Appreciate your posts - they are really good for challenging my views. However a few comments;
- Energy prices are not forward looking in the way equity markets are. They tend to be loosely linked to the anchor of expiry date and the associated convergence to physical delivery prices short term.
- You seem to consistently overlook inventory that is drawing down, and the fact that production is shut in meaning these barrels will never enter the market in the same timeframes. Thats a cumulative effect, it builds slowly but hits hard when it does.
- A lot of the usual traders in the domain have had to limit the size of their positions because of volatility induced by the Trump admin jawboning. As net the market is long, this has a real effect.
- I think western markets are following the western perspective on negotiations, but there seems to be a real disconnect right now. As a result the timelimes have consistently been shifting. But at some point it might start to land that there is not going to be a lot of good progress, but no progress at all without further escalation. Your assumption that it is all smooth sailing from here (‘war is over’), besides a few hickups, is the most positive scenario. Could be true, but not with overwhelming probability.
- You seem to judge the potential response from Iran to the blockade as that of a rational democratic actor, but they are not one as such. This could have real implications. They might be willing to tolerate a lot more pain and despair than we (the west) are willing to accept as things play out in global markets.
Great perspective ! Most everybody inside the US-administration and its supporters in political, academic and media circles seems to believe that the Iranian regime is about to run out of money shortly and will therefore collapse, and, that the oil wells will have to be shut down and get damaged since they are running out of interim storage capacities due to the blockade. This view does not seem to take into account that the Iranian regime, before it literally goes to die or flees, would use its remaining arsenal of drones and missiles to destroy, or at least materially damage for a long time, the Arabian side of the Gulf, including most probably the Trans-Arabian-Pipeline, and most likely also industrial installations on the Red Sea side. If this is taken into account as a possibility, the Iranian regime/elite could also take most of the Arabian oil and other products out of the markets. Quantitatively, the normal Iranian share was abolut 20%, and the Arabian share was some 80%. I am no macro-economist, but a global recession might be the result.
Robin - your framework rests on an overly simplistic assumption: that oil futures are efficient, forward-looking, and therefore already “right.” That breaks down in this kind of shock. Futures don’t price a single known outcome—they price a distribution of uncertain paths, filtered through liquidity, positioning, inventory buffers, and headline-driven probabilities. In a Hormuz scenario, the core variable is not the next quarter’s average oil price; it is the reliability of a critical artery. That is not something a front-month contract can fully capture. Markets systematically underprice duration risk and low-probability, high-impact branches, especially when the system is still functioning at the margin. The result is a false sense of precision: stable prices sitting on top of highly unstable plumbing.
This is why the “markets are forward-looking, so everything is priced” argument is too simplistic. We are still in the inventory-smoothing phase, where buffers and expectations of a near-term resolution suppress price signals. But if disruption persists, the system shifts from price discovery to physical constraint, and adjustment happens through demand destruction rather than smooth repricing. That is exactly the dynamic seen in past shocks - from 1973 to more recent supply-chain disruptions - where markets initially looked calm before nonlinear adjustment kicked in. The fact that prices respond to negotiation headlines does not prove the system is stable; it proves that the market is trading probabilities, not outcomes.
More fundamentally, you are (once again) misapplying the Russia 2022 playbook to a very different problem. Russia was a rerouting story within an open system; Hormuz is a chokepoint reliability problem with no easy short-term alternative routes. Iran’s leverage is not about shutting flows entirely - it is about making them conditionally reliable, which introduces persistent optionality that markets struggle to price. That is precisely where futures markets are weakest: they compress complex, path-dependent geopolitical risk into a single number. The absence of a price spike, therefore, is not evidence that the shock is overstated. It is evidence that the market is implicitly betting on a short disruption and underweighting the consequences if it is wrong.
The US administration seems to think that as they have lots of oil, they're ok. But if most of the world goes into recession over this situation, then US exports will likely be hit. Exports of cars and aircraft for example. The US might still be hit less, but far from zero. Ian
well oil prices have now gone up 8 days in a row and will continue to go up as the US strategy from bombing Iran to this blockade is a failure. Of course Trump and this administration which has planned this failed campaign will likely capitulate to Iran shortly and perhaps give respite to oil prices in the short term. if there is no respite there will be a global recession and of course poor countries will suffer the most due to this venal and incompetent administration. Winning!
I think prices in general are problematic in this environment as the “market” creates a consensus or average price of so many realistic scenarios that justify both high and low prices at the same time. A probabilistic analysis of all the different scenarios would be interesting but still not sure what the price means
Onyx is currently the only way to access Dated Brent through an ETC, rather than relying on futures-based products. You can find further details here: https://onyxcapitalgroup.com/etc
Thanks for your post. Just one point to counter is Iran likely ruled by ideology and may not be a rationale actor in our eyes. e.g. in the Vietnam war/Korea war, they are willing to pay a price that Americans logically think is absurd.
Robin, please address the scenario whereby Russia purchases future deliveries of Iranian oil at, say, $60/barrel, injecting billions into Iranian economy right now (perhaps not a coincidence that Abbas just met with Putin). A win-win for Russia, which is selling its oil at 100+ instead of 60- and is relishing the geopolitical & economic fall-out from trump's war, and for Iran which could hold out indefinitely. (If trump decides to resume a shooting war, Iran might then target the Saudi pipeline and Gulf States refineries in addition to keeping the Strait closed.)
On top of that, there are the total production losses from those countries whose oil is blocked by the blockade every day.
How tall are the tanks in which the oil has been collected since the blockade began? And what effects—in the short, medium, and long term—can be expected if production is disrupted because wells that have been in continuous operation for decades have been shut down? Weren’t there problems with declining pressure and water accumulating?
It would be nice to cover all opec countries as we all depend on the tap.i enjoyed the article .I suppose it depends how a are if the news you are.Right now it's is post shock and with effect in other instruments.
Appreciate your posts - they are really good for challenging my views. However a few comments;
- Energy prices are not forward looking in the way equity markets are. They tend to be loosely linked to the anchor of expiry date and the associated convergence to physical delivery prices short term.
- You seem to consistently overlook inventory that is drawing down, and the fact that production is shut in meaning these barrels will never enter the market in the same timeframes. Thats a cumulative effect, it builds slowly but hits hard when it does.
- A lot of the usual traders in the domain have had to limit the size of their positions because of volatility induced by the Trump admin jawboning. As net the market is long, this has a real effect.
- I think western markets are following the western perspective on negotiations, but there seems to be a real disconnect right now. As a result the timelimes have consistently been shifting. But at some point it might start to land that there is not going to be a lot of good progress, but no progress at all without further escalation. Your assumption that it is all smooth sailing from here (‘war is over’), besides a few hickups, is the most positive scenario. Could be true, but not with overwhelming probability.
- You seem to judge the potential response from Iran to the blockade as that of a rational democratic actor, but they are not one as such. This could have real implications. They might be willing to tolerate a lot more pain and despair than we (the west) are willing to accept as things play out in global markets.
Great perspective ! Most everybody inside the US-administration and its supporters in political, academic and media circles seems to believe that the Iranian regime is about to run out of money shortly and will therefore collapse, and, that the oil wells will have to be shut down and get damaged since they are running out of interim storage capacities due to the blockade. This view does not seem to take into account that the Iranian regime, before it literally goes to die or flees, would use its remaining arsenal of drones and missiles to destroy, or at least materially damage for a long time, the Arabian side of the Gulf, including most probably the Trans-Arabian-Pipeline, and most likely also industrial installations on the Red Sea side. If this is taken into account as a possibility, the Iranian regime/elite could also take most of the Arabian oil and other products out of the markets. Quantitatively, the normal Iranian share was abolut 20%, and the Arabian share was some 80%. I am no macro-economist, but a global recession might be the result.
Robin - your framework rests on an overly simplistic assumption: that oil futures are efficient, forward-looking, and therefore already “right.” That breaks down in this kind of shock. Futures don’t price a single known outcome—they price a distribution of uncertain paths, filtered through liquidity, positioning, inventory buffers, and headline-driven probabilities. In a Hormuz scenario, the core variable is not the next quarter’s average oil price; it is the reliability of a critical artery. That is not something a front-month contract can fully capture. Markets systematically underprice duration risk and low-probability, high-impact branches, especially when the system is still functioning at the margin. The result is a false sense of precision: stable prices sitting on top of highly unstable plumbing.
This is why the “markets are forward-looking, so everything is priced” argument is too simplistic. We are still in the inventory-smoothing phase, where buffers and expectations of a near-term resolution suppress price signals. But if disruption persists, the system shifts from price discovery to physical constraint, and adjustment happens through demand destruction rather than smooth repricing. That is exactly the dynamic seen in past shocks - from 1973 to more recent supply-chain disruptions - where markets initially looked calm before nonlinear adjustment kicked in. The fact that prices respond to negotiation headlines does not prove the system is stable; it proves that the market is trading probabilities, not outcomes.
More fundamentally, you are (once again) misapplying the Russia 2022 playbook to a very different problem. Russia was a rerouting story within an open system; Hormuz is a chokepoint reliability problem with no easy short-term alternative routes. Iran’s leverage is not about shutting flows entirely - it is about making them conditionally reliable, which introduces persistent optionality that markets struggle to price. That is precisely where futures markets are weakest: they compress complex, path-dependent geopolitical risk into a single number. The absence of a price spike, therefore, is not evidence that the shock is overstated. It is evidence that the market is implicitly betting on a short disruption and underweighting the consequences if it is wrong.
Old joke from my days in the Navy:
Q: How many mines does it take to keep a strait closed?
A: Zero
The US administration seems to think that as they have lots of oil, they're ok. But if most of the world goes into recession over this situation, then US exports will likely be hit. Exports of cars and aircraft for example. The US might still be hit less, but far from zero. Ian
well oil prices have now gone up 8 days in a row and will continue to go up as the US strategy from bombing Iran to this blockade is a failure. Of course Trump and this administration which has planned this failed campaign will likely capitulate to Iran shortly and perhaps give respite to oil prices in the short term. if there is no respite there will be a global recession and of course poor countries will suffer the most due to this venal and incompetent administration. Winning!
I’m not optimistic about any agreement.
Ok but a lot of world supply at this price & strait level is coming from storage tanks. Tanks that will eventually empty.
Why wouldn’t oil go up again in that event?
I think prices in general are problematic in this environment as the “market” creates a consensus or average price of so many realistic scenarios that justify both high and low prices at the same time. A probabilistic analysis of all the different scenarios would be interesting but still not sure what the price means
Onyx is currently the only way to access Dated Brent through an ETC, rather than relying on futures-based products. You can find further details here: https://onyxcapitalgroup.com/etc
Thanks for your post. Just one point to counter is Iran likely ruled by ideology and may not be a rationale actor in our eyes. e.g. in the Vietnam war/Korea war, they are willing to pay a price that Americans logically think is absurd.
Robin, please address the scenario whereby Russia purchases future deliveries of Iranian oil at, say, $60/barrel, injecting billions into Iranian economy right now (perhaps not a coincidence that Abbas just met with Putin). A win-win for Russia, which is selling its oil at 100+ instead of 60- and is relishing the geopolitical & economic fall-out from trump's war, and for Iran which could hold out indefinitely. (If trump decides to resume a shooting war, Iran might then target the Saudi pipeline and Gulf States refineries in addition to keeping the Strait closed.)
On top of that, there are the total production losses from those countries whose oil is blocked by the blockade every day.
How tall are the tanks in which the oil has been collected since the blockade began? And what effects—in the short, medium, and long term—can be expected if production is disrupted because wells that have been in continuous operation for decades have been shut down? Weren’t there problems with declining pressure and water accumulating?
Immediate delivery for Brent is trading today at $25 premium to futures. $35 was the peak
Today, Tuesday is definitely risk off. Oil up 5%, everything else down. You are the hardest working analyst on Substack.
It would be nice to cover all opec countries as we all depend on the tap.i enjoyed the article .I suppose it depends how a are if the news you are.Right now it's is post shock and with effect in other instruments.