Iran War: The Road To Ruin
...or how a holiday from reality comes to an end
The rabid focus on oil prices, such as Brent and West Texas Intermediate, is the greatest misdirection of our time. The easily manipulated market of crude oil futures, and the shady business going on there, takes attention away from the much more important crisis raising its ugly head: an actual, physical shortage of various fuels. This means increasingly unaffordable gasoline and diesel prices for both businesses and average commuters in the West, and a state of emergency for the global South as pumps start to run dry. Yet, financial markets remain almost bizarrely complacent, even as a dearth of fuel threatens to kill demand and cause an economic slump far faster than oil prices could reach $150 a barrel. Poor rabbits caught in the headlights.
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Businesses don’t burn crude oil in tractors, trucks, construction and digging equipment—feeding, moving, mining and building the world—but diesel fuel made by refineries. Thus, when the biggest source of diesel (the Middle East) is taken out of the picture, a global shortage of heavy transportation fuels arises almost instantly. And this is the real issue here: the actual lack of fuel—and not WTI futures prices, GDP growth or any other fake metric out there. As for a proof, just take a look at the record shattering price difference (a.k.a. crack spread) between crude oil and refined diesel fuel, or the doubling of shipping fuel costs, squeezing the cash flow of almost every business around the world. You see, thanks to the universal nature of these fuels, the crises starting in West Asia has quickly become a global phenomena. Higher fuel prices incentivize exports, bidding up prices in oil exporting nations, too.1
And while prices receded somewhat, as news about de-escalation or “negotiations” started to spread, in fact nothing has changed (or can be expected to change) in the real world—only in financial la-la land. Despite all that wizardry ships remain stuck and the flow of oil from the Gulf remains a trickle. Even as some nations managed to buy or negotiate2 their way through the strait, we are talking about a handful of ships, not the 20-30 vessels transiting every single day before the war. Besides, the stance and demands of Iran and the US have almost nothing in overlap, and in many cases they are mutually exclusive. Thus these signals are nothing but flimsy attempts to buy some time before the next round of escalation could begin, and to instill some calm in the market before the storm arrives.
As to what that storm might look like we can only speculate. It could be an attempt to land US marines on Kharg Island (to seize Iran’s top export terminal), launching a joint strike with the UAE on the islands in the Strait of Hormuz, sneak special ops guys into the country to take hold of (blow up) Uranium stockpiles, launch a devastating strike on the Iranian power grid, or to drop tactical nukes on underground missile storage facilities… Or some combination of the above. Or, perhaps, none of the above, as such an attack would likely result in an Iranian retaliation destroying the electric grid, oil infrastructure and water desalination plants of Gulf Arab countries and Israel—to various degrees—making them uninhabitable in a matter of days. Needless to say, such a tit-for-tat would not only plunge the world economy into a deep depression, but would also spark the biggest humanitarian crisis and exodus in history. I can but hope that someone talks the US president out of escalating the conflict any further. The situation is bad enough already.
Delayed feedback
Even in the most benign scenario—the continuation of missile exchanges without breaking anything critical—the real economic trouble is just about to begin. You see, there is a massive time lag between the start of a maritime blockade and the time when the shortage actually begins. Ships unloading crude this week in various Asian and European ports started their journey just before Israel and US attacked Iran. The past few weeks were a holiday from reality, with ships arriving according to schedule and oil being unloaded as usual. That period, however, has ended. Abruptly.
Tankers, passing through the Strait of Hormuz, typically sail for 20 to 30 days till they reach Japan. So, if you happened to be a dock worker completely cut off from the news in Osaka you barely noticed anything—until this week at least. Now, that the ships suddenly stopped coming, refineries have begun to dip into their onsite storage, which can be anywhere between 40 and 70 days. Japan, and other wealthy nations, didn’t wait till now, however, and have ordered companies to tap into their reserves as early as March 16 to “ease markets” (read: manipulate crude oil prices). The release of the government's national reserves, starting on Thursday, however, marks the onset of actual draw-downs, signaling an end to a holiday from reality.
As a reminder how much time we have left—according to my unofficial estimates—oil in storage (used strictly to replace lost imports) could last for 10 months in China, 5 months in Japan, and 4 months in India… But only 2 months in South Korea, and even less than that in Australia. Even if the crisis were to end tomorrow, which it won’t, many Asia-Pacific countries would still have to face actual physical shortages, as oil and gas production would take anywhere from months to years (!) to recover, thanks to supply bottlenecks hampering repair. Now, add another month to that recovery period—till the first (restarted) shipment arrives—and we are talking about early to mid summer at best… And even then deliveries will likely be very sporadic and unreliable, as not all capacity will become available instantly, not to mention insurance coverage or ships themselves.
Trouble’s brewing in South East Asia
A physical fuel shortage in many countries around the Indian Ocean is virtually baked in by now. And if you consider that reserves may not be easily retrieved, or how challenging it is to get fuel to refiners before existing inventory runs out, you start to see how the situation could get extremely difficult well before strategic reserves start to run low. In highly import dependent nations, stress signals have already started to show up. Authorities have ordered employees to work from home across Asia, cut the working week, declared national holidays and closed universities early in order to conserve their supplies. Even China is making adjustments, trying to limit a fuel price hike there. At gas stations across Hanoi, Vietnam, “sold out” signs have started to appear, with around 15 to 20 stations shutting their pumps in recent days. In South Africa 75% of farmers indicated that they do not have access to fuel, and in some cases, receive as little as 20% of their usual monthly diesel allocations.
The Philippine president declared a national energy emergency as fuel prices doubled and as vegetable farmers have been forced to stop planting. On Thursday transport workers went on strike over missed payouts and inadequate government support. In the meantime India grapples with a severe LPG (liquefied petroleum gas) shortage, with restaurants facing “catastrophic closures” and homes, small businesses, crematoriums having to switch back to burning wood and coal—if they can. Cooking gas shortages have prompted an exodus of migrant workers leaving cities for their home states, where biomass cooking remains accessible. The Council on Foreign Relations gives a pretty good summary of the situation on the ground:
“In many Southeast and South Asian states, consumers are panicked, stockpiling fuel, cutting spending dramatically on everything but essential items, and trying not to leave the house. These actions, along with inflation, are likely to depress growth across the region, even if the war ends relatively soon, since it will take time for the Gulf’s oil producers to rebuild and get production back up to pre-war levels. Asian governments are in constant energy triage, but even with these attempts to manage the crisis, many Asian states could run out of oil within the next month.” […] “Many have cut government workweeks, called for reductions in air-conditioning, and begun releasing whatever strategic reserves they have.” […] “Many countries are also enforcing fuel rationing and directing limited fuel supplies to essential locations like hospitals. But along with reduced consumer demand, governments’ triage of where fuel goes – while necessary – is hurting Asian economies. Factories in the region’s export-dependent economies are shuttering or operating part-time.”
Governments in the region have found themselves in a trap, where subsidizing fuel prices are likely to cause a budget deficit and lead to actual, physical shortages by not limiting demand. Sharp rises in fuel prices, on the other hand, is likely to end in strikes and popular uprisings (something we already see happening in the Philippines). Combined with fertilizer shortages, delayed planting due to a lack of diesel fuel and the resulting slump in crop yields, however, the situation could easily become explosive—no matter what authorities decide to do. ‘But hey, WTI crude oil prices are still below $100, so there is nothing to worry about!’ [sic]
The crisis doesn’t stop with petroleum products, though. The same delayed shortage scenario applies to LNG deliveries, too, with one caveat: there is really not much safety stock to tap into once the ships stop coming. Although LNG is widely used in the region, most industries do not have the capacity to store much of it, even if it is subsidized. Some, especially small businesses and agricultural companies, will be forced to close soon. Take Pakistan—importing 99% of its liquefied natural gas from the Gulf—for example. Its last cargoes from Qatar arrived on the second and third days of the Iran war, forcing two of its LNG terminals to scale down operations already, with gas dispatch expected to stop entirely by the end of the month. “After that we’ll run dry,” according to Iqbal Ahmed, chair and chief executive of Pakistan GasPort. “We do not know when the next cargo will come in.”
Buying LNG on the spot market, on the other hand has become prohibitively expensive for poorer nations, leaving wealthy Asian states (Japan, Korea, Taiwan) in a much better position. Weekly LNG imports across India, Bangladesh and Pakistan have already sunk to multi-year lows for this time of year. This is the brutal reality of demand destruction: someone will eventually have to go without—and its usually not the wealthy… The famed LNG cliff, it seems, will swallow less developed nations first, allowing wealthier ones to take a pass.3 And if South Asian buyers—already priced out of spot LNG markets—are the canary in the coal mine, then we know who’s next: Europe.4
The naphtha trap
The situation is not all roses in Japan either, despite their larger oil buffer and alternative LNG supplies (from Russia). Although we haven’t touched upon this topic earlier, plastics, too, are ultimately made from oil and natural gas liquids—more precisely: naphtha. A petroleum product, which has seen its price increase by 55% over the past month worldwide, and of which Japan has a rapidly thinning stockpile of. That is less than 20 days, which means that the high tech nation would run out of this vital commodity much-much sooner, than the flow of oil could return.
Japan gets around 60% of its naphtha from overseas and relies on the Middle East for over 70% of those imports, according to the Japan Petrochemical Industry Association. The remaining 40% comes from Japanese refineries, which also happen to get 90% of their oil from the same region. That is a nice little 96% dependence on Gulf countries for a vital plastic precursor. No wonder that the price of naphtha went up by 66% in the Asian country. Even the release of strategic oil reserves “does not warrant immediate optimism for the petrochemical industry” as most naphtha would likely be prioritized for gasoline, another key area of this commodity’s application. And since that’s an issue everywhere else on the planet—as governments try to keep the price of gasoline low for political reasons—there is little willingness from other nations to share their limited naphtha supplies with Japan.
After just two weeks into the Iran war, six out of Japan’s twelve ethylene plants have already started reducing output, which comes on top of production cuts due to lost market share to Chinese firms. However, this can easily force them to halt operations completely, as reduced revenues could no longer compensate for the fixed costs of running a factory. And since plastic is so ubiquitous, a massive number of companies are going to be affected downstream. This not only means a local rise in unemployment, or loss of GDP, but unexpected shortages affecting customers worldwide who were relying on just in time deliveries of highly specified products from these Japanese firms. Just like with COVID: if a special part becomes unavailable, it could make massive disruption in production on the other side of the planet. Oh, the beauty of six continent supply chains!5
Batteries will save the day, or rather not
Those who were paying attention so far started to discern a trend here. Whenever there is an energy shock, batteries, solar panels and wind turbines are being touted as the “solution”—completely disregarding the fact that all of these technologies owe their existence to the very fuels they aim to replace. Coal. Oil. Natural gas. So instead of seeing a rush to add more “renewables”—technologies which, by the way, produce intermittent electricity unsuitable for the transportation business—we will see a sudden price spike affecting these technologies particularly badly. And that includes batteries as well, as electricity storage requires tremendous amounts of mined minerals—extracted, delivered, refined and shaped into parts by machines feeding on fossil fuels.
For a case study on how a scarcity of diesel fuel and a lack of sulfur (a byproduct of oil refineries) could wreak havoc on the electrification business look no further than Australia. In 2024 the continent sized country produced 26% of all bauxite, 38% of all iron ore, and 49% of all lithium mined on the entire planet. And they did so by burning thousands of gallons of diesel fuel per hour in giant excavators and dumpers, and leeching ores with sulfuric acid—particularly copper, uranium, and nickel. Commodity and stock markets, again, remain blissfully unaware what’s coming their way.
Now, as I mentioned earlier, Australia gets more than two thirds of its fuel imports from four countries: Korea, Singapore, Taiwan and India, who themselves are at a dire situation already due to a lack of oil from the Gulf. This is an obvious problem for a country relying on imports for 90% of its liquid fuel needs, and with only two countries to fall back on—Malaysia and the US—whose export capacities are also stretched thin. As a result, six fuel shipments to Australia were cancelled last week and government ministers warned that supply in the second half of April has become uncertain. No wonder that there is already an acute fuel shortage in ‘the land down under,’ with more than 500 stations running dry, and with diesel outages spreading across rural areas.
And while the federal government has taken steps to ease pressure, including temporarily lowering diesel fuel standards for a six months period to boost supply, that is nowhere near enough to save the battery metal mining industry from having to face disruptions. “Hard-rock lithium mining is likely to face fuel pressures,” Thomas Kavanagh from Argus Media explains, as “some of the largest lithium operations in the world, such as Greenbushes, Pilgangoora and Mt Marion, rely heavily on diesel for haulage, drilling and remote-site logistics, while electricity is primarily used for crushing, grinding and concentration.” Reminder: we are talking about a crisis potentially affecting 49% of all Lithium mined on planet Earth... Well, so much for cheap Chinese electric vehicles “killing demand for oil.” If the situation weren’t as dire as it is, I would be laughing.
Financial reckoning
While many analysts still posit that it will take a $150 oil price to bring about a recession, we might get there much sooner than that. And before you say that all these issues I listed above could not possibly affect the investor class in America, their ripple effects certainly will. For one, the Hormuz crisis has every potential to kill the AI boom—or at least to put an abrupt end to the growth of ‘hyperscalers’. As things stand today, a whopping $1.5 trillion in planned AI infrastructure might prove to be impossible to manufacture, due to a lack of Helium (a byproduct of LNG production and an essential material in chip fabrication). And we haven’t even talked about logistics hurdles, missile strikes on data centers in Gulf countries, or an intensifying backlash from citizens due to rising food and electricity prices all around the world.
Problem is, as Richard Heinberg pointed out recently, that “today’s AI financial bubble is four times bigger than the subprime mortgage bubble of 2008 and 17 times bigger than the dot-com bubble of 2000.” And if that weren’t enough warning signs were already flashing red on the real economic front—well before the war started. Stubbornly high inflation, a bad jobs situation, and worsening consumer sentiment were already indicators of a looming recession—but with rising fuel and food prices, parts and materials shortages that “mild” recession might easily turn into a hard core economic decline as one company after another announces “force majeure.” So, while everybody in central banks around the world are preparing for an inflationary period, what they could end up having is a full blown deflationary crisis with high unemployment falling GDP and eventually falling prices… Something every oil shock since the 1970’s has ended up with.
And, as if troubles in the real economy weren’t enough, Iran managed to deliver a serious blow to the petrodollar system, too. In a nutshell: Gulf monarchies agreed to sell their oil in dollars, in exchange for military “protection” (as in painting a target on their backs). Up until recently the system worked brilliantly: countries buying oil were forced to use the dollar in their dealings, and the massive profits generated by that trade have been re-injected into the US economy in the form of investments and US Treasury Bonds. You see the world saves in dollars largely because it pays for its energy in dollars. Economic coercion (denying access to the SWIFT messaging system handling dollar trade) was easy to do and sanctions were easy to administer. That system is now experiencing a heart attack, as much of Gulf oil is no longer allowed to leave, and as revenues no longer flow into Gulf monarchies.
Due to the dearth of surplus dollars reinvested into the financial economy, the risk of a global credit crunch has went up considerably. Private credit, a $2 trillion industry that lends funds directly to companies that can’t easily tap public markets, is already showing major cracks:
Blackstone’s flagship credit fund received $3.8 billion in withdrawal requests in a single quarter, forcing executives to inject $400 million of their own capital to meet them. BlackRock restricted withdrawals on its $26 billion lending fund. Morgan Stanley received repurchase requests for 10.9% of shares in its largest private income fund. Cliffwater faces requests exceeding 7% of its $33 billion flagship. These are not isolated incidents because they are the same event happening simultaneously across the industry’s biggest names. The default rate tells the deeper story. Fitch Ratings puts US private credit defaults at a record 9.2% — more than double the 4.5% rate in publicly traded loans.
If you think these events are unrelated to what happens to Dubai and other Gulf economies, then I urge you to investigate further.
Finally, as an added bonus, Iran is already offering an alternative system: demanding payments for passage for ships in Chinese Yuan. Money, which they can not only use to buy just about anything (from plastic bags to $100,000 hypersonic missiles), but also to completely avoid sanctions, as transactions in Yuan can be handled outside the SWIFT system. And some folks still believe these are goat herders in sandals living in an unorganized country… (Hint: no, they’re definitely not.) Deutsche Bank strategist, Mallika Sachdeva writes:
"The conflict could be remembered as a key catalyst for erosion in petrodollar dominance and the beginnings of the petroyuan."
US peak oil — another reason for the war
Meanwhile US peak oil is back on the map again—this time, however, without any miracles waiting to happen. According to EIA data (originating from before the war) peak US oil production occurred in October 2025 at 13.86 million barrels a day, and is unlikely to return to that level in the foreseeable future. The shale ‘revolution’ has run its course. It’s not hard to see how this information might also have played a role in the US decision to start the war on Iran. Despite all the rhetoric, the US has become a net exporter in late 2019 only.6 With production figures expected to return to (then fall below) those levels in 2028,7 there is really not much time left to take over the entire world. Attacking Iran thus was a “now, or never” decision—especially when you consider that the ultimate goal was to gain leverage over China,8 which could only be achieved by going after its sources of oil. (See also: the recent CIA led drone strike on the Ust Luga oil terminal in Russia, which has just delivered it’s first LPG shipment to China last December.) This is how peak oil becomes a deciding factor whether and when to start a world war involving all major powers.
Closing thoughts
We are living through a turning point in history. Depending on what happens after markets close—as Mr Trump remains careful to time big escalations after brokers leave for the weekend—we could see a major expansion of the war, potentially leading to the partial or even complete destruction of the Middle East. Or, if cooler heads prevail in the administration, we could continue watching the long, slow decline of US military, economic, financial and geopolitical hegemony on our screens—even as half of Asia, Africa, Australia then Europe sinks into economic chaos. Barring a nuclear exchange, though, human civilization will survive the crisis, no matter how long it lasts. While losing 20% of world oil supply is a mighty big thing—especially if oil infrastructure gets damaged—it will not take us back to the stone age instantly.
As things stand today, we are headed towards an economic depression comparable in scale and longevity to that of the 1930’s. Raw material, fuel, parts and other shortages stemming from supply chain disruptions will have their economic ripple effects all around the globe, forcing many companies to stop their production lines and to send their workers home. Business failures, foreclosures and unemployment is almost guaranteed to rise at this point, and GDP will fall far steeper than what present (subdued, manipulated) oil prices and forecasts might suggest. A major financial reset, too, seems to be unavoidable. Living standards across the globe will (continue to) fall. But with the end of a hegemonic world order, there is at least hope for greater cooperation and coordination across nations. With the death of the current, corrupt and dysfunctional world order a new system will arise to fill its place. It won’t happen overnight, though. It will take years, if not decades. Or, it might never come about at all. That’s also a possibility. One thing seems to be sure, though. Economies will have to re-localize and simplify—by a lot. International trade will decline. People will have less gadgets, less clothes, less food to choose from—if they will have a choice at all.
Earth’s carrying capacity of humans will be greatly reduced, as a chronic lack of fertilizer and diesel fuel will prevent us from planting and harvesting as much food as we used to do before the war. That, however, doesn’t mean that we will lose everything all at once, or that everyone will go hungry. At the moment it is very hard to tell how deep this major round of simplification—initiated by a foolhardy attack on Iran—will go, or how high the world economy will be able to rebound after hostilities end. Should the fuel crisis persist for years to come, as many suspect it will, or should world oil production never return to January 2026 levels (which is highly likely), many countries will be forced to sell much of their livestock to save food for people, as well as to give up on industry and mining altogether to save on fuel for agriculture and transportation. Believe it or not, there is still plenty of slack in the system. I’m not suggesting that it will be pleasant—civilizational decline rarely is. But honestly, what did we expect? That fossil fuels and minerals will last forever? Or that there won’t come a day when empire ends?
Pray for peace.
Until next time,
B
Thank you for reading The Honest Sorcerer. If you value this article or any others please share and consider a subscription, or perhaps buying a virtual coffee. At the same time allow me to express my eternal gratitude to those who already support my work — without you this site could not exist.
Oil markets are not insulated from each other. A supermassive shortage in Asia (created by the closure of Hormuz) intensifies competition for export barrels all around the world, including the ones from America. And when oil companies have to decide whether to sell their products at home at the usual price, or to ship it abroad at a premium, ten out of ten times they will opt for the latter. This is how shortages created elsewhere generate a fuel price increase at home.
While all vessels transiting are now understood to be using the new Iran-controlled vetting system, not all vessels are required to make payments to secure safe passage. (Source) That vetting process, however, does seem to exclude most shipping companies with vessels currently stuck in the Gulf, as “there are other reputational and legal risks that could arise for a company involved in making payments to the Iranian government.” Read: vessel owners could be charged with funding terrorism or sanctioned in many other ways if they comply with Iranian demands.
Japan gets around 6% of its LNG supplies via the Strait of Hormuz, while Qatar accounts for about 14% of Korea’s LNG imports—and there are alternative sources available in both cases. (Hence the bidding war for LNG cargoes leaving Pakistan in a dire situation.) Taiwan, on the other hand, gets over a third of their natural gas from the Gulf. On top of that, gas-fired power plants account for 53% of all electricity production there, thus the closure of the strait affects 17% of Taiwan’s power supply directly. On a positive note major Japanese power suppliers, in an act of solidarity, have begin to redirect LNG shipments bought by Japan to Taiwan, above the 22 shipments already secured by the island province. Thus, with the restart of nuclear power plants together with a ramp-up of coal fired facilities, a fall into the LNG cliff for Taiwan seems to be avoidable, albeit at a significantly higher cost. This doesn’t mean that there won’t be any load-shedding there: if not due to inadequate LNG supplies, then due to a lack of Helium. Since this gas, vital for chip manufacturing, was also coming from Qatar up until March, energy hungry chip fabs could still see their production lines shut down, further easing the pressure on the electric grid.
The chaos in South Asia notwithstanding, the European gas market (TTF) seems to be stuck in la-la land. Front month contracts are trading around EUR 55/MWh, as if this were a minor disruption of deliveries and not a 20% loss of LNG shipments worldwide. Back in the real world prompt (physical delivery) prices are already too high to restock for the next heating season… But hey, since ships still keep coming (after taking a long detour around Africa) and with spring promising to be mild, who cares? I guess it will take some time—or a few more missed shipments—till the penny drops. If inventories are not filled up adequately for the winter of 2026-27, though, a brutal supply challenge is likely to manifest itself in 2027; leading to successive price shocks compounding into 2028 and beyond. Interesting times ahead, that’s for sure.
And before you start envisioning a food-apocalypse in Japan due to a lack of plastic packaging, there is plenty of that material available from China. You see, China is relatively spared for now thanks to its refining capacity and its ability to source Russian naphtha. It is the supply of highly specialized, know-how-protected adhesive films, high precision plastic parts, special insulating materials etc. which is at risk right now.
Of the petroleum and crude oil that the US imported in 2025, the majority was from Canada. The top five exporters to the US were: Canada (57%), Mexico (6%), Saudi Arabia (4%), Iraq (3%), Brazil (3%). In 2025, the US exported 2.8 million barrels more than it imported a day—but presuming flat consumption levels, this slight export advantage has also peaked in October, 2025 and has started to shrink.
The latest EIA Short Term Energy Outlook prognosticates a return to peak production levels in 2027 following a steady rise in oil prices, but fails to explain where that oil would come from, or who would drill for it, as producers remain reluctant to ramp up production despite higher prices (not to mention the many other issues facing extraction in America).
At the same time the US could, allegedly, run out of rare earth minerals in a mere two months, thanks to strict Chinese export controls preventing their military use. This happens even as the US and Israel keep burning through their stand-off weapon and air defense missile stockpiles at a frantic pace, firing 11,294 munitions in the first 16 days of the conflict, at a cost of $26 billion. A situation made worse by the fact that Iran has damaged at least a dozen US radars and satellite terminals, greatly decreasing the efficiency of interception. Using 10 or 11 interceptors for one missile or 8 patriot missiles for one drone is unsustainable, to say the least.
You've put a lot of thought and research into this. Thanks.
I feel like a 1930’s level depression won’t play out the same way in 2026. We’re more
Complex. More specialized and therefore more
Brittle. Deeper into overshoot, etc.
B is incredible, but he never makes a real effort to dig into the consequences of social disorder and civilizational tipping points. Casually saying fuel will need to be restricted for agriculture as a National strategy, as if it’s the most logical transition in the world, is glossing over the kinds of chaos that our civilization might not be able to endure.