Markets Flash Back to the Past || Peter Zeihan

TL;DR

Financial markets are dangerously mispricing the Iran war's energy disruption because they have no framework for pricing oil that was never produced.

Key Points

• 1.Markets are ignoring an unprecedented energy shock. Over a quarter of internationally traded seaborne oil is gone — not disrupted — and most won't return before year-end, some for years, yet stock markets remain stable and oil trades in a reasonable band.
• 2.A new weapons system makes Gulf disruption permanent. With a reliable 600-mile range — triple what's needed to threaten the other side of the Gulf — the weapons are difficult to jam or intercept at any reasonable cost, meaning the threat cannot be neutralized.
• 3.Refinery slowdowns signal reserve depletion, not weak demand. Over half a trillion barrels of crude have never been produced or shipped; refineries in Europe, East and Southern Asia are cutting runs because feedstock reserves are exhausted, not because demand has fallen.
• 4.Commercial refined-product shortages are already appearing. Diesel for trucks in Australia, China, and Europe and jet fuel almost everywhere outside the US are already tightening — a breakdown in commercial inventory never seen in the post-WWII era that markets have no model to price.
• 5.Rationing is coming and markets will become irrelevant. Unlike the shale revolution's fast wellhead response, export infrastructure takes years to build; when absolute energy scarcity hits, government rationing replaces market allocation, echoing pre-WWII history when most markets ultimately went to zero.