check and almost mate

market vibes

For tis sport to have the enginer hoisted by his own petard…Hamlet

Sunday, April 12…)

The meeting in Islamabad dissolved after 21 stubborn hours, achieving nothing, and ended with a terse statement from JD Vance, “They decided not to accept our terms.” Trump’s response to it is to blockade the Strait of Hormuz, and the consensus among pundits and the press is that crude markets will trade sharply higher this evening. I am not so sure.

The Strait of Hormuz is already blockaded and shutting a door already hermetically sealed for 6 weeks won’t affect the flow of passage through it. What this gambit will do is sever the financial connection between Iran and China. That will have interesting consequences.

China has already lost its Venezuelan flows, and a US blockade will cut another 2 mm bpd of very cheap oil for which China has paid in RMB. In order to replace those barrels, China will need to buy them in the open markets and pay twice the price or go without 20 to 25% of its daily consumption. And China will need dollars to buy oil on the open market which might be a negative development for gold.

Just as Trump shuts in 2 mm bpd of Iranian oil… KSA announced its east-west pipeline is now carrying 7 mm bpd (up from 5 mm bpd in March), and the UAE has opened a 1.8 mm bpd line to Fujairah. I have no doubt KSA and the UAE will be delighted to step into Iran’s shoes and export whatever China and India may need. How can they say no? The irony of it is almost Shakespearean.

Meanwhile, DJT is calling all empty VLCCs to America to load up on American oil. This is almost as rich as the KSA / Iranian shuffle. So far Bessent has sold circa 53 mm bbls at a notional average price of $105 (using NYMEX exchange settlements beginning March 15). The Cal 27 strip is worth about $73 per barrel, which he can buy anywhere on Wall Street, Houston, or London. If prices stay here, he’ll pocket around $5 billion in profit for the lot. A pity we don’t have more to sell.

In addition, with Trump’s passive approach and KSA and the UAE moving an extra 4 million barrels a day, the entire outlook has shifted. Trapped barrels become good collateral because they have a pipeline to get out. KSA and the UAE can, if they choose, borrow oil against their floating and onshore storage and sell it … or borrow money and sell fewer assets.

In brief, the fork in the road has been reached. If Trump does nothing but blockade the strait, Iraq and Kuwait could … or will … tie connecting pipelines into these southern and western routes, and soon the Strait will be worth little more than a memory.

If Iran complains, which would make even Voltaire blush… and threatens to destroy GCC desalination plants in retaliation (for Trump doing precisely what they have done), then they… and by association China… become “war criminals,” a charge that Trump would certainly and justly have faced had he “bombed the Iranian people into the stone age.” Furthermore, Trump is acting solidly within U.S. sanctions law and wartime authority to interdict ships carrying Iranian crude.

For what it is worth…

On March 12, I wrote “How to open the Strait of Hormuz.” On March 13… I wrote “Perfect is the enemy of good.” I quote from the note below:

“However, if money is the essence of victory, the absence of it is the arbiter of peace. That could be achieved today with a simple declaration of intent and establishing a second blocade as shipping leaves the Gulf of Oman. An aircraft carrier should be able to manage it with relative ease. If another is needed the growing presence of global navies now present in the region can help.

Published March 21 in Not our war

After the Battle of Asculum in 279 BC, the Greek king Pyrrhus of Epirus realized that winning battles at a high cost ruined him financially and logistically, leading to the phrase “Pyrrhic victory” based on his sentiment: “One more victory over the Romans and we are completely done for!’”That is a quote that has aged well!

in spite of ourselves (perfect)

good luck in asia…

JJ

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