Transcription
People have been talking about economic collapse for a long time, $200 oil for a long time, and you've been explaining why despite the Strait of Hormuz being closed, and we're into June now, and this doesn't seem like it's easing up considering the developments today. Um, why oil is still below $100 a barrel? Um, how much more of this could we take? What happens? What month do we get into a level where people need to start really to panic?
The global economy would really need to panic >> when you get to middle to the end of summer, in that late July, August, September, because that's when your demand hits the peak between the cooling, the driving. Because remember, when everybody's out driving on their holiday, AC's cranked, everything like that, that's max demand on a global basis. Um, and that's when we're going to find out. Uh, and again, let me go back to that math. Let's call it 10 million barrel per day disruption. I know it's 10.5 when you factor in everything with the new supplies. Just round it to 10. Half of it is inventory drawdown. The other half is a combination of seasonal shifts that have gone down plus Chinese flex on the on their their electron option. Um, you that has kept us stable. What's going to change is that seasonality component instead of helping you out as a tailwind is going to flip the other direction. I I I don't want to get into weather forecasting, but we look at, you know, grain prices and things like that. A lot has been driven by fears of an El Niño. You get that on top of it, this could expose it much quicker than what people anticipate.
>> What if things escalate right now? What if Iran strikes Israel? Um, sorry. Yeah. Iran retaliates and strikes Israel. Israel responds disproportionately, as they always have, and then the US is dragged back into it, and we have things escalate where Iran is striking Gulf energy infrastructure. That's something they keep warning about. If that happens to a to to a bigger level, it happened, you know, not to a big degree, but happened slightly during the the the the war, the 40-day war. But if it goes into a full-blown war in the energy infrastructure in the region, including the Yamru pipeline for Saudi, the Fujairah for the UAE, they get struck, and Iran does close the Bab el-Mandeb Straits. I think they warned about it today or yesterday. Again, if that does happen,
>> what's the world in for? I I mean, that that's an environment I think neither everybody had both all sides have flirted with that one and have avoided at all costs because they know that in that situation, you know, where you start striking one another's energy infrastructure and other critical infrastructure, that's a game-changer. Um, and again, I don't think anybody wants to go near that. Um, and I think again, the escalation of this beyond doing bombing air raids is too difficult to go in with boots on the ground in the summer, which is why I think they'll play with each other around us, but actually to get really aggressive, I I don't think it's in in anyone's interest to do this. You know, that by the way, that that scenario, um, I think would be, you know, catastrophic. You're taking out all that energy infrastructure. You're going to have to repriced everything immediately. You don't even have a chance to to try to recover this because I don't think Iran doesn't want that to happen. The US does. Nobody wants that to happen. All each side wants is what they view as being fair. Because what what is there for Iran on the backside in that type of scenario where it's lost all of its energy infrastructure, Saudi has, UAE has, that's not that's not a good outcome. Um, it's kind of like mutually assured destruction. So I don't see it it being a base case. But because it's difficult to do anything in the summer, it means the the likelihood of this lasting through the summer. And in fact, I think, you know, President Trump said it himself, Labor Day. I think it was like a couple days ago, he said, "Oh, this could last till Labor Day." That's the idea here because anybody looking at it goes, it's too difficult.
>> That's insane. Um, how vulnerable is China to all this? You've talked about how they've really expanded the electrons, energy, nuclear, renewable energy to an extent where they don't depend on the global energy market as much as they used to, but they still depend on it. They're the biggest importer from the Strait of Hormuz. What's the state of the Chinese economy and dependence on the straits?
>> The it's being radically overestimated. You know, the ability they've got what 1.4 billion barrels of oil that they could tap if they need it. While the Americans are running theirs down, Chinese have cut exports and haven't touched it. How they ran ran down their runs on the road fuels. They got all those EVs. The in fact, EV charging in the month of May during that holiday weekend was up 56% year-over-year. The best you could do on cars is somewhere around the 30. So they're they're replacing that oil with EVs. So, you know, a lot of people, in fact, I was out with my friends in Singapore and Hong Kong a few weeks ago, and he's going, "Yeah, I'm driving my wife's EV. I don't want to, but I have to." Um, and so people are they're making the decision to drive these EVs. They invested in it. You know, they can produce 50 million EVs if they need to. Again, going back to what was the energy transition? It was never about the environment. It was about energy security and having that optionality of those EVs sitting around, the hybrids. You can push them into power and use them. So, they're using it. The where you're seeing the demand damage is more in the plastics, but that's all for export. You know, there and where you are drawing the inventories on the petchems and you're seeing some some weakness there. But let's name, you know, everybody goes, "Oh my god, Chinese imports are down, you know, the 6.8, 8 million barrels per day down six." Let's remember they were really high going in because they were building SPRs. Um, so you would lose two to three off of that, and then you they shut down exports. You're going to lose another one, and then hey, the EVs and everything like that, the demand flex, call it 2 million barrels per day. You can take it down further. They can't go any lower than I I would say the the steady state is between eight and nine. So they're a little bit lower than where they could be because this is again, remember the seasonal demand swing. You're in that seasonal low, so they can pull it back, and we'll see what happens as they go into the summer. But to say that China is that's demonstration of weakness, I think is completely misreading the data. And hey, you know, they heeded Carter's advice from, you know, the meow speech in 1977 and have spent 30 years building out this optionality and are now exercising this optionality.
This is just crazy how unprepared um the US is. Europe is the rest of the world is to this. Um, another topic that's been really concerning for me is looking at the manufacturing capacity of the US now versus World War II. And the conversation usually pops up when we're talking about the depletion of munitions. So I mean, I've been ringing the alarm. A lot of my guests have been talking about how the US military, the the the stockpile depletion is uh is something that will take years to rebuild. Now, others have been saying, no, we could, you know, the US could do what it did in World War II when the US was dealing with Germany and then had Japan as well to deal with. They've just increased their production capacity really quickly. Moved a lot of the civilian manufacturing, all of it towards the military-industrial complex. The problem this time around is that the share of the global manufacturing that the US has is a fraction of what it was before World War II. Um, and all of it is in China, plus the rare earth that's needed for the for the for the defense industry is all in China as well. The refining is in China. Um, is that a valid concern? Cuz just again, these are just when I look at these things, just very bizarre for me, unless I'm missing something, how the US got itself.
>> I mean, they they're in a very precarious situation because let's just think about this. I'm not going to mince words. Um, Russia, Iran, and Venezuela were colonies of China. That just, you know, the relationship is classic, you know, call it neo-colonialism. Um, you know, but you look at nobody drives nice cars in Russia anymore. They're actually BYDs are pretty nice, but they're they're all Russians are driving BYDs right now, which is an indication that relationship runs very deep. And so when people go, "Oh, is China in danger?" No, they've got Russia, they've got Iran. Um, and you look at their ability, they're tight with the Pakistanis. They got a line going straight into straight into Iran. And so when we think about, and we wrote a piece on this, you know, long before this ever happened, that China's pretty energy independent when you factor in all of its colonies. Venezuela was the smallest of the bunch. So, who's ultimately, if Iran's biggest allies is Russia and China, who's controlling the strait? Okay, we now know China controls all of the critical minerals. We can know the weaponization of the periodic table. Um, and now they're in a relatively strong position with all of their investment in renewables, nukes. In what the, by the way, they would never call it green technology. They would have called it secure technology because that's what they did. They invented it for or focused it on for security reasons. Um, so they they're very secure on the energy side, and you know, they're very tight with the Iranians in their ability to throttle it back. Also the Russians and the Kazakhstans. You know, let's not forget after Trump met with Xi, Putin met with Xi, and you know, what did Xi come out with? A 17,000-page document. A couple days later, you have Iran in Moscow. Moscow meets with Kazakhstan. Kazakhstan and Russia promised more oil to China. So I'm sitting here looking at this. Okay, they they control the critical minerals, and now let's put the BRICS together, you know, is this really, and I, you know, I don't want to get quoted on this, you know, it's just, is this BRICS versus G7? And because you put the BRICS together, put India in there, it controls the rice. They got the atoms, they got the molecules, they've got the uh the calories. And then let's look at, um, you know, let's look at Taiwan. You know, then they got the chips. This is this is a really serious issue, and it's not just about the molecule, it's about the atoms, it's about the calories, it's about all the commodities. Um, and then your point about processing. And how do they really control it? They control it through the processing. And by the way, the West got through this processing. By the way, Russia doesn't have the processing either. They got rid of it for the same reason. It was not in my backyard. They didn't want it then. They let the Chinese do it. Well, now 30 years later, they don't have it and are relying on the Chinese to do it because of the environmental issues. You know, this guy goes back to, you know, what Carter was saying, focus on these issues for security reasons, not on environmental reasons. And because they dismissed him as it was too scary. Um, the focus, that's why energy transition became an environmental project. And once it became an environmental project, it became a political hot potato. And so the West is sitting here going, "Do we want this stuff in our backyard or not?" Um, no, let the Chinese do it. And now they're going, "Uhoh, we didn't heed any of this advice 30, 40 years ago, and now we're in trouble."
Also, one other point I want to point out on the the the arsenals. Um, you know, we look at whether if it's, you know, Russia in in, um, in Ukraine, or, you know, the, you know, the, the US, Israel, Iran, you know, the the AI and drones are changing this warfare. You know, war one to point out what is oil was the machines about artificial muscle. What were airplanes, cars, and all the rest of that stuff? That was artificial muscle. That stuff was all proven in World War II on the battlefield. That's when you figured it out and you rolled it out after the war. That's when the cars got popular and planes and everything like that became our our lifestyle. Um, similarly, we're going to watch AI and the rest of this be rolled out on the battlefield. So, you got to question, you know, what what kind of of military equipment and, you know, arsenal and everything do you need? I'm not an expert. I don't want to pretend to be an expert. I'm just throwing this out going, hm, you know, this stuff got figured out in the Second World War on the battlefield. I'd be watching very I don't. Another way I can say I don't care what a CTO at a corporate board's telling me about AI. I want to watch what's happening in Ukraine and watch what is happening in in Iran because that's going to tell you what it's going to look like in the future because that's what we learned from artificial muscle.