A major wave of pain is headed for global economies - perhaps within weeks - thanks to the Strait of Ormuz blockade. And that wave exists even under the rosiest scenario, say if Trump were to settle matters in a week with Iran. Yes, it will be felt worse in Europe and Asia but will hit business bottom lines like a mega- economic thunder clap. All this according to a recent Wall Street Journal piece, 'Wave of Panic Is Likely Headed Our Way Over The Hormuz Blockade, April 25-26, p. B4, Exchange).
According to Spencer Jakar, the bearer of this bad news:
"Prices on our screens might be making us complacent about a looming economic drag. The Iran conflicts effects will get a lot uglier.
There's widespread faith that, while not perfect, the stock market is good at seeing around corners. For example, it often swoons months before economists predict recessions and then rallies before they give the all clear. Millions of people putting their savings at risk distill available information pretty well."
But alas, not all the time. For example, the last 'Bear' occurred in the wake of the 2007-08 financial meltdown which itself was triggered by the spread of overrated mortgage securities and credit default swaps. But virtually no one wo plowed money into the market was aware of how treacherous those devices were.
Earlier there was the bursting of the dot com bubble - with many in 401ks over invested prior to planned retirement. The aftermath saw too many ending up with a withered nest eggs and little more than canned cat food to eat. The reason? Likely because few in the market at that time (late 1990s) had personally experienced a really long downturn. But perhaps just as relevant, too many were possessed by an "irrational exuberance" - a term first used by then (1996) Fed Board Chairman Alan Greenspan.
Already, and despite the depletion of critical resources (like liquid natural gas, aluminum, urea from fertilizers, helium to produce semiconductor chips) from the Hormuz blockades, we are seeing bursts of irrational exuberance. For example, the recent breakneck rally in shares of Intel powering the S&P 5oo and Nasdaq - with giddy investors clearly looking past the stark geopolitical tensions, e.g.
The Last Warning Before America's Iran War Collapses the Global Oil Market - Prof. Jiang Xueqin
Intel basically mesmerized investors as it soared 24% in value, clinching its first record since the height of the dot -com boom in 2000. But that previous experience seems to have fallen into an informational black hole.
As Jakar writes:
"But the hit to global supplies of oil, gas, fertilizer, helium, aluminum and other commodities from the Strait of Hormuz blockade is the sort of thing the market - and most Wall Street professionals- are bad at processing."
He goes on to note this hasn't been the first time a "burbling threat" so obvious in hindsight was underestimated. Case in point how the Covid 19 pandemic - erupting in 2020 - cratered supply lines and consumption. Still the gravity of the emergency didn't hit Americans until weeks after stocks hit a record on February 19th. (Covid already spreading at a rate quarantines couldn't control.
In the case of our current situation we are getting early warnings. As Jakar notes, it is energy specialists who are sounding alarms that deviate from the Street's "relaxed message".
Josh Martin, head of securities and equity capital markets at Pickering Energy Partners, said in a recent podcast:
"I've been surprised by how the stock market is willing to look through the fact that the strait continues to remain closed."
Jakar adding:
"Americans are concerned about pump prices but - with no physical shortages - a billion missing barrels seems as abstract as 10,000 pneumonia cases in far off Wuhan."
But harsh reality is on its way, not just from pump prices to spike - to maybe $5 a gallon in the next week, but outright shortages of gas like we experienced in the 70s. Long gas lines, or no lines because gas stations closed. People panicked. For now, strategic reserves have dulled the blow and made it seem less serious. But you won't find that rection in Europe and most of Asia now. Many regions are nearing states of emergency.
Even if that phase isn't reached soon look for the dearth of petrochemicals too have multiple adverse effects, especially in providing fertilizer, as well as diesel for jet transport. Already, we are seeing multiple airlines close routes in Europe because of the lack of jet fuel.
One can only hope Trump, who incepted this mess, comes to reality soon and grasps he is not going to get Iran to knuckle under to his demands. They hold all the big cards and they are not giving them up. In the words of Scott Anderson ('Operation Epic Fury Meet Operation Epic Blunder', NYT):
"Granted, matters might get ugly, but surely this will lead to American victory and an end to the impasse, right? Wrong. Build out an ironclad blockade or put 50,000 American troops on Persian Gulf beachheads, and the Iranians will still retain the ability to fire a drone over their heads to hit an oil-laden tanker and paralyze the global economy anew."
But one can only do so much to get people over their denial. As the WSJ writer observes: "The damage is cumulative. One reason energy futures don't fully reflect this is that any glimmer of hope blows up bullish derivative positions. And two of the largest per barrel drops in crude futures ever, have occurred in the last two weeks".
And so it goes
See Also:
by Richard Heinberg | May 4, 2026 - 4:37am | permalink
Pop culture has long memorialized the Warner Brothers cartoon gag in which Wile E. Coyote, lured by his nemesis the Roadrunner, races off a cliff. Instead of immediately falling, Coyote keeps running, then looks down and realizes there’s nothing beneath him but empty space. His expression turns from anger to panic, whereupon he plummets. Coyote’s belated moment of realization is a trendy metaphor for our response to inevitable, though not yet fully realized, consequences of foolish behavior.
For the past couple of decades, we at Post Carbon Institute have been pointing out that energy is the basis of the economy, that oil is our foremost energy source, and that a transition to alternative energy sources will necessarily be slow and incomplete. Given that oil is a depleting, polluting, non-renewable resource, industrial society is due for a reckoning at some point. We are all in an extended Wile E. Coyote moment.
And:
We Have Just Entered the Most Dangerous Period in 100 Years — And Most People Have No Idea | Jiang
No comments:
Post a Comment