Transcription
On Tuesday, the US struck something like 80 targets in Iran and reapplied sanctions on Iranian oil exports. Apparently in reaction to Iran attacking three oil tankers in the Straits of Hormuz.
In response, Iran launched a series of drone and missile attacks at US military sites across the region, including Salman port in Bahrain and Ali al-Smu. This represents by far the most serious breach of the ceasefire and it sparked some anxiety that the war in Iran might be about to restart.
Not least because only last week during an appearance on the Michael Null show, Vice President JD Vance seemed to imply that the US was only using the ceasefire to build back up its oil reserves. So I think what the president has told us to do is use thisou to sort of refill the world's oil economy. >> Yeah. to refill some stocks and then to see where the hand is.
So, in this video, we're going to explain why, tempting as it might be to Trump and Co., the US can't actually afford to restart the war. At least not yet. Trump has launched so many military interventions, it's kind of hard to keep track. So, in the latest issue of our magazine, Too Long, we go instance by instance to work out what Trump's doing across the world and if he's launching a holy war. That's just some of 80 pages in the magazine because there's more in too long than you'd expect. Purchase your copy by clicking the link in the description.
So, let's get straight into it. In short, the reason that Trump can't afford to restart the war right now is that he is clearly very sensitive to oil prices and the global oil market is more fragile than it looks.
For context, over the past couple of months, the global oil market has proved remarkably resilient. Despite experiencing what Goldman Sachs described as the largest oil supply shock in history, with global supply down at least 11 million barrels a day with the closure of the Strait of Hormuz, oil prices basically hovered between $90 and $120 a barrel. This was obviously well above pre-war levels, but most experts originally predicted that if the straight was closed for a prolonged period of time, as it was, prices could shoot as high as two or even $300 a barrel.
So why didn't this happen? Well, there were essentially two reasons. First, the world was able to dip into unusually well stocked inventories. There were something like 8.4 billion barrels in global inventories at the start of the crisis, according to JP Morgan, well above the historical norm. And these were drawn down at an unprecedented rate to boost global supply and thus keep down prices.
Second, China, which is usually the world's biggest oil importer, suddenly cut its imports by about 4 million barrels per day, providing some muchneeded relief to the global oil markets. Some of this seems to be because the Chinese economy is apparently very good at adapting to oil price shocks. Public electric vehicle charging jumped by 17% between April and May, for instance, suggesting that Chinese drivers were essentially switching to electric in response to higher gas prices.
But most of it was because China was drawing down its own massive stockpiles, which it's been building up for the past couple of years. According to an analysis by Bloomberg, for instance, roughly half of the reduction in Chinese demand was as a result of China unloading its stockpiles.
In short, the point we're trying to make is that the main reason that prices stayed relatively low and the world was able to avoid an acute oil price shock is because everyone was dipping into their stock piles. However, this obviously can't go on forever and by June, many stock piles were running dangerously low.
Trump actually admitted this publicly after Iran and the US signed their so-called memorandum of understanding. In an attempt to justify his decision to end the war at the G7 summit, Trump claimed that oil reserves were going to run out in about four weeks and then there would be bedum. Much to Trump's relief, news of the agreement immediately brought down oil prices and they were back down to pre-war levels by July, although have ticked up since Tuesday's strikes.
However, this does not mean that the oil market is as resilient as it was pre-war because obviously stockpiles are a lot more depleted than they were going into the war. Take a look at America's strategic petroleum reserve or SPR for instance, which is probably the world's single largest reserve and has played a key role in stabilizing oil markets in recent months.
According to the latest EIA data, the total volume of oil in the SPR has fallen from about 415 million barrels before the war to 325 million barrels last week. Not only is this the emptiest the reserve has been since 1983, it also means that the US has continued to release oil from the SPR even after the ceasefire.
Now, at this point, you might be thinking 300 million barrels might not sound that bad. But the key thing to understand here is that you can't totally deplete the SPR. The oil is stored in a series of vast underground salt caverns in Louisiana and Texas. And every time you take oil out, you risk dissolving the salt and collapsing the caverns. The SPR is already well past its shelf life. When it was set up after the 1973 Arab oil embargo, it was only designed with a 25- year lifespan for just five large draw downs. We're already on nine. Furthermore, you need to have at an absolute minimum something like 160 million barrels in there at all times to maintain operational pressure.
The point we're trying to make is that the SPR is already under strain and can't be totally depleted. Most other large oil reserves have similar limitations, which is why JP Morgan reckons that things start to get really difficult when global inventories drop below 6.8 billion barrels.
It's also worth noting that as well as reclosing the straight of Hormuz, Iran could further reduce global supply by closing the Bab al-Mandmab, another maritime straight between Djibouti and Yemen that connects the Red Sea to the Gulf of Aiden. The Bab al-Mandab has become increasingly important to global oil markets in recent months. In large part because Saudi Arabia has reacted to the closure of the straight of Hmuz by redirecting oil that would have previously been exported via ports on its eastern coast to ports on its western coast where it can then be exported via the Red Sea and the Bab al-Mandab. Exports through the Bab al-Mandab have duly risen from about 3 million barrels a day before the war to more like 8 million today or roughly 8% of global supply.
Iran could effectively shut the Bab al-mandab by either getting the Houthis, who control much of Western Yemen and are widely considered an Iranian proxy, to harass passing ships, or just do it themselves using longer range missiles and drones. This would take the total shortfall on global oil markets from 11 million barrels a day to more like 20 million barrels, forcing an even faster draw down of any remaining stock piles.
This all means that unless he's happy to risk not just higher prices, but outright shortages, Trump can't afford to restart the war. This might change in the future if global stock piles recover. But this will take months, if not years.
This is an incredibly nuanced story, though, with plenty of outlets reporting online. And even now, we can see that there were 638 sources reporting on it. But how can we be sure that what we're reading isn't hugely biased? Well, that's a problem we face when making these videos, too. And luckily, that's where this week's sponsor, Ground News, comes in.
For this story in particular, most of the sources reporting come from the center. If we dig deeper into how the story is being framed, you can quickly see the contrast in how the story is being reported across the political spectrum. Some sources on the left emphasize escalation and oversight, while right-leading sources frame the same strikes as justified punishment. We're only able to get this level of deep analysis and transparency in reporting because of Ground News, who we've been partnered with since 2023. Their incredible website and app collects thousands of articles, putting them all in one easy to access place to help expose outlets political bias, how reliable their reporting practices are, and who owns them. with all of their information backed by ratings from three independent news monitoring organizations.
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