(WCTW) A Sobering Look At The Oil Market Amidst The Geopolitical Chaos
Geopolitical tensions between Israel and Iran are at an all-time high, but I come bearing advice for those of you who want to stay sane amidst the chaos in the oil market:
Avoid listening to geopolitical experts.
Avoid listening to those who say Iran will close the Strait of Hormuz.
Avoid the sensationalism that's developing on both sides (Israel and Iran).
Instead, do this:
Focus on the signals: oil facilities (Kharg Island), production facilities/oilfields, and Iranian crude exports.
Global oil supply & demand balances.
Physical market indicators (timespreads & refining margins).
OPEC+ policy response.
It's easy to get carried away when there's a lot of media hype. My job in this article is to realign your focus on the things that matter. What does the recent geopolitical chaos imply going forward, and what should you be aware of?
Signals
There's a conflicting narrative when it comes to analyzing Iran. On one hand, the Trump administration is trying to enforce harsher sanctions on Iran, but on the other, no real disruptions have occurred.
As we wrote in our March 17 article titled "An Asymmetric Geopolitical Payoff." We said:
Sanction enforcement is highly dubious. From the geopolitical experts I have spoken to, the US is very limited in what it can do to stop Iran's crude flows from continuing. The only way to truly stop it is by using brute force (stopping tankers, etc).
Keep in mind that Iran has had 6 years to perfect its black market dealing, so even if Bessent and the team were set to stop the money flow, it would likely take too much time.
The only way I see the US applying maximum pressure is via force, which would ultimately prove to be very disruptive for the global oil markets.
With this weekend's events unfolding, it is clear and obvious to me that 1) Israel/US has no intentions of "truly" stopping Iranian oil flows and 2) Trump's sensitivity to US involvement and higher oil prices prevent him from going "all-in".
You don't need to be a geopolitical expert to see the writing on the wall. Kharg Island, where all of Iran's crude exports are done, was never targeted. So, unless this little island is attacked, I remain firm in my belief that no oil supply disruption will occur.
Kharg Island - That's the only signal you need to know whether or not a real supply disruption will occur.