Oil-War Inflation Blows Up Bigly
Prices on crude and at the pump are rising relentlessly. Contracts abolished. Tankers and refineries on fire. Putin threatening Russian fuel cutoff. China embargoing its own oil from exports.
War inflation is starting to hit hard. With WTI (West Texas Intermediate) oil prices having started at about $68/barrel a couple of weeks ago, oil shot up to over $80/bbl today and over $85 for Brent. That sent stocks tumbling—down 1,100 points on the Dow almost immediately, but stabilizing over the day to end about 800 points lower as projected increased costs for businesses from these surging oil price hikes became obvious to investors all over the world. Investors had been a little naive about it all in the first days of the Iran War (and probably will be again because they are dumb (greedy) like that).
China responded to Iran’s siege on oil by ordering the termination of nearly all of the nation’s oil export contracts in order to sequester short supply within China. Putin capitalized on the crisis by threatening to end the remaining fuel supply lines between Russia and Europe. Iran hit another refinery today and an oil tanker at port, and Qatar declared Force Majeure on its exports of liquid natural gas, after shutting down LNG production due to the high risks from the war.
While Qatar had already shut down production yesterday, exercising the Force Majeure clauses of all its contracts today voids the contracts completely, making it clear that Qatar will not be delivering any of the LNG it already has stored either. India, and China, which get a lot of LNG from Qatar are heavily impacted by the shutdown. China relies on Qatar for 30% of its LNG imports. India for 42-52%. So, this shutdown may have a domino effect in shutting down or partially shutting down Chinese and Indian businesses or utilities that are dependent on LNG.
The war is still running.
There is no security guarantee. There is no restart timeline. There is no floor.
Every LNG contract in Asia just became a spot market problem. Every spot market problem just became an inflation problem. Every inflation problem just became a central bank problem.
This started as a war in the Middle East.
It is now inside every factory, every power plant, and every gas bill across Asia.
Price that chain.
Talk by the US yesterday of shadowing tankers through the Strait of Hormuz for protection and insuring all shipments is immediately moot because the US military clearly cannot prevent all strikes on refineries or its own radar facilities, as a 100% defense success rate is impossible. In fact, the military responded yesterday that this would not be happening. After today’s additional explosions from Iranian weapons on oil-bearing interests, what tanker is going to attempt the journey through the strait?
Even if tankers did make the journey, one article today strongly highlights the risk this policy would have for the US, as I pointed out yesterday. The article says that Trump would be walking exactly into the trap Iran wants it to enter because Iran can, then, ignite the oil in those tankers with well-placed drone-delivered bombs and make the US responsible for covering all the costs of everyone’s lost oil and possibly lost ships. (Iran is talking of “burning” the ships, not sinking them, most likely because it doesn’t want massive oil spills all along its own beautiful gulf shores.)
Retail gasoline prices in the U.S. have jumped nearly 27 cents since last week to $3.25 per gallon on average, according to the motorist group AAA. The last time gas prices made a similar jump was in March 2022 after Russia invaded Ukraine, the group said.
This, reportedly, sent Susie Wiles, Trump’s gatekeeper in the White House, into a stark-raving rage, though Trump’s Press Secretary Karoline Leavitt, claims the reports of a flaming meltdown are fake news. However, the White House also claimed Trump was barely mentioned in the Epstain Files, and now the Trump DoJ has announced that claims against Trump exist in the thousands of pages of files that the DoJ released and then immediately pulled back and now is about to release again tomorrow, after some serious scrubbing to get them ready for public viewing, sans a lot of the Trump references, I suppose.
The White House is reportedly evaluating emergency consumer assistance on gas prices, such as cutting fuel taxes at the pumps.
Meanwhile, economist Wolf Richter published an article today about the tariff wars happening between US businesses as each business passes its tariffs along in the form of higher prices to the businesses it supplies. While businesses have not been able to master that maneuver with consumers, who are fighting back, they are doing their best to force the tariffs on to other businesses in the form of serious B-to-B price increases.
As I’ve said all along, that back pressure will eventually make its way to the consumer, too. It always does. This war will now amp up the back pressure in prices so much that they blow through the consumer barriers. No one is going to have a choice, and businesses will be able to blame it on the war (somewhat rightfully so, but the tariffs will come along for the ride.)
(Articles for the quotes above appear in boldface among the headlines that follow:)
