Debunking Myths on Oil and Iran
This post goes through some of the misinformation of recent weeks and debunks it
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One thing I learned after Russia invaded Ukraine is that the global oil sector, which includes Western oil companies, ship owners and oil producing countries, hates any kind of disruption to its business model. In 2022, it could hardly say this out loud: that would have sounded like appeasement in the face of Russian aggression. Instead, what got trotted out were apocalyptic forecasts for oil to soar to $380 if the G7 went ahead with its price cap on Russia. The cap went ahead and those forecasts turned out to be completely and utterly wrong. That’s because they weren’t actually forecasts. They were industry lobbying by way of scare-mongering.
Recent opposition to the US blockade of Iranian oil feels similar. It again came in the form of apocalyptic oil forecasts, i.e. just more of the same from the global oil sector. The blockade has now been in place for a week and prices have NOT spiked. Rather, we’ve progressed to a negotiation over the terms under which the Strait of Hormuz will be reopened. This process is messy and there’ll be setbacks. But both sides are talking, which is infinitely preferable to fighting and is in large part thanks to the US blockade. My view remains that the ceasefire will hold and that the war is over.
Today’s post debunks some of the key myths of recent weeks, which I lump in the same “industry lobbying” category as the $380 forecast from 2022:
Oil isn’t pricing supply disruptions: this is the 2026 version of the $380 forecast and comes from the same people. I’ve been pushing back on this argument for the past month. To get to $150 or $200, you must either assume oil volumes out of the Gulf fall back to near zero or you assume an unrealistically low price elasticity of demand as the chart below shows. I laid all this out here and in my discussion with Paul Krugman on his Substack podcast.
Futures prices are manipulated: oil basically gets traded in futures, with very few people transacting in “physical” oil, i.e. trading barrels. Once futures prices fell, those who’d made apocalyptic forecasts claimed the “paper” market didn’t price physical disruption and was manipulated. Instead, you needed to watch Dated Brent - the “spot” oil price - for what’s going on. As the chart below shows, Dated Brent fell sharply on Friday (blue line) and far more than the front-month futures price (black line), so there’s no longer a discordant price signal. There’s nothing special about “physical” versus “paper” oil. They’re both down as the war ends.
This shock is huge: the goal of all the apocalyptic oil price forecasts is to instill fear in Western policy makers to scare them off things like a blockade or the G7 price cap. The chart below shows delivery times in global manufacturing by S&P Global. Delivery delays got acute after COVID, but we’re nowhere near anything like that now. The global economy is far more robust and resilient than oil sector lobbyists like to claim.
Iran has the upper hand: this one annoys me the most because it echoes a lot of the reporting after Russia invaded Ukraine. Leading newspapers in 2022 took the view that Western sanctions would never work and invariably portrayed Putin as a resourceful genius. It’s the same now where - fantastically - Iran is said to have the upper hand thanks to its speedboats and a few drones. I think actions speak louder than words. Iran’s Friday announcement that it’s opening the Strait signals just how vulnerable its economy is - as the blue bars in the chart below show - to a collapse in its oil exports. Iran has since reversed that announcement, but that’s only because the US didn’t respond by lifting its own blockade on Iran.
The blockade won’t work: this one just baffles me. If Iran can stop Western oil tankers with a bunch of speedboats and drones, surely the US Navy can enforce a blockade of Iranian oil. If anything, the US has been extremely smart about the blockade. Iran moved a lot of oil out of the Persian Gulf ahead of the blockade and the principal buyer of this oil is China. The US last week shut down Iran’s floating storage by threatening China with secondary sanctions. Simultaneously, the US keeps dangling the prospect of a peace agreement, which caps oil prices. That defangs Iran’s main negotiating leverage, which - after all - is to cause panic and spike oil prices as much as possible.
The final chapter of this conflict is far from written. Oil prices may well go up for a while if peace negotiations break down. But we do know that a bunch of myths have been debunked, including that the “physical” oil price is impervious to the news flow. In the end, the US has the upper hand in this conflict and will wrap things up soon.
You are looking at this through a price lens: ‘prices aren’t spiking, supply is still moving, therefore the shock is overstated and the blockade is working’. That logic might have held in Russia 2022, where the problem was rerouting flows through a still-functional system. But this is not a rerouting problem—it’s a reliability problem. Iran does not need to shut Hormuz to exert leverage; it only needs to make it conditionally unreliable. Markets are not designed to price “optional disruption” in real time—they smooth it, discount it, and only react once the constraint becomes binding. So - the absence of a price spike is not evidence of stability; it is evidence that we are still in the inventory-smoothing phase before the system is forced to adjust (Krugman’s argument in his post today).
Once again, this is exactly where the Russia analogy collapses. Russia’s shock was financial and logistical: flows were redirected, discounts widened, shadow fleets emerged, and the system adapted. Iran’s leverage is geographic and structural. The SoH is not a trade route that can be rerouted; it is a bottleneck that compresses a large share of global energy and commodity flows into a narrow corridor. You don’t solve that with secondary sanctions or clever financial engineering. You live with it, or you escalate. And that is why your interpretation of Iran “reopening” the Strait as weakness misses the point. This is not capitulation; it is calibration. Iran is demonstrating that it can toggle risk on and off, raising the cost of certainty for everyone else. That is not dominance—but it is precisely the kind of marginal leverage that matters in a tightly coupled global system.
By promoting this logic, you are implicitly endorsing the same complacency now visible across global assets. This is not a price shock; it is a real physical quantity constraint that, if prolonged, forces adjustment through demand destruction. As Krugman points out, if supply is structurally impaired and substitution is limited in the short run, prices must rise to the point of breaking demand—and if they don’t appear to be doing so yet, it’s because the adjustment hasn’t fully transmitted. History is very clear on this: the 1973 oil shock did not show up as immediate collapse, but as a lagged contraction once the system absorbed the constraint. The risk today is the same. Markets are pricing normalization; the system is drifting toward constraint. That gap—between perceived stability and underlying fragility—is where the real risk sits.
but you havent debunked anything, its just your assumptions so far. The blockade isnt Irans biggest weapon, piling drones onto Saudi and UAE assets is