seen more reaction and backwardation uh than the level of the curve which could indicate some expectation function that this is going to be shortlived. But generally you can make that make sense. But if you hold the same, and I was basically modeling a 4 million barrel a day net draw, so let's say 40% or less Of the total supply loss hitting commercial stocks for March and April, and that ramping to 5 million barrels a day in of

net draw in um in May and June. In that case, we end up roughly right around where we are right now in April, but then you rapidly ramp higher in May and June. And that's basically because we went into this crisis with relatively high stockpiles. Uh like prior again people, it's funny people think of me now because I think I have Gotten much more attention to this crisis. Um everyone thinks of me as this like alarmist kind of hair on fire permable. My reputation the oil market prior to this was that of a perma bear.

And I wrote I wrote a lot of p I wrote a lot of pieces going into this year on the coming oil glut on how overwhelmingly the view I believe supported by the fundamental data was that we had an overs supplied market and there would be downside pressure on oil Prices for the next 18 months at least. And I kind of joke like the only thing that would that would drive us to triple digit oil would be like if someone crazily you know closed the straight of hormones. And voila that's exactly where we are. And

shockingly again and to a degree shockingly because I would have expected I always say the oil market isn't forward-looking. It's um Jeff Curry uh of of old goldman fam had a has a great line about how like commodities Are not anticipatory assets. The pricing of them is always built into trying to clear the spot market. So backwardation if there's a deficit and contango which means there's a deep discount on spot prices if there's an overupp. And I think that is the truth of it is I think in some ways my error uh because I was

saying like I came out with a $200 oil very quickly. I'm like holy crap guys like this is the big one. Like I am not an alarmist and normally you know all All respect to geopolitics but I think like in the oil market selling geopolitical spikes was like the thing to do for the past decade cuz normally geopolitical tensions and risk does not actually lead to physical supply loss. this one. In some ways, the supply loss is larger than the perceived geopolitical risk and everyone's just focusing on trading the geopolitics and are forgetting about this

accumulating time bomb of unproduced barrels in the Gulf. And that I think is where I'm more concerned. But I do think that my my error was I would say the oil market's not forward-looking and I expected it to be forward-looking because clearly it's hormuz right clearly this is the big one. Clearly we see this wave of deficit coming towards us. But I do think fundamentally it's not going to react until we see it in the inventory data in visible OED markets. And in fact, US stock piles of crude oil are actually Higher than they normally

would be for this time of year. And they built more aggressively over the past 8 weeks. Most notably likely because you're going to see a large swell in US GF coast exports of crude oil. Those are basically staging stocks. But I think that's one of the things that once we start to see deeper draws in high frequency US data and the IEA publishing big draws in OECD commercial stocks, I think that's the only point now that we're going to see a Real true reaction and a durable reaction to the upside that's not just going to

be tweeted back down by by Trump at the next kind of job attempt. >> But wait a minute, I mean that's what is expected. We expect draw downs. They've been announced. They're like flagged and as you said there's still like 2/3 of inventory left. So why would that cause I mean isn't isn't the price currently as low as it is because of the anticipation of the draw downs and the Fact that as you said there's still like twothirds of global reserves that can be drawn on >> twothirds of global strategic reserves and I should say

I should say that is itself >> the reason I don't treat it as even a normal inventory is because it can't naturally draw it has to be it has to be a discretionary policy choice to draw down those stocks >> but that's what I mean like isn't the The the price of crude like reflecting the you know you almost posed it as a question like, "Wow, if they if they dip into that that this means it lasted longer, but I would flip it in the other way." And maybe I'm wrong. The fact that it's there

is what's keeping oil prices relatively low because it's like of course they're going to draw on it >> potentially. And I and I think this is a similar theory or thesis to like let's say a classic, you know, x hormuse oil Crisis. And it's the same kind of thing thinking about OPEC spare capacity, right? that like theoretically there is some upside supply that can be tapped. But the first thing I'll say is first the SPR release has been hamfisted from the start particularly the Trump administration side. The release was undersubscribed from the beginning. They ejected

all of this additional complexity. I won't get into the exchange dynamics but it they they tried After lambasting Biden for so long for its SPR draw during the 2022 crisis dur after Russia invaded Ukraine. they were kind of very wary of dipping and and drawing down the SPR too hard. Um, and I think as part of that, they have attempted now to have their cake and eat it too. Uh, get the SPR release into the market, but structure it in a way that ensures that it's more fully on their side. But I think the the

anyways the the the com the mechanics of it pushed Too much logistical burden onto counterparties which is me which means that like the first uh solicitation they had to to sell this stuff was only half subscribed which would be weird strange >> if if it was a crisis right and I think it just comes down to they because again there are still inventories available and I think the biggest challenge with this is that this crisis and I'm sure you you guys have been tracking this constantly like it it like the the story Changes eight times

a day. Um oil markets, you know, the barrels from Hormuz took six weeks to seven weeks to end at their final location. So even we have this moment of like let's say there's demand destruction in Asia and I think there is demand loss in Asia but those many of those consumers are wealthy enough to pay for barrels elsewhere. It just takes time to close these arbitrageages. So I would say that over time, let's say again, and where I Get really doomy is let's say let's let's let's assume like an indefinite closure of Hormuz. Like what

would it take to actually destroy 10 million barrels a day plus of demand? And that I think is where it just gets like that's where you get $200 crude. That's where you get $300 jet fuel. >> That's that's canisters and and uh and cannibals >> and cannibalism, right? For sure. >> Let me ask you one one kind of maybe Technical question, but it does come up a lot. Hooties, you know, Houthies have kind of stayed on the sidelines. Um, uh, I'm on team Hooties. You know, I think that, uh, they've got character. They've got, uh,

they've got SAS. Um, >> character. Yeah, that's >> so the East West pipeline that, uh, um, its terminus is in Yonbu. Um, where do the vessels from Yonbu have to go? you know, uh because like from what I understand, I mean VLCC can go Through SW, but it's got to be like not laden with crude. Is that correct? It has to be like how much like VLCC a very large crew carrier has like 2 million barrels on it, >> right? >> How how filled can it be to go through Suez Canal? >> I don't know

the exact answer to that, but I want to say it's like half. Um and basically they they offload into the Sumemed pipeline which is the pipeline That travels adjacent to it and it's got about a 4 million barrel a day capacity on the pipeline >> and so >> okay let me just ask you so like is it possible that all of yonu traffic can go through Suez? >> It's a good question. I don't think all of it uh and not to mention that there there is pre-existing traffic through the region as well. Uh that it's

not just Yamu, it's other things that are Also going to try and go through there. My general view is twofold on this. And I think essentially the question is like what would happen if the Houthis closed the Babe Strait. Um, right. That's that's the that's the that's the million-dollar question here. >> That's what I'm asking. Right. Because that is like you you go from Yonu down south into the Indian Ocean. >> Yep. >> Let's say that's closed and now we got To go through SW. Is it feasible? And can the entire 7 million barrels a

day of East West pipeline continue to function at if that is a risk? I do not believe the entirety of it, but I think most of it theoretically could sneak out through Suez. The challenge is that it takes double the time to get to Asia from from the Red Sea via north around the Horn of Africa. Right? I think that's the biggest challenge is the additional time. And I keep describing This crisis as fundamentally one of lost time uh lost barrels, lost time. And I think that is if you know if you just you know

uh tie up even more barrels in oil and water on this longer circuitous journey around Africa then yeah that that supply is effectively lost to the market so long as the Babe Strait remains closed. Now I think the question here is as well like why haven't they done anything yet? Like why haven't the Houthies closed it? I think and I'm I'm Very curious to hear your views on this as well, but my view is essentially that Iran has held back a bunch of escalatory moves um between the Houthies, between attacking upstream infrastructure like we know

they can we know that they can hit ABake. They have not hit Abcake through this crisis thus far. Um there's a lot of upstream assets they have not generally hit. they have they've only reportedly hit the ASWS pipeline once, but obviously you can hit the pipeline And the pumping stations and or if you took out Abcake, the pipeline is kind of taken care of in a large piece as well. So like all of this, we know that they can escalate more and that they've held back trying to hold back some escalatory room, but now there's

this question of like what would actually get them restarted again because now the fighting has ostensibly stopped during the ceasefire. There's still skirmishes and various parties still firing each other, But in total generally a ceasefire. But the question now is like does this ceasefire just last forever or because I think again like if you would just if you had to describe to me if I was like hey Iran you know the best possible scenario for you guys because what's actually happening here is that you build leverage over time. The longer the straight remains closed we

lose 13 million barrels every day. you know, 400 million barrels every month. You know What would be the best scenario for you? If you could keep the straight closed but not get bombed for a month. And that's essentially what they have right now. Now, they're in the situation where sure there there are legitimate strains in the Iranian economy from the blockade, no doubt. But in general, Iran had a six week head start on that pressure given that it took six weeks for them to impose the blockade. So, I think that in their for me at

least, I See them as having the strategic patience here. And I I laughed I'm just going to pull up the exact quote because I laughed quite a lot at Trump's tweet this morning. Basically said, "Please be advised that I am the least pressured person ever visav this kind of reopening of the straight." And it's like, I actually want you to be much more pressured because we actually do need this thing reopened. And again, I'm curious. It's funny, Marco, that we Because at the beginning, I actually think we're generally in line. I actually think like I've

always thought this was going to end with taco, right? I always thought that Trump was going to eventually unilaterally deescalate once the cost of continuing the war got too large. But every time he does, he seems like he's about to, the market sells off and it reduces the pressure on him to finish the war and to actually make a concession. So, it's this ultimate like The the taco paradox. It's reflexivity of the market that George Soros writes about in the alchemy of finance, you know. So, for sure, you're I think you're right. Yeah. It gives

him it gives him um false sense of complacency of of time. >> Yeah. And I think now he also has this thing in his mind um following the reposting of a particular tanker map that >> So, I want to get to that. I >> was going to say thank thanks for that. >> Well, yeah. So, Rory, I want to get to that. So, first of all, to answer your question, yes, I think uh both Jacob and I agree that Iran is in the driver's seat and they have leverage, but as we've said countless of time

to the people listening to this podcast, so they're going to be like rolling their eyes right now. But you can lose your leverage. You can abuse it and you can lose it. Y >> canisters and cannibalism. This is why it's hard for me to be like that much of a doomer because if we get to that point, no country on earth, including the biggest critics of President Trump, like China or Spain, no one remembers who started this war. When we get to canisters and cannibalism, there's only one country everyone's going to hate, and that's Iran.

Like if you have social unrest in Indonesia, if you have people starving In Bangladesh because Ura is not coming through Hormuz, no one's going to be like, well, Trump started this, we all know who's keeping the flow from exiting. And at that point, the pressure on Iran rises massively. And that's why in the 1980s, Iran and Iraq both hesitated to, you know, like take it all the way because you can use this card and they're using it. God bless him for it, but it's it's dangerous. Now, I do want to get into these four questions

That I want you to rank. >> Yes. Yes. >> All right. So, I'm going to go quickly through these and then you tell me. >> I'm pulling back up my the list of my options so I can see on quick quick reply here. >> So, and I'm going to do this in a facicious way as an idiot on Twitter. >> I love it. >> Or a leader of a major country on the planet Earth, >> which is basically the same thing. >> Yeah. Thank you, Jacob. THAT YOUR CHARLES BARKLEY'S COMING OUT. Nailed it. I hope

everybody heard that because that was that was brilliant. All right. >> Oh, don't worry. That this microphone picks up everything that I It'll slide right in. >> We'll ask Shmood to make sure that's like >> All right. Let me ask you this, Rory. >> What about America, baby? All these Tankers are coming to America. Rory Johnson, I don't know who he is. HE'S A GOOD-LOOKING MAN. HE'S A GOOD-LOOKING GUY. TOO BAD JACOB is too cheap to put this on video cuz then you would see how good-looking Rory is actually who's too cheap by the way.

But like we'll just leave that aside cuz I think like Trump would blame you Jacob cuz you're like more like Anyways, DOESN'T MATTER. ANYWAYS, >> I'm still putting some of it on video by the way, not all of it, but I'm still just so you know. >> Anyways, good-looking guy Rory and he gets it. Let me tell you, he gets it. he gets that America has crudeed to supply the whole world. Which stage of one through four would you select for this comment? >> That's a snarky tweet. Uh and I and and I think and

I think that one's a snarky tweet and I think I've mostly reacted Through snarky tweets to that one. Although I may have also, you know, poured myself a drink while while snarkly tweeting. Um, but I think again the important thing here is, and I would say to Donald Trump, the reason you have people coming to the United States to get oil is because they're willing to pay more for it than you are, which means that your domestic prices are going to rise if you want to have any petroleum left in your economy. >> But wait

a minute, Rory, wait a minute. I'm surprised by that. I'm surprised it's not at least dowsing yourself with gasoline because like like maybe I'm just an idiot, but like how is it possible that the US has extra crude to share with the world? I mean US is a net importer of crude. I know it's an exporter of petroleum products but like this how does this help this crisis? How like how can America add to global Supply? It needs it imports Mexico's Canada's crude for domestic production. This cannot fill that what is it 13 million we're

missing? We're at 13 million like right. >> That's why we conquered Venezuela. Marco, you're missing the fifthdimensional chess. We just take that Venezuelan oil, we ship it right to them, you know. >> Exactly. But but no, I mean I mean to your to your point, it is not is there Is zero new supply. What it what it is is it is essentially the natural balancing mechanism of the market spreading out an area of adequate supply in North America. Again, North America right now, again, and where I wouldn't just go directly to dowsing myself in gasoline

is I think it does expose the fact that like North America is now currently the most energy secure place on earth by a long shot. Um, >> but it does extra crew like there isn't Like an extra barrel for like Indonesians are now suffering whatever like bad example, but like South Korea >> like is this there's no extra we don't have extra crude around other than the strategic reserve. Am I wrong? Like what what am I missing? you were not wrong. Um, what would likely happen is you would likely import some more oil from, let's

say, Latin America, but you'd export more of, you know, WTI to Asia. Um, and I do think that maybe you could See, I mean, probably will see some refining run cuts as well in North America. It depends on on which refineries are most aggressive to bid this. And I think the question is whether or not the United States exports more crude oil or exports more refined products because the United States is also a large exporter of diesel. Uh, and diesel is one of the most starved markets right now. So, I would say I think the

bigger question is not how Much more is exported. It's where it's going. >> That's interesting >> because because I think right now the vast majority of US diesel exports go to Latin America, but Latin America is not the area that's most likely to pay the highest dollar for those imports. So, as I one thing I've stressed from the beginning of this is if this keeps going and if we do get a true 10 million barrel a day demand destruction hole That we need to fill, we will we likely as long as trade doesn't start getting

mucked up, which is definitely an open question. But as long as it doesn't, I do not think that we're going to see large scale shortages in North America, Europe, advanced Asia. >> Yeah. Yeah. Poor get poor. Like that's >> Yeah. Poor poor get poor, right? It's it's whoever has the lowest to spend for the barrels. And by the way, this is why the economist, like I just love them. God bless them. God bless their little hearts. But when they were like, "Europe is going to freeze." I was like, "Brother, they're not going to freeze. The

ECB is going to print money. They're going to use the money and they're going to buy a [ __ ] ton of LG." It's more like the poor >> might have a military coup. >> Exactly. Okay. But okay, second second question. >> Okay. All right. All right. Long answer The first one. >> No, no, no, no, no. I I want long answers. I I I do want like I'm surprised that you weren't as like that that wasn't as idiotic of a statement, you know, but but it doesn't really help us. Like that's the point. Like

these statements help us and it's more of a it's more of a my only worry there and again cuz Trump took my my map and now I'm worried I changed the course of world history very, you know, a tiny Little piece of my soul. Um my worry is like if this does change his view to extend the war longer. >> I think it did, brother. Uh, I'm not I don't like that, Marco. That that makes me want to douse myself in in gasoline. >> Rory, embrace the philosophy of the other T dot legend, Drake. You

got some extra Twitter followers. You know what I mean? Like, it's all that matters. You did it for the gram. Let's go. All right. Second. >> For the gram. >> Second. Now, this one I'm going to use my uh uh tech uh no, not tech, finance bro voice because this is now becoming popular in finance bro circles. And it's like, bro, Rory, stop being such a doomer. All right, China's just going to have a buyer strike. And it just makes everything fine. China's going to stop buying from Hormuz because they don't need to. Okay, they

loaded up their Storage and that buys us like six months where we don't have to give a [ __ ] about 13 millions barrel. Go. Why is that wrong? At which level of dowsing your yourself a fire you are? >> All right. Now, now I think I'm at the dousing myself in gasoline stage. Um and I will say that the one and just as a as a correlary to this to this uh kind of statement one thing I have heard increasingly from the finance bro community is that look at Rory stop Being a doomer look

at the prices you know WTI is under 90 bucks uh clearly this is proven that quote we don't need hormuz that is where I go straight to lighting myself on fire I've had like number like crypto bros I've had being like, "Bro, look look look at the price. We clearly don't need hormuz. This was all for all for nothing. We should we should >> the equivalent the analogy there is crypto bros telling you we don't need Fiat currency ever again. You know, we're all going to use Bitcoin." So, this is like China's just going to

have all this oil come out of storage magically. >> And that's actually interesting point on this. Just as a side note, China has built up roughly a billion plus barrels of strategic or commercial strategic storage, whatever they call it. Um and that was over the past couple years a notable point of demand sync from the Market. Something we've been following and you know is this something going to be you know are they are they stocking up ahead of an invasion of of uh Taiwan or >> can I actually ask you something about that because we

have one very passionate listener who uh he knows who he is and I love your texts. Please keep texting me. I want you to keep texting me. I'm not doing this to throw shade at you. But every time I cite the Chinese number in Reserves he keeps on texting me like you believe that [ __ ] You believe Chinese statistics? you need to get an expert on Chinese statistics on the podcast because there's no way that's true. Why why do you feel comfortable citing that number? Cuz I didn't have a good retort to him. >>

So most of the time um China actually doesn't publish any official statistics on >> inventories. We infer it from their Imports. >> We infer we can both infer from their imports. That's a kind of a an implied stock build. Um but there's also so the main way that you know data providers in the current oil market provide estimates of oil inventory is through satellite based imagery analysis. So there's two main ways of doing this. So the main important fact here and this is where we get well into the wonky fun technical weeds of the oil

market um or the oil Industry I should say. Uh crude oil storage tanks like the big round ones you see driving past the highway or wherever um they have floating roofs on them. Uh, and that's important. And the reason they have floating rooms is because oil is volatile. And if you left a bunch of room open, if you only had a half full, you would have vapor that would have that would evaporate and kind of go up and that would explode eventually, right? That's you don't want That. Vapor is bad. Um, so you have the

floating tank on top of the the oil so that you don't have any vapor buildup. But that means that as the tank fills up, the roof goes to the top and as the tank drains down, it goes down. So you can see both through normal optical satellite imagery. You can basically judge the how deep this is by the by the how shallow or or deep the shadow is like the crescent shadow on the oil tank. And there's also this type of Satellite called SAR technology that can basically have a has a better estimate for the

basically how deep something is basically topography. And you can also tell from that you can basically tell the difference in distance from the top of the catwalks that go around the top of these tanks and the center of the tank itself. So that's where most of these estimates of Chinese strategic storage come from. And again this is the billion barrels is not pure strategic Storage. Uh this is largely inlandheld stockpiles of crude that are held by Chinese s you know uh stateowned enterprises that are mandated to hold these. But we generally do know that that

crude is there. we have less of a view on say what's buried in the underground caverns because we obviously can't see. Yeah. But in general, I think that is >> that would be the problem. That's my only issue with satellite and that's why We also look at like just imports like you know how much demand there is and >> y >> uh >> yeah I was say the challenge with that is that then you have to trust Chinese refining run data >> in order to infer and that I have seen many estimates my own estimates

are kind of sort of like eh like like they're definitely understating refining runs in the NBS the national bureau of Statistics data which is another wonky element of this >> let me ask you something okay so the third one we don't have to worry about any of this because building pipelines is easy. The desert is flat and we can just build more capex over the next 6 to 12 months to expand the east west pipeline to take more crude to Yamu. >> Okay, now we're building to FIFA, man. This is what Netanyahu is banging the

table on. Just just bring it through. >> Like Israel is going to get Abraham courts. Yella, let's go. >> No problem getting it through Iraq and Syria and the former domains of ISIS. ISIS is gone. There's no more jihadists. Everything's fine. Just just >> No, it's it's a geopolitically calm area of the world, guys. It's very normal, very natural to build long linear infrastructure across this area. Not to mention that you'd need horm open to get the steel and pipe equipment in the First place. So, that's your first problem. Um, but if I think that's

where I probably light myself on fire because then it's I think it's just this sanguin view of like it'll all be fine. We'll build pip at the bare minimum. It's probably going to be two years minimum to get a pipeline. If you prioritize it above everything else, I think you'd probably get a pipeline and and you're you're shaking your head. So So I want to hear what you think, Marco. >> I just think you guys are just lack imagination. I I believe there's a lot of steel lying around uh in the northwest corner of Saudi

Arabia in Naom. >> Oh, okay. Fair. We need to we should refabricate it into linear pipe. Um so yeah, it's just all girders. It's all like, you know, rebar. Can you you know how hard can it be to ship oil on rebar? How hard can it be? But I think to that again it's just a Timing issue even if it was 6 to 12 months. We can't afford 6 to 12 months in the in the economy. >> So it's not 6 to 12 months. I hear you. The the only thing is that this is what

where your question about how long this lasts. It does have implications because again like if we're going for kerosene and cannibalism >> y >> uh because of Iran's entransigence eventually the whole world starting with China by the way they're going to build that [ __ ] in three months they're going to go to Saudi Arabia through yu and they'll build it and then you don't get any tolls if you're if you're Iran like you got to be careful not to create a pandemic level of global focus in terms of capital both material and human capital

because then it's all hands on deck. We need to extract this 15 million barrels out of the Persian Gulf and yeah, we'll find ways to do it and then You won't have any leverage ever in the history of the Persian Empire for the next 5,000 years. So that's when you ask us about like what's your time horizon? You know, Iranians would have to be like I think quite silly to extend this past another month because if you do you start putting into motion a lot of effort military capex effort you know that could >> leave

you with nothing. >> I I think this is our biggest difference Cousin because I think there's a different threshold for action when you feel like your regime is existentially threatened. So you worry about that later at this point. You worry about how do I get something done now if I have to keep it closed now in order to generate things. But I I think it's and this goes back to the strategic patience points though. They can wait a month. They can wait two months. I don't think Donald Trump can unless Rory tells me like if

If we're May 14th and everything is fine then Donald Trump can wait. Uh but I'm I'm thinking that he has to do it sometime in the next week or two before the Xiinping summit. But maybe I'm being too sens I I will say on this. I think that I completely agree that Hormuz from the Iranian perspective is like a wasting strategic asset that like the long it's in some ways the same way as the US use of the US dollar as a as a geoeconomic kind of statecraftraft piece That like the more you use this

valuable piece of infrastructure the more people will figure out ways around it. >> China and rear earths >> China >> absolutely um and I think even even things like helium I think you're going to see helium production expand elsewhere which it can be produced elsewhere which just didn't need to be before. So I think >> ura especially ura easier. Yeah. >> Yeah. So, I think that I agree. On the flip side, let me let me pose something to you right now. If Hormuz reopened today, >> all you'd hear is that every barrel counter is insane.

Never listen to them again. Woe is me. Uh, but Iran would also, I think, you know, it's like, ah, hormuz isn't that important, right? The finance bros would have won. Um, and I think that's also not in Iran's strategic interest to end it before There is a ubiquitous recognition that this was powerful, that this was important. And I think you get get to a stage where you're at $150 crude, like all-time highs on prompt crude prices. And then you and then that's when Trump has enough pressure to concede something that he isn't conceding yet. And

then you reopen it. I think by that stage, it's not it's still not long enough for people to work workarounds or whatever. I should say, by the way, that even Coming out of this, even if they don't hold it closed forever, Saudi Arabia, Emirates, Kuwait, Iraq, they're all building pipelines after this anyways, I think that is something that is almost guaranteed. Um, because this is just an existential kind of noose around their necks and they all know it now. So, I would say that that has I would say that ship has largely sailed. >> Well,

that's but look, this is where you guys were right a month ago and this is This is where I disagree with both of you. Um, I think that they won regime change is absolutely off the table. President Trump said on Thursday of last week, I will not extend a ceasefire. And then on Friday, he's like, "Oh, I was just kidding." I mean, like, >> psych. >> He's he he's tackling to a such an egregious level. Like, when was the last time we uttered the words regime change? Um, so like, you know, Jacob, you were 100%.

You're right. And by the way, I was I'm I'm in the same boat. That's why I went long crude on January 6th. I expected this to happen and expected this to be meaningfully different from 2025 or 2024 exchange of missiles and attacks. In 2025, President Trump was clear he wasn't talking about regime change. I'm on I'm on the exact same path as you guys are except now they got exactly what closing KMUS was intended To do which is illustrate to the United States of America you can't do regime change in Iran and that is no

longer goal. I gotta tell you guys, like I just spent a week in DC talking to all sorts of like no one's talking about regime change. The hawks, the biggest hawks, the biggest hawks in DC, like hardened ideological, they're talking about file material. Like let's go in and get it, you know, like there is that, but like I think They accomplished. Now we quibble and I think that Iranian regime is ultimately going to be the one that that decides which one of us is right. But I don't think they want to keep the straits closed

to a point where they're just driving this. I mean, look, this is like leverage you may have on a spouse or a colleague or a friend. We all have leverage on people, you know, like you people favor. >> Spouse leverage. >> Oh man. I mean, like, well, it depends. Like, you know, I'm not the one that has it, but like if you abuse if you abuse that leverage, you know, like you lose it. And that's what I think um they got what you guys are saying. >> They close the straights forward. They got it. >>

Yeah. Well, there's two things. First of all, okay, yes, they've stopped talking about the fantasy of regime change. But 4 days ago, as recently as 4 days ago, We have the president of the United States talking about knocking out every single power plant and every single bridge in Iran, which is basically the same thing. So, he's not using the phrase regime change because he knows that it doesn't mean anything. It's a euphemism for what he's talking about. But he's talking about want and destruction of all of Iran's infrastructure, but that is an existential threat for

Iran. But you Take point >> that will happen if they keep Absolutely. So like this is the part of why you need to cash in your leverage because if you knock the world into kerosene and cannibalism stage then of course America no longer has any reason to keep the gloves on at that point that will happen to them. Yeah. He will destroy the bridges in the power plants and that's the punitive air campaign that's coming. That's why you need to Cash it in before you get to a point of no return where the West and

China and India and South Korea and Japan and Australia, they're all together in this and they are basically turning a blind eye to that kind of >> I think this is where Rory is is kind of right because like the Iranians, first of all, I'm not convinced that they haven't already lost the leverage. Like they already let the Genie out of the bottle. I'm not convinced that oh they Open it in two weeks, the genie's back in the bottle. Like we might already be done. And if that's in their thinking, maybe they're just thinking about

maximizing things. But I think to Rory's point, if you're in the IRGC and you take a break from making Lego videos and you're watching the Geopolitical Cousins podcast with our third cousin, Rory Johnston, then you watch and you say, "We will open up the straight uh as soon as Marco sounds like Rory." Like that is Our litmus test. As long as Rory's in a corner lighting himself on fire and Marco is just chilling, we haven't done enough. We need Marco to be out there freaking out and then then we can talk about opening the story.

>> I'm like I'm like a walking torch of Gondor over here. Um the one thing I will say the one thing I will say just to Marco is I'm curious. So did this you know uh canisters and cannibalism stage. I actually do agree that's a useful Framing in my model of the crisis thus far. I agree that that pressure will build on both sides. Um I just think Trump is going to bend and blink first to that pressure versus Iran. So tell me tell me why I'm wrong. >> You're wrong because he's blinked like three

weeks ago. Guys, >> but he hasn't but he hasn't yet made the concessions that will get. So for me the blinking is a concession whether or not that's domestic enrichment or whatever Else. I think that he also introduced another B- word which is he blockaded the blockade. So like but then he's blockading and then >> he has reescalated since deescalating. >> Yeah. But like reescalated in in quite I would say weak ways, right? There hasn't been >> no doubt. >> So look look what I would say to you guys is that all you're missing here

>> is the pain that will come to Iran. >> Like you're kind of ignoring that side of this. So if we get to a stage where Marco sounds like Rory, they're being turned into a parking lot. The United States of America has taken a very light footprint. Israel is actually conducting most of the attacks against Iran using platforms like F-15s and F-16s which don't carry a lot of payload. You know, you would have to be really like just ignorant of military facts to assume that what America just did Over the six weeks is anywhere higher

than five out of 10 on like >> surely and they're not and they're not. And so they must understand that, you know, like yes, when Marco sounds like Rory, the problem at that point is that it may be too late for America then to make a deal with you because for Trump, you know, when you guys say like, well, Iran may have already lost leverage, so [ __ ] it. Let's let's get whatever we get. You don't want to get Trump into a Situation where he cannot reverse some of his losses in political capital because

at that point, he has no reason to uh make a turn. He will take away the taco and he will deliver like fire, fury and death. >> I don't disagree. But I think to that point, as we were discussing earlier, Iran still has plenty of escalatory room left as well. Yeah. >> Right. We have the we have the Houthis and the Babel Mandeb. We have upstream Facility attacks. There's a reason that Trump has not engaged in that level of kinetic force in Iran because they know if they got boots on the ground in in car

or or if they started, you know, bombing like the true, you know, seven out of 10. >> But time is something you mentioned and the time is running out. It like the problem is you're right. Iran can escalate, America can escalate. But if if you're in Thran, you know that at Some point Rory's math comes into picture and at that point America will just go like it doesn't even matter what Iran does. If we go off the cliff towards canisters and cannibalism, America has then no more reason to give you anything. it's too late. There's

a global recession and at that point like America has to take the gloves off. That's what I would say. That that's why I think both sides are in this mutual assured destruction. That's why we Haven't really seen that much reescalation and that's where I think eventually like Iran has to cash in. You know, just cash in while you're still winning. But they could make a mistake. They could make a mistake. Tip us into this world and then you'll see what a B-52 does to a country. >> No. I agree. I think I think that like

this Iran and like the political culture of Tyrron is not the pragmatic business-savvy political culture of Caracus. And I'm sure you guys have talked about this before that like that was obviously the plan he had in his mind was he's going to find his Iranian deli Rodriguez and kind of everything is going to be fine. Um but like this is the great Satan. This is decades of resistance politics and kind of theocracy built in here. They want don't they want some of the showdown even beyond the pragmatism of life? >> I disagree with that. So

I would say That the history of Iran over the last 47 years is the pragmatic like wheeling and dealing. Uh you know that's why they've never closed it before. They have this whole game where they have like a Serbon educated foreign minister sip bourbon with you in Geneva and then they say but listen it's going to be very difficult to get like Ishmael to accept this the bearded you know guy who's all the murals LIKE THEY DO THIS ALL the time. I think they're Look, IRGC As I've joked is a Delaware LLC. But listen, maybe

the war has made them war tends to make people more zealous, more ideological. I'm totally open to obviously this going. But listen, >> I'm not the guest on the show. You are. You're sorry. Am I APOLOG The reason I I you know, the reason is like our our our listeners know the the back and forth between Jacob and myself. So, what I want to go I want to give them more of your wisdom. So, I got I Got two I got one more crazy question. Jacob, if you've thought of one for uh >> I've got

one more. Yeah, I've got one more, too. So, you go in there. >> If you have one for the gimmick, I mean, especially All right. The pandemic taught us all how to work from home. >> All right. >> Yes. I >> hear me out. Hear me out. Hear me out. >> Hear me out. At the time, we were forced To do that. that crushed the economy and so on. We can now do that seamlessly. So yes, the coffee shop next to the office will not get your business, but you're going to be sitting at home

in your sweatpants ordering Chinese food and gaining like So from a net economic effect, couldn't we just kind of shave 5 million barrels a day without negative economic consequences? Go. >> All right. I would say this probably I Would you know dowsing myself with gasoline. I don't know if this is full full fire light on because I think that there's a reasonable question here. Um and I think the difference is is that that was largely achieved through kind of heavy-handed top down mandates. Um and if anything the the the weakness in oil markets provided an

economic stimulus during COVID because I mean I think the other thing that was important during that crisis is diesel demand Exploded because everyone was sitting at home but durable freight demand was at all-time highs. So sure, gasoline was cheap, but overall, I think diesel kept everything afloat. Cheap diesel kept everything afloat in a way that it definitely wouldn't have otherwise been the case in a different scenario. And I think now it's, you know, we would not have the ability to like sit at home and order our kind of like our Amazon, like you're already seeing

like Amazon Shipping sir charges introduced. And like I think that's where it starts to pinch on that consumer industrial economy side where it's you know all about freight, it's all about deliveries and that's jet fuel, that's diesel, that's etc. I think if anything gasoline has always been the weakest piece of the puzzle even that is actually starting to rise now. But I think gasoline generally has not been the major thing. Um and and if anything I think yeah like we were Able to work from home for a while but I think one everyone kind of

agreed that that was shitty. Although I now kind of live at work at home, so it's been it's been durable for me. But most people >> all three of us right now are >> Yeah, exactly. All three of us right now. But most people who don't spend their times on a podcast uh still go to an office. Um and maybe they take transit or whatever, but >> I do not miss having to go to an office. I will definitely say that. But I would say generally that the difference is that mandated lockdowns and work from

home in CO actually provided oil as a stimulus to the global economy. This would be trying to force the same behavioral change through the pure ugly logic of price reaction. >> Yeah. Um my my question it's not going to make you want to tear your hair off. And by the way, my children are going to get home in 10 minutes. So if you start Hearing screaming in the background, that's what's going on. Um >> mine just arrived in the backyard, so this is going to be good. >> Let's say May 1st rolls around. We get

the taco like straight of Hormuz like we're on the path to opening. Um or or maybe not. I don't know. I just I want to take it to Russia for a second. This is the one that really scares me. Like Zalinski and Ukraine have been hitting Russian oil export infrastructure stuff Has been offline. It's not offline, etc. Like >> are are you worried about the Russian barrels that are going offline? Are you worried about escalations somewhere else? Is it the cascade effect that might really get us? And is there some other part of the world

that we should be worried about? I mean, imagine a hurricane hits the Gulf Coast um this with all those like Okay. But like um I don't know. I Just wanted you to talk me me through that because that's where I really start to get doomy. Like Zilinsk's hitting pipelines and a hurricane hits the Gulf uh and straight up Hormuz open again, closed again, like Yeah, >> I think no doubt we're in just a much more precarious situation right now. And the and the longer Hormuz remains closed and the more barrels we lose out of that

billion barrels of inventory loss, that's our buffer. So if we come out of This with less commercial buffer and less strategic buffer in the best case scenario, that's going to make us that much more vulnerable to any other shocks that come down the pipe. To the point about Russia specifically, I think one of the interesting dynamics here and I've stressed from the very beginning that Russia and like Moscow is like the greatest single beneficiary of the Iran war both through an uplift in pricing and through >> Canada. Canada >> but but here's the thing. Canada

wasn't sanctioned prior to this, right? can't you know uh you know prior to the war to the Trump administration's credit done a great job at tightening the on Russian oil uh between blocking sanctions against Rosn October punitive tariffs on Indian imports uh that together basically more than haved Indian imports of Russian oil uh discounts for Russian crude had blown up like 30 plus bucks a Barrel um it was not looking great and I think that would have continued to really whittle down the financial power in Moscow financial firepower in Moscow But immediately like in the

first week of this you saw all of a sudden Indian buyers clamoring for Russian barrels again. You saw differentials fall from 30 plus bucks a barrel to single digits. You saw landed barrels of eurals landing at premiums to Brent in in uh in India. And you've seen the explicit um kind of Reduction of just one one tiny second. Actually, I apologize, guys. I'm just seeing smoke at the side of my house. >> Oh [ __ ] Yeah, >> I mean quite appropriate given the gimmick. >> Yeah, he he took it a little too seriously. Um,

listeners, Rory has self- emilated. I don't know what to do, cousin. I've never been on a podcast where somebody just lit themselves on Fire as a >> [ __ ] Let's short rent, man. It's fine. It's fine. >> All right. We're all good. Sorry about that. Oh, he's turned on the barbecue and I'm like, where is that smoke coming from? >> Uh, anyways, I apologize. We can we'll quick edit that. Anyways, the >> Oh, no. I I'm I'm keeping that in. I thought that was better than running. >> Wonderful. The whole gimmick is about You

setting yourself on fire. Keeping this in. >> Um, anyways, so long story short, I I think that Moscow was the beneficiary of this, but obviously Zalinsky knew that as well. So, I think what's interesting about this, to Jacob's point, is it's it's introduced this kind of pro-yclicality to the Ukrainian response that the higher oil prices go, the more incentive they have to hit Russian oil infrastructure to ensure that they don't Profit from the windfall. But the higher the more they do that, the more you tighten the rest of the system and prices go ever higher.

So, it's this kind of cascading upward journey for the Ukrainians attacking Russian infrastructure in the Black Sea and the Baltic. Um, but I do think I would say the thing is that it's been hard to track Russia at the same time as tracking everything that's going on in the Gulf. And I would say generally the Market is underexposed to that right now. Um, and I would also say they're also better at getting their kind of facilities back online and they, you know, at one point they had a 40% reduction in export capacity. It was the

largest single disruption to Russian oil industry since the fall of the Soviet Union. Uh, that was in like mid-March. um they're mostly they can recover relatively quickly. Again, they don't have a straight blocked unless someone's Going to block the Baltic. Um and I think that is the difference is that you just have this capacity to recover. Um and that I think is the main difference so far. >> If Ukrainians any like >> no no [ __ ] that [ __ ] that Danes. >> Yeah. Or that >> just old school Denmark doing what it used

but it made it a great power. just like, "No, you shall not pass." By the Way, Rory, uh, Jacob and I are in the middle of this gimmick that we do, uh, which is the trade value podcast where we rank global leaders. >> Okay. >> Uh, you know, would you trade this guy for your, you know, like and, uh, I conceded to Jacob that Gilinsky, like he was one of his top picks. I didn't have him. And what made me change my mind, like I think that was a great pick by Jacob last year. And

you know, it was This that made me like, Jacob, we didn't get to this and I we're giving a little preview for our listeners, but this was what made me actually go like this guy's a badass mother, you know, like he is bombing Russian energy infrastructure while his beneficiaries are suffering from high energy prices, just doesn't give a [ __ ] >> Yeah. >> Respect. >> Respect. It is. I mean I mean I I even when it first happened because there was an attack on the Black Sea the Novais uh port early on in the

crisis >> and I was initially kind of like wary like it's like I was worried almost that cuz the reason in 22 that the Ukrainians didn't hit Russian oil then was that the world was going through an energy price spike going through an inflationary spiral and there was a worry that kind of in the same way that you're talking About like the world coming for Iran that it would ruin global ally support for Keev during this crisis and if they contribute to this further but it seems like generally they're kind of like yolo um >>

yolo >> yeah and I think I think in this stage it's like yeah I I you know hard to blame them honestly >> dude it's been four years >> you know they're fighting they're Fighting for your life like Galilansk's you know like anyways like I thought it was a gangster move >> like honestly and it's just you know he deserves to be in the top 10 Like Jacob, you nailed it. Well, Gilleski, definitely hat tip to you on that, but we'll we'll release that trade value a little bit later. Okay, Rory, I know you hate

this. Uh, every oil analyst should hate this. I'm sorry. I I I pre-applied, but we have to ask you some Dollar questions, right? Yeah, I know. I know. And you can like, you know what, like this is an unfair question. I just want to say that to everyone like this is a basian process. Rory may say one thing today, he might say something tomorrow. But I'm going to make it easier. >> Almost assuredly actually. >> No, but and I'm going to make it easier by like giving you some scenarios, right? So like >> Yep. >>

Hormuz is Oh, by the way, so uh we've got December 2026 Brent contract is I think at 86 85.5. Um, and Brent is right now as we're It's like 104 105. What is it at? >> Yeah, I'm having I I see it at 106 44 on my on my prompt Brent screen right now. >> All right, cool. So 106, >> which is actually high. That That's the Highest we've been in a while. >> So 106 right now, Brent. Uh 85 December contract. Okay. >> Okay. >> Hormuza open on May one. What are your And by

the way, we're gonna say zero to 100 just to make it simple. Like let's just not quibble on like the flows. Let's say it's not open completely not open and then it's open, you know, like it's going ramp up, but whatever. Like everybody announces you shall you shall Pass. >> May one, what's your two price levels for those two? >> May one. So for prompt Brent on May one, here's the thing. Here's the way I think this is going to go. I think that on the immediate resumption of traffic through Hermuz price is going to

drop 20 bucks a barrel in a day almost guaranteed at this stage. >> But I think that after that we we grind higher again as those deficits manifest In inventories. So I would say that in a scenario where we open May one that basically gets us to that billion barrel a day sorry billion barrel total loss supply. I think that the only way that you do not have, you know, Brent crude over 95 100 bucks a barrel by December is if you see a second IEA SPR release, I think >> or recession. Or >> recession.

Yes. Or recession. Uh which Will just take the wind out of everything. Um >> June 1st. >> First of all, >> June 1st. >> With June 1st. First question. From now to June, where do we go? And then how much does it drop on June 1st if that is the outcome? >> So I think if we got to June 1st uh so we basically that that's you know five more weeks of of co of five works of Clos five more weeks of Hormuz being closed. This is the similarities in the brain. >> Yeah I know.

Yeah I put that in your head with the four% [ __ ] I think at that stage we're, you know, by by June 1st we're probably sitting at 130 140. >> Interesting. >> And I think that if we make it to July 1st, I think that's where we get close to 200 bucks. >> It's it's interesting. I got to tell You, man, it's not what I'm telling clients. I'm far more alarmist than you >> in in in terms of the price response. Here's the thing. I thought the price response was going to be larger and

that's what pushed me down this steelman the market reaction piece I put out this morning and I again I think I'm just following my brutal logic and that I think showed that we hit 195 by the end of June if Hormuz has not remained uh if Hormuz was not open and that would basically be >> 4 million barrel a day loss in March and April and 5 million barrel a day loss from global stocks in May and June up upwards of 200. My view was like if this isn't over by miday we're going to 150

to 160 170 >> I think that I here's the thing I think that >> like nonlinear you're more linear than I would have thought right you're quite Linear >> I am I'm a pretty linear guy linear structure linear models >> but no I and I think that >> it's if we assume >> the draw on inventory is linear um and that is what drives my expected price reaction is pure pure pure uh inventory math here. And I think that there's a chance here's the the thing is that from this lens, the first runup through the

first kind of 3 four weeks of this was Actually an overreaction >> to the in the inventory loss that we have seen because we haven't seen it manifest in the way we would need to hit $144 on dated bread. that that was likely a what we what we would call in the literature a precautionary demand response from physical participants that basically boosted demand in order to get spot available barrels right now for fear that they wouldn't be available later but you know we we sold off that Was right right after that we got the ceasefire

and everything else and I think again that there's a way that we can look through if we assume inventory you know SPR drawd downs and the world will do everything it needs I think there's a way to come out the other side But I'm skeptical and I think that there's a decent chance like if we end up at you know June 1st and it's still not open. I think at that stage like there's a there's a reasonable call that That crude stays above 1201 130 the rest of the year because you just need to fill

in that hole. But again I would have expected us to be higher already and I have just I'm bringing myself back to the brutal you know barrel model logic I've been following and I'm like you know what I'm not overreacting anymore. the market because here's the thing as well. The other piece of that sanguin market reaction is the jaw boning. We've had a halfozen episodes Where Trump has come out and said something on True Socialer to media in the White House and we've been down $15 on the day like traders like that's that's unservivable for

many for many kind of positions. So I think that that is we've one there's been a sorting effect like there's a compositional effect that the most the people the traders that were most the highest propensity to be long and bring forward this risk may not have jobs anymore Period was end of sentence particularly after that first Monday what was it like May 9th or whatever um sorry April 9th um where you had that kind of big blow up in in prices. Yeah I think that was really painful. So I think if I was a trader,

if I was like traded futures if I was holding a a barrel of Brent futures at like 110, yeah, I think fundamentally the risk is to the upside, but like can I wait for that physical manifestation of tightness Or is it more likely just empirically that I'm going to sell off 15 bucks to the downside? It feels like a risky bet. Have have either one of you integrated into your modeling on prices um that the Trump administration is objectively incapable of basic arithmetic? Like have you worked that into how they're making their decisions? I refer

you just to this thing about drug prices and RFK Jr. doubling down on that in this Oval Office event where the president by the Way appeared to have fallen asleep during >> I refer to you to tariffs being put on penguins Jacob. Yes, penguin tweeting out pictures of conquering Greenland while he's walking while he's walking through. I also saw this great quote from Harlon Ellison. It's attributed to Haron Ellison. The two most common elements in the universe are hydrogen and stupidity. Um, but it's actually a serious question. Like I can't help but Wonder if the

Trump administration can't do basic math and that they think they have more time >> than they actually do because they can't do math. Look, like I know I'm being like kind of tongue and cheek, but I'm actually asking a serious So, so let me answer that question um to the best of my abilities. You know, I I don't rely on my own brain to do this kind of complex stuff like I just don't know it. But a lot of clients That I have are experts like Rory. And so when I talk to people who do

nothing but trade crude in Sou and Geneva and you know, you guys know who they are like and I ask them to do the math for me. you know, you scratch my back once in a while, although they kind of pay for my research. But anyways, they did. And one of the things that all of those guys tell me is like, yeah, like like Trump's guys were here 48 hours ago. So, I don't know if they can do math, Jacob, but like people who actually do this for a living have been informing the White House.

You know, they like the one good thing about this White House is that they don't think that expertise is the domain of like academics or CFR elites. They do reach out to people like Rory, you know, and they do reach out to people in the financial community who are, I think, levelheaded. I don't know, Rory, like uh I I don't think that like >> by reaching out to people like Rory, you Mean you mean stealing their tweets and retweeting that as examples of the fact that America has oil? That's what you mean by I got

I got approval of that ahead of time. I I mean look like literally though like I mean I don't know if if I don't know Rory what do you think people who trade physical barrels of oil I mean I I assume are not sanguin right like I mean or or rather they're like telling the white house the facts right >> yes and and I think to this point like there has never been a white house that's been closer with the physical trade houses particularly vital like they were at the they were at the meetings in

the white house >> I was going to say anyone but like yes and That's probably I'm not I'm not I'm not uh like accusing anyone of anything. I think like clearly there are connections. >> That's great. That's great. >> And clearly and clearly like but I but I do think to Jacob's point I think a lot of that more doomer expertise and I should say I have I have yet to meet a single barrel counter who is not both alarmed and confused by current market pricing. Um, but I do not think that that is making

it all the way up the chain because I do not think that Trump himself as the decider uh is incorporating this information into his view. I think that he has lived a life Of kind of overconfident reality distortion fields and I think he's pretty confident that it's going to hold this. And just to be clear, it's working so far. And I think that that is the thing that I worry about is like what at some point the market does run out of patience and we get real spiky real quick. I don't know what that trigger

is going to be. >> I don't know if that's right, Rory. I think he is incorporating it. The US Military action for six weeks was said that three out of 10 on a scale of what military action could have been. Everybody in the political risk community, which Jacob and I have fled because it's like full of hot air, but everyone in that community was telling my clients who were paying good money that Car Island was going to happen like four weeks ago, right, Jacob? >> That's true. >> So my point to you would just be

like, I Think you're not seeing how much Trump I think is scared. And by the way, like how are we not seeing this? Friday was like the most taco. Like this was like the largest taco in the world. Again, I think >> I'm not saying he's not scared. I'm just bringing up his his inability to do basic arithmetic and trust the advisor you say that he's talking to into his thing. I'm not >> No, I have a much more narrow point. Man Can't do math. >> I I was listen I think by the way by

the way I I obviously we did this gimmick because I love your tweets, you know, and uh they're just they're they're awesome and you're just like, >> "Yo, what the fuck?" And you know why? because there is a whole side of this which is just like crypto and finance bros being like yolo. Um you know [ __ ] Um but I think that what our little game revealed is that you have a very nuanced And like datadriven view and I actually come away from it almost like more of a doomer than you are. I come

away from it thinking that Trump can keep can keep up the war much longer than I thought. >> Yeah. Yes. >> It's it's important to remember that I was always a perma bear going into this Marco. So >> no but but that's important that informs but but the reason that's important and You said this yourself and let's repeat it for everyone listening. Your permaess was based on a supply or like just over the data >> but that is important today because it's not like you were wrong. it is there and so we can draw on

it longer than we think. What what I'm confused by is given the reality of this, you know, Jacob just made a very important point. Let's repeat it. Like the fact that we if the if if if the Hormuz is still Closed on June 1st, like your Brent call is 130, like the world's >> Did I say 130? I 150. >> All right. All right. Well, that's a little bit different. That's >> I That's still better than I would think. Uh, yes, I agree with you, Jacob. It's a little bit more >> and especially once you've

conquered Venezuela and, you know, you're just exporting all that American crude. Everything's fine, you know. >> But here's what I would say. Here's just what I would say. I think you got You're right. >> By the way, listeners, I'm joking. I was trying to get Rory to light his hair on fire, but he he's >> I my my previous run out of the room to to go check on the fire in my backyard. >> Um, literally uh I I DM' my wife being like, "Uh, what's that?" My wife, I'm like, "Lot of barbecue fire." and

she Said, "What? You can't take the heat." So, I think that's a little flame emoji. So, I think that plays into this whole this whole thing as well. She'll enjoy the podcast, I'm sure. >> Uh, that's >> she's my business partner as well, I should note. >> Well, you know what? There you go. Like that's No, listen. I think you're right, Jacob. Like, uh, it does seem like there's more runway, but that also ask Begs the question, why hasn't the US re-engage militarily, you know, just to kind of fight it out a little bit more?

And I think the answer here, and I want to know what you think, Rory. I think on March 30th and correct me if I'm wrong on the dates, but on March 30th we achieved mutual assured destruction and this is why to me getting me and maybe my brain is broken. I'm completely open to I'm just wrong and my brain is broken. But you're if anyone who tells Me that the war is going to restart kinetically, you're almost asking me to forecast a nuclear exchange because on March 30th when Israelis struck South Pars and Iranians struck

LG like what we achieved is this moment of mutual sure destruction where it's very clear >> that within 24 hours we can lose what 30% of LG on the planet. >> Yeah. and like and 20% or thereabouts crude and so you know was that a key moment for you like how did you like What did you think of March 30th as as an energy expert like I mean this is like holy [ __ ] >> well I think that was that was the realization of the tail risk fear we all had which was that this

is not just horos being closed which is how I always liken to like the the garden hose being kinkedked it can always be uncinkedked but if upstream facility attacks are taking a shotgun and blasting off the the faucet to which the hose is Attached. Everything can be repaired, but that takes a lot longer. So, I would say yeah, absolutely. I think that in that moment it crystallized Iran's kind of escalatory logic. Uh, and very tit for tat. So, it's like if you hit south powers, we hit we hit northfield infrastructure and and Rosloffen and Cutter.

If you seize Kar Island, we'll take out the Ros Tenura loading facility or Abcake or whatever. So, I actually agree with you. I think that it's Unlikely that we I mean famous last words by the time this even goes live. I think it's unlikely that we go back to a full shooting war. I don't think that Trump has the appetite for it. I think if anything that is the thing that the market has read correctly if there was if the market was pricing in any tail risk of the truly catastrophic upstream facility attacks. I think

I think that that is mostly behind us now. For me, again, it just comes down to a timing of How long does it take to build the pressure to get him to make a concession. He needs to make >> breaking news. You made me check. >> Rory, you made Rory, you made ME BREAK. YOU MADE ME CHECK. WHY DID YOU MAKE ME check when you say famous last words? All right. All right. But listen, listen. This is interesting. US President Donald Trump says he could make a deal right now, but he is willing to wait

for an opportunity to reach an Everlasting agreement because he tuned in live into the geopolitical cousins and heard the math from the great Rory and he said, "Don't rush me." That was so he doesn't seem to be rushed and I think part of that is because you know like you just taught him the math. >> Yes. Well, my my my ongoing education of Donald Trump is something that I I need to stop. Uh but anyways, I do again I think that I lean against the most Doomer elements of the oil market because I have faith

that the oil market can be quite flexible. But I do think that the longer this goes on, one, I think that Trump's leverage decreases faster than Iran's leverage increases. That for me is a is a is a kind of a core prior for how I view the situation right now. Um, and I think to this question of like if they were ever going to ramp military escalation, they needed to do that 6 weeks ago. Like start Starting this 8 plus weeks in, you're doing the worst of all worlds. you you you've starved the world for

two months of of hormuz and then you want to speedrun the apocalypse of upstream attacks. Like it's the worst possible combination by this stage. There's a there's a plausible reality if you had gone nine or 10 out of 10 at the beginning. You could have literally conquered and like like cleared out horror movies by now. Maybe not, but I Think there's a reasonable opportunity to have done so. Now it's like no no no they've they've really entrenched. they've really doubled down and again they have six seven eight weeks head start that I think is the

challenge that Trump needs to deal with. So when he says like don't rush me like rush please Mr. President rush because we don't have time because again like sure you know getting to 150 doesn't sound like the end of the world but it's going to be The end of it's going to be really painful for a lot of people. Well, the other problem with what you're saying is if the Iranians, if we think that, the Iranians could think that and if the Iranians think that, they're going to get intrigent and then the only way for

Trump to reopen things is to actually hit them harder again. >> I think um >> yeah, I do think that what he said is very sanguin though because he's not Talking to Iran. He's talking to the media. He's talking to the domestic political constituency of America, many of which are hawkish, at least within his, you know, White House. And he's saying like, >> and certainly most of which are stupid. >> Yeah. Like because, you know, because of what Rory just said, by the way, like in something you and I have pointed out, like you go

into this action with eight Arlickberg destroyers in uh straight of Moose. You go in with no troops on the ground. Of course, your options are then limited and you can't open the straighter for moves because you got no Aegis enabled destroyers. So, they went into this unprepared and I think they're where they are. So, um you know, >> yeah, the last thing I'll say here on the timeline as well is that kind of 150 200 if it goes through July um or the end of June, I think that's like best understood to be like a

fair value Estimate. Um there is a chance that right now, you know, we had physical traders overreact potentially the first wave of this the first kind of volley. Um if they right now they're optimistic, everyone's optimistic that this is going to figure itself out in some way, they can get pessimistic again. And if they start precautionary kind of demanding additional barrels and bidding up physical premia again, everything else, we can we can shoot well past that Faster. I just don't know. So, I think it's just a it would be a rally that would be still

equally prone to these sharp kind of jagged drawdowns. Uh, if a tweet sounded sufficiently, you know, end of end of the end of the war e >> Yeah, makes sense. All right, we got to put a pin in it. We put an hour and a half on the calendar and that's that's what we got. >> It flew by, guys. >> Yeah. No, it did. It really did. It's Such a pleasure to have you on, Rory. like you crushed it and uh I really hope that everybody who listens to uh this geopolitical cousin goes to all

the stuff you said at the beginning. Uh this is awesome. Uh please next time you tweet something, use fingerpaint, you know, like make it pretty obvious like what you're trying to say like let's not you know >> you mean you you mean I shouldn't lead I shouldn't lead the the tweet that could Influence the war with very cool cuz yeah that that that could have been a longterm regret on my end. That was the trigger. That was the trigger. >> People like, "Very cool, Rory. That's what you go with." I'm like, "Ah." Anyways, >> awesome,

man. Thank you so much. We're We're so grateful that you spent time with us. Really appreciate it, man. You're awesome. Thank you. >> Thank you for having me on the podcast, Guys. It's a fantastic one.