The question I have is that even if Trump wants to TACO, how much leverage do the Iranians have to extract humiliating concessions or even inflict political pain on Trump for the sake of it? What we're seeing here is that it doesn't take an old fashioned flotilla blockade to close Hormuz, just enough of a threat where shipping companies won't risk sailing through it because of a chance (even a low one, say 2% chance) that their tanker is hit badly. Insurance companies are not going to underwrite any policy until they sense the risk of transit is near zero.
Part of me wants to buy oil futures because I think the market is too stuck on the tariff TACO experience where Trump really did have unilateral control (and trading partners did not have much leverage), but here even though Iran is pretty spanked in a conventional military sense they can still go Hyper Houthi and lob Shaheds and other munitions for what's probably indefinitely and the US is left playing a very expensive game of whack a mole which still probably won't provide enough stability to return the strait to status quo ante.
The other thing that I find astonishing is there are clearly enough traders who think Trump’s word means something. It’s such a window into the question of “How did we get here?” to note there an astonishing number of people, including people in positions of power, who despite four decades of evidence otherwise think Trump is some sort of trustworthy individual.
He’s a walking, breathing advertisement against the free market idea that you don’t need regulations because the market will punish untrustworthy actors for you.
Over short time horizons, markets are a coordination game (Keynes’s beauty contest where you have to predict who everybody else thinks is the most beautiful), and “ceasefire noise” is a coordination mechanism for a “sell crude, buy treasuries, buy equities” trade that’s rational for market participants with short holding periods to participate in even if they privately think it’s bullshit.
EMH is obviously false (there are a bunch of hedge funds and prop traders which have successfully operated market-neutral positive return strategies for decades).
Keynes’s investment performance relative to the EMH guys is also decent Bayesian evidence that he understood markets better than they did.
This is not quite the point you're making, but I suspect one issue with this whole debate is the way writers (financial writers, economics writers, people in general) anthropomorphize the market. Read a typical CNBC headline on sort of a dull trading day and it will say something along the lines "The market takes a breather prior to Fed rate decision on Friday". I like to pick on CNBC a lot, but I actually don't think these sort of headlines are exclusive at all to CNBC. Not only makes it seem like "the market" is some sentient person but also makes it seems like the market is moving in a particular direction because all traders/investors are literally all doing the same analysis/thinking when making trades on a given day. It's an absolute wild way to describe what happens on the stock market on so many levels.
Also, not shocked Keynes investment performance is better than EMH guys. I know people like Krugman like to say they are not traders and don't give out investment advice. But honestly, it's not at all shocking that someone is considered one of the preeminent experts in economics or one of the preeminent experts on an important aspect of economics (International trade) would have a leg up on even Hedge Funds when trying to do stock picking on a medium to long term time horizon.
Finance media, like all media organizations, need to generate content with coherent narratives that audiences can easily digest. Something like “the market went up today because a bunch of strategies that automatically sell covered calls sold them, that caused the VIX to go down, strategies that automatically adjust their equity allocations in response to changes in implied volatility risked on, and then momentum-chasing trend-following algorithms bought” isn’t easy to understand or narratively satisfying even though on most days something like that is what’s going on.
Amending a bit— it’s obviously false if you understand how the business models of modern alternative asset managers work. Basically, there are a significant number of firms which generate return streams which are, on a day to day basis, basically uncorrelated with major market indices because they make leveraged bets going long on some securities and short on others, and then their kings outperform their shorts. If EMH was true, this business model would be impossible and market neutral funds’ results in any given year would be equally likely to be positive or negative and vary wildly. But that is not in fact the case.
The aphorism is true in some ways (the Palm/3COM arbitrage is a great example), but it's always seemed a little overstated to me. The basic idea is that you can expose yourself to huge downside if you short assets.
However, there are plenty of long-dated assets *with limited downside* that let market participants make bets about things that might happen even a few years out. Think of long-dated futures or options, for example. (E.g., there's activity in the crude futures market all the way out to 2031, see: https://www.cmegroup.com/markets/energy/crude-oil/light-sweet-crude.quotes.html.)
These days there are also often ETFs that let you replicate levered returns without actually taking leverage yourself.
My understanding is it's at least in dispute as to whether Keynes ever said this.
But yeah, wouldn't be the first time a quote is misattributed to someone famous (or famous in their field). I do think they are still valuable if they do actually reveal an underlying truth. Famous one from modern times is Pauline Kael never actually said anything to the effect that she couldn't understand how Nixon could have won since she didn't know anyone who voted for him. But it's still has a lot of underlying truth in its own way; voters self sort where they live and by only knowing the particular neighborhood or town where you live you can get a very skewed view of not just voting but the country generally (modern version is Peggy Noonen arguing Romney would win in 2012 because of how many yard signs she saw in her neighborhood).
Sort of feel like the Keynes situation is more akin to Voltaire. Namely that Voltaire never said "I disapprove of what you say, but I will defend to the death your right to say it" but it is a reasonable encapsulation of his world view. Same with Keynes who at the time was fighting against a much more entrenched idea in the economics profession regarding government role in the economy in general which depended on very particular world view of markets and people.
The Kael one is actually based on something she said, but it’s completely inverted. What she said was that even though Nixon won in a landslide, she only knew one person who voted for him. In other words, it was acknowledging the bubble she lived in, but it got twisted into her being comically unaware of it.
You don't have to believe Trump's word, you just have to believe enough day traders do to wipe you out. Everyone who went long in the 1st price spike got wiped out.
It's not that people trust Trump's word, it's that they trust their observation that he fundamentally has no real beliefs, and no backbone. The closest thing to a principle Trump has is "tariffs are good", and when faced with a little pushback from the market, he consistently caved. So they're betting on his lack of character, his weakness, not his word.
Also, your claim that this says something about an alleged free market principle that regulations are unnecessary confuses me. The bad actor in this case is the government, the regulator, more or less. If there's a market power lesson here, it's that even when markets are irrational they're never this bonkers or this short-sighted, so we should increase markets' power over government. I don't actually think we should do that, but it's the more logical conclusion from the situation.
I'll stand by my assertion about free markets (though in a concession to a commentator above, I should probably amend to say American free market thinking). This is not about current actions of POTUS per se. This is about the fact that Trump over and over again was shown himself to be an untrustworthy counter party well before he was President and yet continually was able to find investors, business partners and people generally willing to give him money. And that continued untrustworthiness did not deter people from giving him their trust. He stiffed his contractors in the 80s. Lost his investors money in his casinos in the early 90s. As Matt has noted, managed to clear his debts raising money from people only to leave them holding the bag. Managed again to raise tons of money from Deutsch Bank.
To give you an example as to whether I'm exaggerating here about the mindset of American free market thinkers, I give you Milton Friedman's trip to South Africa in 1976 where he essentially argued that "free markets" was all that was needed to solve South Africa's problems (he also was pretty skeptical of one person one vote. A throughline with current right wing Silicon Valley thinking). I give this example because Milton Friedman is almost certainly the most influential right wing economist in the 20th century at least in America. If you want to say that not literally every right of center American free marketer is like this, sure. But its clearly quite an influential line of thinking.
On the other hand, the current situation does show that government can be even worse.
The South Africa example is another case study in how bad government can be, with regulators taking explicit actions to suppress blacks and protect whites, though for free markets to improve things there just removing the regulations wouldn’t have been enough, they’d also have needed courts that would enforce contracts fairly, and it’s obviously an overstatement that markets would fix everything. Fair, free markets would have been better, though.
Ahem "against the free market idea that you don’t need regulations because the market will punish untrustworthy actors for you."
this as expressed is not a Free Market Idea.
It is a specific largely American Libertarian with capital L idea.
Who are basically photo-negative Bolsheviks, inverted Marxists (instead of absolute inflexible ideological hate of free market capitalism they invert it, but structurally their ideological approach isn't Adam-Smithian but really a photo-negative of Marxism)
Real free market thinking is quite okay with regulationas a concept (it only recognises that regulation has costs and like all things there are trade-offs, and "return" benefit can go negative).
Of course Trump has in part been punished as a historical market actor - he ceased being able to raise most kinds of debt but he's indeed a clear refuation of the utterly bonkers Libertarian(tm) idea that no government nor regulation is needed.
Have to remind myself that American style economic right wingers are a very particular breed out of step (for the most part) with other free market thinkers/politicians (Lizz Truss and a handful of Thatcherite devotees in the Tory party an important exception) around the world.
Hayek was actually pretty ok with the government social insurance for health care (or at least the concept, devil in the details all that). https://pnhp.org/news/f-a-hayek-on-social-insurance/. Which makes it all the more telling when organizations like Cato cite Hayek (or at least cite a WSJ article citing Hayek), to attack Obamacare, the right wing alternative to Clinton's health care plan. https://www.cato.org/blog/hayek-vs-government-health-care
So yes, I will amend to say "the American free market idea" or "The American conservative idea". Other thing why American free market thinking is the way it is in a way that makes it different from other peer countries historically is the history racism, Jim Crow and general antipathy towards a welfare state rooted in a desire to make sure state resources did not go to the "those people" (current demographics and politics being what they are in places like U.K., not sure how true that is anymore. Possible deep dive topic for Matt in a later Slow Boring post).
I think really American Libertarian & "Conservative" not American Free Market as there are plenty of free market lower case L classic liberals like me who know the difference.
The US Libertarians are to me photo-negative Bolsheviks not actual real pragmatic market liberals.
I mean Ayn Rand is almost the poster child for "photo-negative" Bolsheviks (also a source of the very unique brand of libertarianism/conservatism that exists in the US). In fact, I'm pretty sure I'm right in saying if she were around today she would describe her worldview as exactly that.
I'm definitely in the camp that the current conservative attack on regulations is quite dangerous; especially the Trumpy version which is clearly more about "owning the libs" or placating his rich backers than it is any cost/benefit analysis of regulations in question. But I wish I could try to get to leftists that classical "liberals" are called liberals because they were actually trying to fight against the entrenched "conservative" rich of their day. It's just that the rich of their day were "men of leisure" nobles who lived off rents and inherited wealth. And the way to break their power was embracing stuff like free trade, modern property rights and market capitalism as this was the real thing that actually brought down the old noble order*. Like with housing, you want to stick it to Jared Kushner, support tons of new housing all over the country and watch the value of his class "C" portfolio drop.
Again, major problems (as I've noted a number of times) with libertarianism as a philosophy, but just that there are circumstances where embracing the libertarian critique would actually be sticking it to "the man".
*A real underrated part of "Downton Abbey". The main focus for most people was on the soap opera aspect understandably. But a huge through line of the show is the daughters and Matthew wanting to modernize the estate and Lord Grantham resisting because he didn't want to change how things were done. And it's made clear that the kids are right. Of course the other throughline I noticed on rewatch is Julian Fellows clearly sees "inheritance taxes" as the true destroyer of the old noble order. His rosy eyed view of this way of life, he makes pretty clear he things inheritance taxes are a bad thing. For me, he unintentionally made a perfect encapsulation of why robust inheritance taxes are necessary.
Robert Armstrong in the FT today points out that markets don’t *really* need to believe Trump to explain why risk assets get bought and oil sold when he makes noises about ending the war. Probably the best alternative explanation is that those noises are a credible signal that Trump is responding to market pressure and trying to look for an exit ramp, even if he can’t end the war unilaterally and even if he doesn’t have any intention of quitting bombing anytime soon. (The most nihilistic explanation is that some poor sucker out there believes Trump, so traders might as well buy stocks when he says stuff that would be good for stocks if it meant anything, and then sell to the sucker.)
Not quite the point you're making but given (once again), there was big moves in futures trading prior to Trump's announcement on Monday (throw in big Polymarket bets as well), think we really need to consider the possibility this was deliberate market manipulation if not by Trump himself (though guessing some of those big bets were Trump family members) those in his orbit who have his ear.
There was a bit of a pent up rebound over the weekend after that bad week last week. Some folks grasped at straws. Iran was quiet for a day and then went back to doing what they were doing because nothing material happened.
I mean I think that's part of it. I'm aware too that the market includes many more "retail" investors than even 20-25 years ago which means these "retail" investors have an ability to affect markets more than ever. And I know that "buy the dip" has been an actual reasonable strategy for investing for awhile now.
This is a bit of jumble of thoughts here kind of only tangentially related to my original point so bear with me, but so much of the last 10 years and really the last 3 years has pushed me to the following: a) while I get there 10s of millions of voters, many of whom vote for Trump (or anyone) for very random reasons who don't deserve my scorn, there is a cadre of "elite" people who either voted for him, trust him or abet his policies that I have nothing but contempt for b) the "elite" people who have abetted Trump's actual crimes cannot be allowed to get away with it. I've increasingly become convinced that a lot of "how we got here" is downstream from lack of serious prosecution of Wall Street outside of the most obvious like Madoff. There needs to be hearings on stuff like Polymarket trade and yes jail time for those who committed insider trading and abetted illegal acts. I truly don't think we can afford a "sweep it under the rug" strategy of 2009 and especially 2021. So so so much of what you see in polling is really a disgust at "elite" impunity. Yes that takes the form of right wing voters angry at left wing elites, but I really do think it's just general anger at "elite" impunity. This has to be part of Democratic strategy and actual policy if they can regain power.
> He’s a walking, breathing advertisement against the free market idea that you don’t need regulations because the market will punish untrustworthy actors for you.
The abstract case for regulations aside, my understanding is that many of Trump's victims were themselves predators and/or untrustworthy actors, and his counterparties generally accepted high risks with the aim of making mountains of money.
Even the builders and vendors he abused probably protected themselves by inflating their initial bids, which is common even in exchanges with less volatile personalities.
The mere fact that Trump is making these statements is substantial evidence he is looking to TACO. They don't need to believe he is telling the truth.
I mean just apply Bayes theorem. I think we can be pretty sure that, conditional on Trump saying "I'm going through on bombing their power" the chance that the war lasts a long time is substantially higher than it is conditional on Trump saying we had productive negotiations so I'm calling off the power strikes. Since the prior probability of Trump saying the later wasn't close to 1 it follows that you should shift your probability the war won't last long substantially down based on his statement -- not because you trust him but because of what it would indicate if he didn't lie.
Iran’s leaders are currently seeking some sort of legitimized tolling arrangement for the Strait, an end to sanctions, US withdrawal from Persian Gulf bases, and reparations payments. All of these would be humiliating and strategically significant concessions for the US to make, but the Iranians have already achieved control over Strait traffic as a fact on the ground and have partially achieved sanctions relief (Bessent un-sanctioning Iranian oil on the water) and US force withdrawal (the Fifth Fleet’s large ships abandoned Bahrain before the start of the conflict and have been unable to return to the Persian Gulf, the US has had to effectively move basing for its strike and tanker aircraft to Jordan, Israel, and even Europe rather than trying to defend aircraft on the runway in Iraq or the Arabian Peninsula, and Iran has blown up a whole bunch of buildings and expensive sensors at the big Gulf bases).
At this point, Iran’s leaders see an opportunity to permanently improve their security and economic situation by imposing high economic costs on the US using weapons systems that are hard to destroy from the air, using the threat of catastrophic infrastructure destruction in the Gulf states (which would have huge longer-term economic consequences worldwide) to constrain US escalation. They don’t trust us because we reneged on our previous agreement with them and used the last two rounds of negotiations to conduct surprise attacks, including one that killed their head of state, so they believe that they need to permanently change conditions and make future attacks prohibitively costly so that they can be safe.
Their overall strategy in this particular conflict— which they’ve been pretty transparent about (largely because its core mechanisms work better if US elites understand it) strikes me as ambitious but rational, and so far, it seems to be working; the WaPo is reporting that US deep state types increasingly see regime change and permanent de-nuclearization as unachievable and trying to set their war goals to the status quo ante, and Trump blinked in his infrastructure attack ultimatum because he wasn’t actually willing to accept the likely economic consequences of retaliation.
Tl;dr: Trump can’t unilaterally end the conflict at this point without making huge concessions to Iran, Iran’s leaders understand this and are trying to seek huge concessions, and they seem to maybe have enough leverage to actually do it.
There is a real risk they push too far and bring in the Gulf states and a real American offensive that just totally destroys their country. But I agree that they are running that risk to try to achieve the aims you describe.
“Bringing the Gulf States in” is not a meaningful consideration. (Putting it bluntly, they’re not real countries and their militaries’ performance record is very unimpressive). The US escalation possibility is a real risk but getting to the point where we could really threaten to topple the regime would be extremely costly for us and significantly deplete our ability to deter China.
I don’t think deterring China over Taiwan is a real priority of this administration. If the American people cannot stomach higher gas prices do we really think they have anything like the willingness to engage China over Taiwan? We’d blow the fabs and let them have it.
Also I agree the Gulf states are terrible at war but the conventional military of Iran will not be meaningfully operational in the face of US involvement and what they bring to the table is a very high tolerance for Iranian civilian casualties. It could get very ugly.
At this point I honestly do not know that that's the wrong choice. We are *not* prepared for the reality of warfare that Ukraine has highlighted.
If the PRC believes we're going to get involved their approach may be a bolt-from-the-blue attack that just cripples us: massive cruise missile barrages aimed at destroying everything we have at anchor in Guam and Yokosuka coupled with drone swarm attacks that destroy logistics at Pearl and San Diego and air assets at other bases across the US.
It is virtually impossible for a society like ours to avoid a peer opponent being able to preposition assets for such attacks in the homeland.
We have basically decided to stick our heads in the sand and avoid discussion of hardening or dispersing expensive, capable assets to mitigate such an opening strategy.
If our best hardware survives an opening blow and we build some goddamned expendable munitions stockpiles worthy of the name, any PRC stab at Taiwan in which we're involved is no better than a toss-up for them. If they succeed in destroying a bunch of expensive materiel that will take years to replace, then they can take Taiwan and possibly even exert enough pressure on Japan to force it to demilitarize the rest of the first island chain.
That will be the natural limits of their expansion, of course; Japan and Korea will go nuclear within six months and proliferate to Vietnam, the Philippines, Malaysia, and Thailand within two years after that, and the US will relearn how to fucking wage war with a peer opponent and likely become more involved in the region rather than less after such a sucker punch.
It is possible, but I think (hope?) they would be more motivated to avoid a nuclear exchange than the level of risk such a knockout attempt requires. If I were them I’d just blockade Taiwan, endure some sanctions, and wait for capitulation. I don’t actually believe Taiwan will fight to the death either to be honest.
Yea, the only real escalation risks from the Iranian perspective are that the US goes all-in in the manner of Gulf War I, which would be disastrous for us too, or that Israel goes nuclear, which, I suspect, would be disastrous for the Israelis in the medium-term. There is nothing stopping Turkey and the KSA, at minimum, from going nuclear themselves, if not Egypt too.
I think that people are also underrating the logistical difficulties that a true ground invasion would entail. With Iraq, we could use adjacent countries as staging areas and then fight on open flat terrain that’s extremely favorable for our style of war. With Iran, we would need to stage an amphibious invasion (difficult, probably high casualty), occupy Iraq first (keeping our supply lines there safe against insurgency would be a huge problem) or invade from Turkey (over extremely difficult terrain, and Turkey doesn’t seem to want to get involved in that particular way).
I would also keep in mind the possibility of a massive JSOC raid (undoubtedly the largest in its history) to destroy/exfiltrate Iran's enriched uranium.
"A flight-tracking account notes 35 C-17s flying out of airfields including those used by Delta Force (Bragg), SEAL Team 6 (Oceana), two of the three Ranger battalions (HAAF and JBLM), and the 160th SOAR.
Looks a lot like staging JSOC in case it’s ordered to do the uranium recovery mission in Iran.
This would be an incredibly challenging and dangerous mission if they do it—but what will make it so much more dangerous than it needed to be is the rubble from the June strikes that they will have to breach through. Hugely increases how long they’ll have to spend vulnerable on the ground."
I think if people go hyperbolic in overestimating the difficulties that a true ground invasion would entail they would still be underestimating the difficulties.
Oh, it'd be a clusterfuck. At a guess I think the only way to get a first bite at the apple is to conduct an amphibious landing in Khuzestan and secure it. We would need lines of supply extending from the Gulf, potentially overland in Iraq, but that's a far cry from occupying and basing ourselves out of Iraq.
But yes, this would be a huge mess and it'd take a year just to build up sufficient forces to press out of Khuzestan after taking it. Assuming our Army and Marines are large enough to do so at all.
I'm not even sure of what the theoretical mechanism would be that could threaten to topple the regime. Presumably that includes significant ground forces (and not just the token MEU). Getting that force to the region would take several months. Where would they be based and how would they actually attack Iran? It's not like we're going to stage our forces on Iranian soil and the Normandy invasion was a long, long time ago in a different world.
Shout out to What's Going on With Shipping? on Youtube to get a clear understanding of the on the ground of SoH. The indication is that even if you got peace today, the overall shipping would take over 20 weeks to unwind. As it goes on it will take more due the ships themselves running out of fuel, etc. So we are already at 4 plus months of serious pain worldwide.
The idea that you can easily get a negotiation between Iranian leadership, Israel and Mr. Erratic Single Level Thinker is unclear thinking. Iran wants US out of gulf. Israel wants Iran to quit looking for its destruction. Mr. Erratic Single Level Thinker can't make up his mind. I don't see a lot of possible paths.
Much of the current pricing of oil reflects the same lack of thought and enormous amounts of money looking for investment that is sloshing around. After all Walmart is at a P/E of 44 and there are huge investments in AI at the same time. So looking for reason that oil has gone up enough is simple, the supply of illogical thinking has not run out.
We cannot know the IRG’s capacity or will to sustain a prolonged closure of the straight. But provided they can, you have to think they could get a better deal in two months’ time than they could right now. I don’t see why they would give up while gas prices are still rising.
The problem that the IRG is living is that they have a populace (and many internal players) who are calling in airstrike against their leadership. While they can certainly toss missiles and drones outside their country, they can't protect themselves from their own populace. The sandwich they are in is just desserts for their relentless export of crap to others.
It's also confusing because we hear that Iran's missile capabilities have been "completely shut down", then we are asked for $200 billion more to fight the war because Iran is still lobbing missiles. We hear that we "wiped out Iran's navy and mine layers" yet Iran still holds a hold in mining the Straight. It's virtually impossible to put boots on the ground in Iran's protective mountainous terrain except for the area around Hormuz. Perhaps that's the plausable endgame ---to send in ground troops and carve out some territory around the pinch point(??).
China has been building up enormous onshore oil-reserve and is actually for next few months fairly insulated.
For PRC leadership there's a reasonable likelyhood this is a reasonable thing to go along with as it looks like their enemy, Trump, is self-harming, and two Napoleonic era maxims come to mind
"Never get in the way of the enemy when they are making a mistake / blundering"
I find China's pre-war build up of reserves disturbing. They ether read the tea leaves better then anyone else and foresaw that this war would happen, or more worryingly, they're inside our and/or the Israelis' communications and KNEW what was being discussed.
I am thinking that it is reading tea leaves, although can't exclude Big Ears in the right places (possibly stupidly leaky Trumpies comes to mind given known habits of Secretary of War - and possibly using penetratable devices...)
I have a fair amount of cash out of the market due to indecision and thinking that everything is too expensive. But I am not an active investor. I leave overall investing to a financial advisor. Otherwise I would have caught every time Tesla went down and all the times I thought it would go down but it didn't. Just remember most of the players in the markets have never seen a real down market.
The reason Matt put "deal" in quotes is the veneer on the "deal" can be very very thin. Some of the "deals" Trump got on trade were basically cut the tariff to a tenth of the announced value with additional carved outs for Canada to look for the real fentanyl dealers.
It would be good because not just Trump, but America's entire foreign policy and media elites, need to not just touch the hot stove, but have their hands burned off into cauterized stumps for a generation like with Vietnam.
I think it would be better Iran were cowed (however unlikely that may be) and we “win” (whatever that eventually means; it keeps changing with these bozos!), but thank you for explaining your view.
I'm long oil. Went longer after that Truth post. The question I have is what does Iran want this conflict to look like? They have almost no cards, but right now they get to determine when the SoH opens conditional on keeping domestic control and maintaining the ability to create kinetic effects in the SoH.
Maybe the US can affect one of these two conditions, but it'll take time and/or a lot more resources.
But what can Iran reasonably expect to get out of this? They aren't going to be compensated for all the destruction. US bases aren't going anywhere because they want it. What do they want for opening the Strait that Trump would be willing to give them? I don't know what that looks like.
Let's pencil this out. The Iranian regime's main priority is survival. Prolonging the war threatens their survival, but they also don't want to back down if it just means the US/Israel will turn around and attack them again a month later. So ideally they'd want some kind of security guarantee, although they probably wouldn't think they could trust Trump's word and rightfully so. So they'd likely demand something concrete that would make a renewed assault riskier or more painful for their enemies.
I've got it: Trump can give them nuclear weapons. That would solve the problem.
Iran could resort to playing the "fuck Donald Trump" game which would be a fun remix of the "fuck Jimmy Carter" game, which ended with the hostages being returned the day Reagan was inaugurated. Strait reopened the day next president inaugurated? Big if true.
While process objections remain incredibly lame this is another great example of why "going through the process" is important, if only to clarify what our actual goals are here. Is the goal to cut a new "better" deal with Iran's new leaders (see this discussion for details https://www.youtube.com/watch?v=dpEF6QPSVJE) or is the goal to overthrow the regime itself, say replace the Islamic Republic with some sort of more pliant military dictatorship, or the goal the destruction of the Iranian State itself (something Netanyahu has been hinting at, see also calls to arm ethnic militias etc). Turns out these are very different goals requiring different means and will probably result in different responses from the new Iranian leaders (whoever those turn out to be).
Had we gone through the lame process we'd have more clarity on this but we didn't so here we are.
"the US is left playing a very expensive game of whack a mole"
Only if we choose to. Now that we've got Venezuela on our side, we can just walk away from the Gulf, tossing a match over our shoulder as it bursts into flames, and call it "taking out the competition".
I don't think it's "cope" to realize the United States has bitten off more than it can chew with this war, and we need to get out now before going deeper in the hole (like Putin did with his failed Ukraine war). The rest is mostly salesmanship and spin.
Not all bets pay off, whether or not they were good bets ex ante.
Casey's right. The cope is the venezuela piece. Oil is a global commodity, Asian buyers will bid up the American oil and create large problems for Americans as well. There's no magic 20% of global production capacity sitting around to prevent large price shocks.
The ball's really in Iran's court conditional on it holding together its domestic political/security power and maintains the ability to create kinetic effects in the SoH. The only lever they have is this one. But it is a lever.
It is absolutely cope to think that "now that we've got Venezuela on our side we can just walk away from the Gulf, tossing a match over our shoulder as it bursts into flames, and call it 'taking out the competition'"
Right obviously by now I hope even Trump realizes that this has gone poorly. But that doesn't mean that TACOing now will restore the previous oil price.
Even if Iran agrees to let oil transit and we go back to a non-war state where Iran doesn’t seek to punish US actions we will still see a ~$20 a barrel risk premium. That risk price will stick for a while.
This shows less than zero understanding of any of (a) oil and wider hydrocarbons markets, (b) Vezeulan specifics on notably (i) regime actual 'support' to Trump, (ii) investability of Venezuelan oil assets for production given (i) and especially no written stability that what is agreed at gun-point holds, (iii) the long-term investment needs in hard-assets to return heavily degraded Venezuelan oil extractions [a] [heavily degraded oil fields that may have experienced permanent damage, but at least as per general information are degraded and will need expensive remediation], [b] heavily degraded production facilities that now have ~10 years of neglect and degradation after Maduro started starving them of capital and putting in lackies [Chavez abstained from that], which quite aside from the fields degradation are a huge capital investment.
Base expense even prior to degradation Venezuelan oil was nowhere near as cheap to extract nor to refine as Gulf, the Gulf has about 'ideal' real world fields for low-cost extraction.
Walking away (without the match) might have been possible *before* we started this conflict, it is not now, absent the US simply barring exports to hold domestic prices down and watching all our alliances abroad disintegrate.
You could probably set a price ceiling on domestic crude that keeps prices at the pump around where they are today, force oil producers to sell domestically to hold that price, and then allow them to expand production to sell excess abroad at whatever market price hold, but... this is difficult politically as you note, requires retooling at least some refinery capacity, probably necessitates Canadian participation (and why would they want to?), and, as I noted above, just completely shafts Europe and the Pacific Rim.
Iran's goal is clearly regime survival. It's strategy for doing that is absorb the pain, inflict pain on others, and hope that Trump and Israel's tolerance for pain is lower than theirs.
That this is working so far shouldn't be confused with a belief that they are in a strong position. They are squeezed for survival from both within and without. Just weeks ago they had to slaughter tens of thousands of their own people to stay in power. Today it really is true that their military, security forces, and regional proxies have been pounded badly. And their senior leadership has been killed.
The best outcome for them right now is a cessation of hostilities so they can reconstitute their authority, stabilize their leadership, and start rebuilding their military and security forces. They do still have a lot to lose. Whether Trump and the US military would start to target more civilian infrastructure is an open question, but the Iranians have no illusions about what the Israelis are willing to do, and they'd be happy to do the dirty work to plunge the country into true misery and chaos.
Maybe some deal involves a slight lifting of sanctions on Iranian oil, or maybe it's just we'll stop bombing and they'll open the Strait. Either deal is better for them than the alternative, and they will almost certainly take it.
>...but here even though Iran is pretty spanked in a conventional military sense they can still go Hyper Houthi and lob Shaheds and other munitions for what's probably indefinitely...<
"Indefinitely" seems a bit strong. Presumably the Iranian government at some point is going to need to have an economy to preside over. Their staying power to continue fighting seems quite robust—probably a lot greater than President TACO's—but it's not infinite.
Great point, and it is something that former Defense Secretary James Mattis just spoke about as well yesterday.
He said that If Trump declares victory and pulls back the U.S. military, Iran "would now say we own the Strait," Mattis said, adding: "I think that you could see a tax for any ship going through — something completely unsustainable in the international market."
Unfortunately, I fear that the Iranians are always going to have substantive things they want that they will trade for in exchange for not humiliating Trump. This means that we are almost certainly going to trade away important national security interests so Trump doesn't get publicly humiliated.
Fuck, I suspect the primary reason this conflict happened is Iranian negotiators didn't realize the real red line was not making Trump look strong.
That's always been the threat. Notable that, until now, they *didnt* try to tariff the strait, even though their regime is desparate for hard currency.
I think its still too soon to tell. For one, they can't just lob drones forever because the US is detroying all their. launchers and factories, especially the most dangerous ones near the cost. Two, there does reach a point where governments will pay tankers to just take the risk and run the strait, as the did in the 80s tanker war.
The other short term adaptation that's available now to some people that wasn't in the past is remote work. Obviously this takes cooperation of the employer, but in a real crunch I suspect it would marginally increase elasticity compared to the seventies crises.
Correct. While a lot of employers have been trying to get employees back into offices (with mixed success) the fact that almost all went remote during the pandemic would make it hard for them to say no.
While almost every company pulled back from the maximum of remote work they had, almost all still have more than they did in 2019, and there are a lot more remote-only companies now than there were in 2019. It’s a part of the normal work mix now in a way that it wasn’t then.
The downside is that this thinking often weeds out exactly the wrong employees.
Underperformers without better options are much more likely to accept it and stay put, while high performers that are more marketable are more likely to use it as motivation to get off their butts and seek out other opportunities.
I believe many companies made the decision after it was made clear that the lowest performing employees were also the ones most eager to work remotely. JP Morgan made the call when it was discovered that their best performers were already in the office most days even before the requirement.
The far out superficial picture is quite funny. Trump reduces carbon emissions by increasing the prices of carbon and his left wing opponents are furious.
I understand why reaching for this dunk is fun for people, but the actual reality is a lot more complicated— Indian households are being forced to switch from using LPG for household cooking and hearing to much more high-emissions fuels; LNG being cut off forces large-scale gas to coal switching in India, China, and Europe, and the bombing of oil and gas infrastructure in the Persian Gulf significantly increases the likelihood of large methane leaks.
Yeah there is a reason China has been building all those coal plants, even though coal plants suck compared to gas plants. They have lots of coal and wanted a resilient grid to insulate from a loss of access to gas (they were probably thinking American gas, but hey). Those are going to be firing more, and more will be built.
They've probably hit saturation on the need for more coal peaking plants. Though, in fairness, this whole thing began as "let's keep building infrastructure that will employ the people who mine coal and know how to build coal power plants" before morphing into a more rational attempt at energy autarky.
But the coal peakers are going to be running a lot more without LNG, because they need the natural gas for other things than electricity generation...
Between 2012 and present they've had two signature air quality initiatives in the north especially: scrub their coal-fired generating fleet and coke-fired steel industry with modern emissions control systems, and replace small coal-fired block/building heating systems (state subsidized north of the Yellow River) with natural gas ones because the former are too dirty and too small to economically scrub. They're probably about halfway through the fleet, maybe more.
There's no going back on the block heating systems. There are tens or more likely hundreds of thousands of these things; without LNG somewhere between 250 and 400 million people shiver their way through winter, including the entire citizenry of Beijing and Tianjin, both wealthy and influential.
Going to be some "great" papers in a couple years on the increase in the number of deaths due to indoor/ambient air pollution attributable to the Strait of Hormuz closure.
It's the same malignant reactive ping pong that's been going on with the two parties for over a decade. In regards to climate change it's become such a religious belief, like the arch right apocalypse adherents, that if the problem was solved tomorrow they would find a reason for it not to be.
When gas prices went up significantly in Biden’s term, I distinctly remember the stickers at gas stations with Biden saying “I did that.” I see on Amazon you can now get ones with Trump saying the same thing.
Strait of Hormuz closure is actually Biden's/Dems' fault for not winning the 2024 election and letting Trump do this. Never voting for Dems again thanks to their inflationary policies.
I have no idea how it is resolved but an Iranian squeeze on oil prices to hit America hits China, Japan, India and Europe harder than it hits America. There is an international oil market so it is very hard to localise the oil price.
Yes, this is important. At some point, it will behoove those nations to send ships to open up the gulf, no matter how much they might personally dislike Trump. Some have already agreed to help, although they're vague on the details. Right now the US only has only 8 destroyers actively engaged in the operation, so it'll really help if allies can send extra ships.
It would be a 5th lock, the 4th lock is a promise that pensioner's will never pay tax on their pensions. From April 2027 pensions alone would exceed the tax threshold.
There's a difference between "we have military escorts so send your ships through" and "insurance companies dropped their rates so send your ships through". Wartime insurance policies have risen 1000%-5000% so a lot of shippers will not even attempt to go through the Strait in order avoid having to take out those premiums. Remember the Houthis took weeks to suppress and weren't even as well supplied as the Iranians. And traffic took months to recover because of higher insurance costs. It only takes 1 missile, drone, mine, or attack speed boat to get through and ruin a shipper's and an insurance company's day.
I feel like the focus on insurance rates is trying to play 4d chess. Insurance rates are crazy high right now for the simple reason that they just can't sail through the Strait right now without getting shot. Change that, and the rates will come down. There's a bunch of tankers stranded in the gulf right now, and their owners don't want to just let them starve to death. They'll do *something*, whether that's military force or cutting a private deal with the IRGC. Its a bit different from the situation with the Houthis, because there was an alternative route in that situation (sailing the long way around Africa) so they could just balance that extra cost vs the cost of insurance. Here, there's no alternative route for the gulf countries or the countries that depend on their exports.
I agree insurance rates will drop once the strait is open but it's not going to be immediate. Insurers will want to see proof that Iran actually isn't able to shoot at ships or that escorts can adequately defend ships from damage.
I don’t think it’s obvious that “open the straits and regime change in Iran” is cheaper or safer or less supportive of terrorism than just paying the toll.
You can, the blockade is caused by deliberate strikes. Sailing through a warzone isn't fun and will mean paying more in insurance but it is different from a situation where ships are deliberately being hit for not paying a toll.
It's worth noting that tax makes up a far greater percentage of the cost of gasoline in Europe than it does the US. This has the dubious advantage of making the overall increase in fuel price lower when oil prices rise than it does in the US.
The US would have to have to actually cut back on mobility in a big way and for a long time if gas is long-term unaffordable, whereas these places have a access to a combination of good mass transit and cheap Chinese EVs. They’re better positioned to adapt in the medium term
> refineries differ in the type of crude they’re set up to refine
Just for a little extra context - a lot of refineries run on chemical processes that are basically from the 1980s, or even earlier. But to the extent that the refinery industry has advanced in the last few decades, most of that effort has gone towards making refineries adaptable to handle different feedstocks and different demands for outputs. The oil companies understood that sinking a $10B investment into a refinery that is vulnerable to the whims of geopolitics and supply chain constraints is not a winning move. But obviously there are limits to how flexible you can be, so it's not like it's a panacea, just a useful band aid.
In these difficult times oil producing countries around the world should come together and agree to name crude oil and oil fields descriptively.
What or who is Johan Sverdrup? What is Brent? Arab Light is better, though it could be confused for a cigarette. Ural Crude is somewhat ok but we already know it's crude. Also both the Urals and Arab cover vast geographies.
Here is a modest proposal:
1. Norwegian North Sea Medium (Johan Sverdrup)
2. East Shetland Light Sweet (Brent)
3. Al-Ahsa Light Sour (Arab)
4. Volga-Siberian Medium Sour (Ural)
5. West Texas Intermediate (West Texas Intermediate, which is the only sensibly named crude)
Next thing you're going to start suggesting that interests in oil and gas leases be measured in percentages instead of in eighths and combinations and fractions of eighths!
Don’t know how this going to end but it would be nice if the people who deserve this mess (right wing Americans and Israelis plus the IRGC) got to suffer its consequences instead of the rest of the world.
If Xi Jinping were half as smart as he’d pretends to be, he’d threaten an embargo on US trade until Trump reopens the straight of Hormuz.
One big thing that I think hasn't happened yet is that there is normally a fleet of fully loaded tankers standing offshore as a kind of strategic reserve for China and other East Asian countries. Those tankers are now all being brought into port and when they are emptied then the shortage of Persian Gulf oil will really hit those countries and will push prices up. 'The hipster crudes cannot make up for the lack of Persian Gulf crude.
Also all of those tankers standing still in the Gulf....they need to move or they literally break down. Refrigeration of LNG stops working and we do not want that but other parts of the ships will start to fail as well. Eventually they will get to the point of not being able to sail when the Straight is reopened which will cause a crisis in the lack of tankers worldwide.
Another really important element to understand here is geographic spreads. Oil price benchmarks track the price of particular grades at particular locations, and the process of getting oil from point A to point B is nontrivial and sometimes can get sharply more difficult and expensive.
In grade and molecule composition terms, WTI and Brent are quite similar to each other, and under normal conditions, the spread between them is constrained by the possibility of arbitrage trades where physical commodity traders hire a tanker in one geography, fill it up, take it across the ocean, and collect the spread.
But the current disruption has enormously scrambled oil relative values all over the world, and most of the tanker fleet was initially in the wrong locations to take advantage of it. (Big ships are pretty slow and it takes weeks to move them from say, the Indian Ocean to the Atlantic). Consequently, the hire price for crude tankers has skyrocketed and even the tankers which *are* available take a while to get to where they need to go for arbitrage trades.
Eventually, WTI will be pulled towards other global crude benchmarks when a whole bunch of tankers arrive at our shores and start filling up. But that process will take a while; the current price surge is partly driven by declining product and heavy crude imports but also largely by stockpiling in anticipation of this arb trade.
Economists reassure us that oil price shocks are temporary and may only impact 1-3 months worth of inflation prints. Yet the bottom 80% of households will have a much tougher time weathering $1/gal increases at the pump, and that's not to say anything about an increase in food prices. It's hard not to see economic contraction in the states even if Trump winds down operations in Iran by April. The American consumer is in deep credit card debt and overextended.
It's hard not to wonder if a lot of these knee jerk 'policies' from this administration are a sick way to rig the market and buy low, sell high.
$1/gal sounds like a lot for all the countries that aren't the richest country in world history.
So what're the political consequences in those 194 other countries? Are we looking at another wave of incumbents being tossed out and, what, right wing coming in?
A lot of European countries have gas prices over $10/gal already so $1/gal doesn't seem like such a big increase, and governments have something of an option to cut taxes to absorb the shock - though that creates revenue problems for a lot of countries which already have debt problems.
Thanks to high gas taxes and infrastructure investment, though, most Europeans have more options for reducing their gasoline/diesel consumption. Personal vehicle travel has long been more of a luxury than a necessity.
Heating is more of a problem, but that won't be an issue unless this goes on for more than six months.
Reading more about the huge airport slowdowns because of the TSA being unfunded, and it really does seem like no one wants to say the obvious.
Just start waving people through. It's fine actually. We can indeed go back to the days when anyone can wander up to the gates without intrusive checks and it'll be no big deal.
I don't think they do anything very useful, no. And the argument has never been that they stop "crazy mass shooters"; those could show up at literally any crowded venue. The argument has been that they stop plane hijackings, and I think the juice isn't worth the squeeze on the level of security for result.
Mass shooters? They could shoot everyone waiting in line today if they wanted. The ostensible point of the TSA is they prevent people from taking over airplanes, not that they prevent mass shootings.
The reason shooters go to schools is because they’re mad at the school and/or trying to cause the worst damage they can, not because they’re soft targets.
Amazing to think that all these complex knock on effects flow from a single octogenarian being swayed by various self-interested parties into acting upon a whim.
Amazing to think that more than half the American population being functional morons could result in a giant clusterf@ck for the world economy. Vote for maniac, get insane policies…
Imagine being a Filipino scooter delivery driver and you can't work because there's no gas because Bibi and Lindsey Graham convinced Trump they'd be in-and-out in a week.
The question I have is that even if Trump wants to TACO, how much leverage do the Iranians have to extract humiliating concessions or even inflict political pain on Trump for the sake of it? What we're seeing here is that it doesn't take an old fashioned flotilla blockade to close Hormuz, just enough of a threat where shipping companies won't risk sailing through it because of a chance (even a low one, say 2% chance) that their tanker is hit badly. Insurance companies are not going to underwrite any policy until they sense the risk of transit is near zero.
Part of me wants to buy oil futures because I think the market is too stuck on the tariff TACO experience where Trump really did have unilateral control (and trading partners did not have much leverage), but here even though Iran is pretty spanked in a conventional military sense they can still go Hyper Houthi and lob Shaheds and other munitions for what's probably indefinitely and the US is left playing a very expensive game of whack a mole which still probably won't provide enough stability to return the strait to status quo ante.
The other thing that I find astonishing is there are clearly enough traders who think Trump’s word means something. It’s such a window into the question of “How did we get here?” to note there an astonishing number of people, including people in positions of power, who despite four decades of evidence otherwise think Trump is some sort of trustworthy individual.
He’s a walking, breathing advertisement against the free market idea that you don’t need regulations because the market will punish untrustworthy actors for you.
Over short time horizons, markets are a coordination game (Keynes’s beauty contest where you have to predict who everybody else thinks is the most beautiful), and “ceasefire noise” is a coordination mechanism for a “sell crude, buy treasuries, buy equities” trade that’s rational for market participants with short holding periods to participate in even if they privately think it’s bullshit.
This does actually seem like a possibility.
I also have to keep in mind Keynes aphorism "Markets can stay irrational longer than you can stay solvent".
As you might surmise, I might not exactly a proponent of "Efficient Markets Hypothesis"*. I know shocker with that one.
* Keynes once again worth quoting here in retort to what someone like Alex Tarrabok might say; in the long term we'll all be dead.
EMH is obviously false (there are a bunch of hedge funds and prop traders which have successfully operated market-neutral positive return strategies for decades).
Keynes’s investment performance relative to the EMH guys is also decent Bayesian evidence that he understood markets better than they did.
This is not quite the point you're making, but I suspect one issue with this whole debate is the way writers (financial writers, economics writers, people in general) anthropomorphize the market. Read a typical CNBC headline on sort of a dull trading day and it will say something along the lines "The market takes a breather prior to Fed rate decision on Friday". I like to pick on CNBC a lot, but I actually don't think these sort of headlines are exclusive at all to CNBC. Not only makes it seem like "the market" is some sentient person but also makes it seems like the market is moving in a particular direction because all traders/investors are literally all doing the same analysis/thinking when making trades on a given day. It's an absolute wild way to describe what happens on the stock market on so many levels.
Also, not shocked Keynes investment performance is better than EMH guys. I know people like Krugman like to say they are not traders and don't give out investment advice. But honestly, it's not at all shocking that someone is considered one of the preeminent experts in economics or one of the preeminent experts on an important aspect of economics (International trade) would have a leg up on even Hedge Funds when trying to do stock picking on a medium to long term time horizon.
Finance media, like all media organizations, need to generate content with coherent narratives that audiences can easily digest. Something like “the market went up today because a bunch of strategies that automatically sell covered calls sold them, that caused the VIX to go down, strategies that automatically adjust their equity allocations in response to changes in implied volatility risked on, and then momentum-chasing trend-following algorithms bought” isn’t easy to understand or narratively satisfying even though on most days something like that is what’s going on.
I also believe that the EMH is false, but it is very much not obvious.
Amending a bit— it’s obviously false if you understand how the business models of modern alternative asset managers work. Basically, there are a significant number of firms which generate return streams which are, on a day to day basis, basically uncorrelated with major market indices because they make leveraged bets going long on some securities and short on others, and then their kings outperform their shorts. If EMH was true, this business model would be impossible and market neutral funds’ results in any given year would be equally likely to be positive or negative and vary wildly. But that is not in fact the case.
The aphorism is true in some ways (the Palm/3COM arbitrage is a great example), but it's always seemed a little overstated to me. The basic idea is that you can expose yourself to huge downside if you short assets.
However, there are plenty of long-dated assets *with limited downside* that let market participants make bets about things that might happen even a few years out. Think of long-dated futures or options, for example. (E.g., there's activity in the crude futures market all the way out to 2031, see: https://www.cmegroup.com/markets/energy/crude-oil/light-sweet-crude.quotes.html.)
These days there are also often ETFs that let you replicate levered returns without actually taking leverage yourself.
Seems like the "irrational/solvent" quote wasn't Keynes.
My understanding is it's at least in dispute as to whether Keynes ever said this.
But yeah, wouldn't be the first time a quote is misattributed to someone famous (or famous in their field). I do think they are still valuable if they do actually reveal an underlying truth. Famous one from modern times is Pauline Kael never actually said anything to the effect that she couldn't understand how Nixon could have won since she didn't know anyone who voted for him. But it's still has a lot of underlying truth in its own way; voters self sort where they live and by only knowing the particular neighborhood or town where you live you can get a very skewed view of not just voting but the country generally (modern version is Peggy Noonen arguing Romney would win in 2012 because of how many yard signs she saw in her neighborhood).
Sort of feel like the Keynes situation is more akin to Voltaire. Namely that Voltaire never said "I disapprove of what you say, but I will defend to the death your right to say it" but it is a reasonable encapsulation of his world view. Same with Keynes who at the time was fighting against a much more entrenched idea in the economics profession regarding government role in the economy in general which depended on very particular world view of markets and people.
The Kael one is actually based on something she said, but it’s completely inverted. What she said was that even though Nixon won in a landslide, she only knew one person who voted for him. In other words, it was acknowledging the bubble she lived in, but it got twisted into her being comically unaware of it.
You don't have to believe Trump's word, you just have to believe enough day traders do to wipe you out. Everyone who went long in the 1st price spike got wiped out.
Also market reactions today tell me, you're observation may be correct
It's not that people trust Trump's word, it's that they trust their observation that he fundamentally has no real beliefs, and no backbone. The closest thing to a principle Trump has is "tariffs are good", and when faced with a little pushback from the market, he consistently caved. So they're betting on his lack of character, his weakness, not his word.
Also, your claim that this says something about an alleged free market principle that regulations are unnecessary confuses me. The bad actor in this case is the government, the regulator, more or less. If there's a market power lesson here, it's that even when markets are irrational they're never this bonkers or this short-sighted, so we should increase markets' power over government. I don't actually think we should do that, but it's the more logical conclusion from the situation.
I'll stand by my assertion about free markets (though in a concession to a commentator above, I should probably amend to say American free market thinking). This is not about current actions of POTUS per se. This is about the fact that Trump over and over again was shown himself to be an untrustworthy counter party well before he was President and yet continually was able to find investors, business partners and people generally willing to give him money. And that continued untrustworthiness did not deter people from giving him their trust. He stiffed his contractors in the 80s. Lost his investors money in his casinos in the early 90s. As Matt has noted, managed to clear his debts raising money from people only to leave them holding the bag. Managed again to raise tons of money from Deutsch Bank.
To give you an example as to whether I'm exaggerating here about the mindset of American free market thinkers, I give you Milton Friedman's trip to South Africa in 1976 where he essentially argued that "free markets" was all that was needed to solve South Africa's problems (he also was pretty skeptical of one person one vote. A throughline with current right wing Silicon Valley thinking). I give this example because Milton Friedman is almost certainly the most influential right wing economist in the 20th century at least in America. If you want to say that not literally every right of center American free marketer is like this, sure. But its clearly quite an influential line of thinking.
I think in a hypothetical universe where Friedman’s policies were adopted SA would be much better off than the basket case it is today.
On the other hand, the current situation does show that government can be even worse.
The South Africa example is another case study in how bad government can be, with regulators taking explicit actions to suppress blacks and protect whites, though for free markets to improve things there just removing the regulations wouldn’t have been enough, they’d also have needed courts that would enforce contracts fairly, and it’s obviously an overstatement that markets would fix everything. Fair, free markets would have been better, though.
Ahem "against the free market idea that you don’t need regulations because the market will punish untrustworthy actors for you."
this as expressed is not a Free Market Idea.
It is a specific largely American Libertarian with capital L idea.
Who are basically photo-negative Bolsheviks, inverted Marxists (instead of absolute inflexible ideological hate of free market capitalism they invert it, but structurally their ideological approach isn't Adam-Smithian but really a photo-negative of Marxism)
Real free market thinking is quite okay with regulationas a concept (it only recognises that regulation has costs and like all things there are trade-offs, and "return" benefit can go negative).
Of course Trump has in part been punished as a historical market actor - he ceased being able to raise most kinds of debt but he's indeed a clear refuation of the utterly bonkers Libertarian(tm) idea that no government nor regulation is needed.
Have to remind myself that American style economic right wingers are a very particular breed out of step (for the most part) with other free market thinkers/politicians (Lizz Truss and a handful of Thatcherite devotees in the Tory party an important exception) around the world.
Hayek was actually pretty ok with the government social insurance for health care (or at least the concept, devil in the details all that). https://pnhp.org/news/f-a-hayek-on-social-insurance/. Which makes it all the more telling when organizations like Cato cite Hayek (or at least cite a WSJ article citing Hayek), to attack Obamacare, the right wing alternative to Clinton's health care plan. https://www.cato.org/blog/hayek-vs-government-health-care
So yes, I will amend to say "the American free market idea" or "The American conservative idea". Other thing why American free market thinking is the way it is in a way that makes it different from other peer countries historically is the history racism, Jim Crow and general antipathy towards a welfare state rooted in a desire to make sure state resources did not go to the "those people" (current demographics and politics being what they are in places like U.K., not sure how true that is anymore. Possible deep dive topic for Matt in a later Slow Boring post).
I think really American Libertarian & "Conservative" not American Free Market as there are plenty of free market lower case L classic liberals like me who know the difference.
The US Libertarians are to me photo-negative Bolsheviks not actual real pragmatic market liberals.
I mean Ayn Rand is almost the poster child for "photo-negative" Bolsheviks (also a source of the very unique brand of libertarianism/conservatism that exists in the US). In fact, I'm pretty sure I'm right in saying if she were around today she would describe her worldview as exactly that.
I'm definitely in the camp that the current conservative attack on regulations is quite dangerous; especially the Trumpy version which is clearly more about "owning the libs" or placating his rich backers than it is any cost/benefit analysis of regulations in question. But I wish I could try to get to leftists that classical "liberals" are called liberals because they were actually trying to fight against the entrenched "conservative" rich of their day. It's just that the rich of their day were "men of leisure" nobles who lived off rents and inherited wealth. And the way to break their power was embracing stuff like free trade, modern property rights and market capitalism as this was the real thing that actually brought down the old noble order*. Like with housing, you want to stick it to Jared Kushner, support tons of new housing all over the country and watch the value of his class "C" portfolio drop.
Again, major problems (as I've noted a number of times) with libertarianism as a philosophy, but just that there are circumstances where embracing the libertarian critique would actually be sticking it to "the man".
*A real underrated part of "Downton Abbey". The main focus for most people was on the soap opera aspect understandably. But a huge through line of the show is the daughters and Matthew wanting to modernize the estate and Lord Grantham resisting because he didn't want to change how things were done. And it's made clear that the kids are right. Of course the other throughline I noticed on rewatch is Julian Fellows clearly sees "inheritance taxes" as the true destroyer of the old noble order. His rosy eyed view of this way of life, he makes pretty clear he things inheritance taxes are a bad thing. For me, he unintentionally made a perfect encapsulation of why robust inheritance taxes are necessary.
yes Randians are very much the people that led me to the conclusion of inverted/photo-negative of Bolshevism
Quitea large segment of the activist Left remind me of that old joke about the Russians (shoot the cow)
eta oh yesentirely agree on inheritance tax
Robert Armstrong in the FT today points out that markets don’t *really* need to believe Trump to explain why risk assets get bought and oil sold when he makes noises about ending the war. Probably the best alternative explanation is that those noises are a credible signal that Trump is responding to market pressure and trying to look for an exit ramp, even if he can’t end the war unilaterally and even if he doesn’t have any intention of quitting bombing anytime soon. (The most nihilistic explanation is that some poor sucker out there believes Trump, so traders might as well buy stocks when he says stuff that would be good for stocks if it meant anything, and then sell to the sucker.)
Not quite the point you're making but given (once again), there was big moves in futures trading prior to Trump's announcement on Monday (throw in big Polymarket bets as well), think we really need to consider the possibility this was deliberate market manipulation if not by Trump himself (though guessing some of those big bets were Trump family members) those in his orbit who have his ear.
There was a bit of a pent up rebound over the weekend after that bad week last week. Some folks grasped at straws. Iran was quiet for a day and then went back to doing what they were doing because nothing material happened.
I mean I think that's part of it. I'm aware too that the market includes many more "retail" investors than even 20-25 years ago which means these "retail" investors have an ability to affect markets more than ever. And I know that "buy the dip" has been an actual reasonable strategy for investing for awhile now.
But I still don't think that would be enough to move markets as much as they did yesterday. And this is just happened. https://www.nytimes.com/live/2026/03/24/world/iran-war-trump-oil
This is a bit of jumble of thoughts here kind of only tangentially related to my original point so bear with me, but so much of the last 10 years and really the last 3 years has pushed me to the following: a) while I get there 10s of millions of voters, many of whom vote for Trump (or anyone) for very random reasons who don't deserve my scorn, there is a cadre of "elite" people who either voted for him, trust him or abet his policies that I have nothing but contempt for b) the "elite" people who have abetted Trump's actual crimes cannot be allowed to get away with it. I've increasingly become convinced that a lot of "how we got here" is downstream from lack of serious prosecution of Wall Street outside of the most obvious like Madoff. There needs to be hearings on stuff like Polymarket trade and yes jail time for those who committed insider trading and abetted illegal acts. I truly don't think we can afford a "sweep it under the rug" strategy of 2009 and especially 2021. So so so much of what you see in polling is really a disgust at "elite" impunity. Yes that takes the form of right wing voters angry at left wing elites, but I really do think it's just general anger at "elite" impunity. This has to be part of Democratic strategy and actual policy if they can regain power.
> He’s a walking, breathing advertisement against the free market idea that you don’t need regulations because the market will punish untrustworthy actors for you.
The abstract case for regulations aside, my understanding is that many of Trump's victims were themselves predators and/or untrustworthy actors, and his counterparties generally accepted high risks with the aim of making mountains of money.
Even the builders and vendors he abused probably protected themselves by inflating their initial bids, which is common even in exchanges with less volatile personalities.
The mere fact that Trump is making these statements is substantial evidence he is looking to TACO. They don't need to believe he is telling the truth.
I mean just apply Bayes theorem. I think we can be pretty sure that, conditional on Trump saying "I'm going through on bombing their power" the chance that the war lasts a long time is substantially higher than it is conditional on Trump saying we had productive negotiations so I'm calling off the power strikes. Since the prior probability of Trump saying the later wasn't close to 1 it follows that you should shift your probability the war won't last long substantially down based on his statement -- not because you trust him but because of what it would indicate if he didn't lie.
Re: concessions—
Iran’s leaders are currently seeking some sort of legitimized tolling arrangement for the Strait, an end to sanctions, US withdrawal from Persian Gulf bases, and reparations payments. All of these would be humiliating and strategically significant concessions for the US to make, but the Iranians have already achieved control over Strait traffic as a fact on the ground and have partially achieved sanctions relief (Bessent un-sanctioning Iranian oil on the water) and US force withdrawal (the Fifth Fleet’s large ships abandoned Bahrain before the start of the conflict and have been unable to return to the Persian Gulf, the US has had to effectively move basing for its strike and tanker aircraft to Jordan, Israel, and even Europe rather than trying to defend aircraft on the runway in Iraq or the Arabian Peninsula, and Iran has blown up a whole bunch of buildings and expensive sensors at the big Gulf bases).
At this point, Iran’s leaders see an opportunity to permanently improve their security and economic situation by imposing high economic costs on the US using weapons systems that are hard to destroy from the air, using the threat of catastrophic infrastructure destruction in the Gulf states (which would have huge longer-term economic consequences worldwide) to constrain US escalation. They don’t trust us because we reneged on our previous agreement with them and used the last two rounds of negotiations to conduct surprise attacks, including one that killed their head of state, so they believe that they need to permanently change conditions and make future attacks prohibitively costly so that they can be safe.
Their overall strategy in this particular conflict— which they’ve been pretty transparent about (largely because its core mechanisms work better if US elites understand it) strikes me as ambitious but rational, and so far, it seems to be working; the WaPo is reporting that US deep state types increasingly see regime change and permanent de-nuclearization as unachievable and trying to set their war goals to the status quo ante, and Trump blinked in his infrastructure attack ultimatum because he wasn’t actually willing to accept the likely economic consequences of retaliation.
Tl;dr: Trump can’t unilaterally end the conflict at this point without making huge concessions to Iran, Iran’s leaders understand this and are trying to seek huge concessions, and they seem to maybe have enough leverage to actually do it.
There is a real risk they push too far and bring in the Gulf states and a real American offensive that just totally destroys their country. But I agree that they are running that risk to try to achieve the aims you describe.
“Bringing the Gulf States in” is not a meaningful consideration. (Putting it bluntly, they’re not real countries and their militaries’ performance record is very unimpressive). The US escalation possibility is a real risk but getting to the point where we could really threaten to topple the regime would be extremely costly for us and significantly deplete our ability to deter China.
I don’t think deterring China over Taiwan is a real priority of this administration. If the American people cannot stomach higher gas prices do we really think they have anything like the willingness to engage China over Taiwan? We’d blow the fabs and let them have it.
Also I agree the Gulf states are terrible at war but the conventional military of Iran will not be meaningfully operational in the face of US involvement and what they bring to the table is a very high tolerance for Iranian civilian casualties. It could get very ugly.
At this point I honestly do not know that that's the wrong choice. We are *not* prepared for the reality of warfare that Ukraine has highlighted.
If the PRC believes we're going to get involved their approach may be a bolt-from-the-blue attack that just cripples us: massive cruise missile barrages aimed at destroying everything we have at anchor in Guam and Yokosuka coupled with drone swarm attacks that destroy logistics at Pearl and San Diego and air assets at other bases across the US.
It is virtually impossible for a society like ours to avoid a peer opponent being able to preposition assets for such attacks in the homeland.
We have basically decided to stick our heads in the sand and avoid discussion of hardening or dispersing expensive, capable assets to mitigate such an opening strategy.
If our best hardware survives an opening blow and we build some goddamned expendable munitions stockpiles worthy of the name, any PRC stab at Taiwan in which we're involved is no better than a toss-up for them. If they succeed in destroying a bunch of expensive materiel that will take years to replace, then they can take Taiwan and possibly even exert enough pressure on Japan to force it to demilitarize the rest of the first island chain.
That will be the natural limits of their expansion, of course; Japan and Korea will go nuclear within six months and proliferate to Vietnam, the Philippines, Malaysia, and Thailand within two years after that, and the US will relearn how to fucking wage war with a peer opponent and likely become more involved in the region rather than less after such a sucker punch.
It is possible, but I think (hope?) they would be more motivated to avoid a nuclear exchange than the level of risk such a knockout attempt requires. If I were them I’d just blockade Taiwan, endure some sanctions, and wait for capitulation. I don’t actually believe Taiwan will fight to the death either to be honest.
Yea, the only real escalation risks from the Iranian perspective are that the US goes all-in in the manner of Gulf War I, which would be disastrous for us too, or that Israel goes nuclear, which, I suspect, would be disastrous for the Israelis in the medium-term. There is nothing stopping Turkey and the KSA, at minimum, from going nuclear themselves, if not Egypt too.
I think that people are also underrating the logistical difficulties that a true ground invasion would entail. With Iraq, we could use adjacent countries as staging areas and then fight on open flat terrain that’s extremely favorable for our style of war. With Iran, we would need to stage an amphibious invasion (difficult, probably high casualty), occupy Iraq first (keeping our supply lines there safe against insurgency would be a huge problem) or invade from Turkey (over extremely difficult terrain, and Turkey doesn’t seem to want to get involved in that particular way).
I would also keep in mind the possibility of a massive JSOC raid (undoubtedly the largest in its history) to destroy/exfiltrate Iran's enriched uranium.
See here for evidence from an experienced and knowledgeable national security journalist that we are staging forces for this contingency: https://bsky.app/profile/wesleymorgan.bsky.social/post/3mhr5xfk2b222
"A flight-tracking account notes 35 C-17s flying out of airfields including those used by Delta Force (Bragg), SEAL Team 6 (Oceana), two of the three Ranger battalions (HAAF and JBLM), and the 160th SOAR.
Looks a lot like staging JSOC in case it’s ordered to do the uranium recovery mission in Iran.
This would be an incredibly challenging and dangerous mission if they do it—but what will make it so much more dangerous than it needed to be is the rubble from the June strikes that they will have to breach through. Hugely increases how long they’ll have to spend vulnerable on the ground."
I think if people go hyperbolic in overestimating the difficulties that a true ground invasion would entail they would still be underestimating the difficulties.
Oh, it'd be a clusterfuck. At a guess I think the only way to get a first bite at the apple is to conduct an amphibious landing in Khuzestan and secure it. We would need lines of supply extending from the Gulf, potentially overland in Iraq, but that's a far cry from occupying and basing ourselves out of Iraq.
But yes, this would be a huge mess and it'd take a year just to build up sufficient forces to press out of Khuzestan after taking it. Assuming our Army and Marines are large enough to do so at all.
Hence, "disastrous for us too."
I'm not even sure of what the theoretical mechanism would be that could threaten to topple the regime. Presumably that includes significant ground forces (and not just the token MEU). Getting that force to the region would take several months. Where would they be based and how would they actually attack Iran? It's not like we're going to stage our forces on Iranian soil and the Normandy invasion was a long, long time ago in a different world.
Shout out to What's Going on With Shipping? on Youtube to get a clear understanding of the on the ground of SoH. The indication is that even if you got peace today, the overall shipping would take over 20 weeks to unwind. As it goes on it will take more due the ships themselves running out of fuel, etc. So we are already at 4 plus months of serious pain worldwide.
The idea that you can easily get a negotiation between Iranian leadership, Israel and Mr. Erratic Single Level Thinker is unclear thinking. Iran wants US out of gulf. Israel wants Iran to quit looking for its destruction. Mr. Erratic Single Level Thinker can't make up his mind. I don't see a lot of possible paths.
Much of the current pricing of oil reflects the same lack of thought and enormous amounts of money looking for investment that is sloshing around. After all Walmart is at a P/E of 44 and there are huge investments in AI at the same time. So looking for reason that oil has gone up enough is simple, the supply of illogical thinking has not run out.
We cannot know the IRG’s capacity or will to sustain a prolonged closure of the straight. But provided they can, you have to think they could get a better deal in two months’ time than they could right now. I don’t see why they would give up while gas prices are still rising.
The problem that the IRG is living is that they have a populace (and many internal players) who are calling in airstrike against their leadership. While they can certainly toss missiles and drones outside their country, they can't protect themselves from their own populace. The sandwich they are in is just desserts for their relentless export of crap to others.
It's also confusing because we hear that Iran's missile capabilities have been "completely shut down", then we are asked for $200 billion more to fight the war because Iran is still lobbing missiles. We hear that we "wiped out Iran's navy and mine layers" yet Iran still holds a hold in mining the Straight. It's virtually impossible to put boots on the ground in Iran's protective mountainous terrain except for the area around Hormuz. Perhaps that's the plausable endgame ---to send in ground troops and carve out some territory around the pinch point(??).
There is no objective. The Trump admin lives in a post truth reality. They cannot even articulate a goal much less accurately understand the world.
Pire qu'un Crime, une Faute...
Higher gas prices also hurt Iranian allies like China. They risk isolation.
True for China, though Russia is also an ally and it’s got to be thrilled by the movement in oil prices and relief from sanctions.
China has been building up enormous onshore oil-reserve and is actually for next few months fairly insulated.
For PRC leadership there's a reasonable likelyhood this is a reasonable thing to go along with as it looks like their enemy, Trump, is self-harming, and two Napoleonic era maxims come to mind
"Never get in the way of the enemy when they are making a mistake / blundering"
and
'It is worse than a Crime, it is a Blunder"
I find China's pre-war build up of reserves disturbing. They ether read the tea leaves better then anyone else and foresaw that this war would happen, or more worryingly, they're inside our and/or the Israelis' communications and KNEW what was being discussed.
I am thinking that it is reading tea leaves, although can't exclude Big Ears in the right places (possibly stupidly leaky Trumpies comes to mind given known habits of Secretary of War - and possibly using penetratable devices...)
I rather think Israel wants Iran to no longer be a significant threat or obstacle, which isn't really the same thing.
So what you’re saying is, be long on oil?
Are you playing this thesis in the market? If so, how?
I have a fair amount of cash out of the market due to indecision and thinking that everything is too expensive. But I am not an active investor. I leave overall investing to a financial advisor. Otherwise I would have caught every time Tesla went down and all the times I thought it would go down but it didn't. Just remember most of the players in the markets have never seen a real down market.
I am in a similar situation. I am very bearish but too cowardly to make that trade.
Let’s all go buy $300 worth of oil futures just for fun
Let's coordinate a specific time to do it, too.
Sure why not.
The reason Matt put "deal" in quotes is the veneer on the "deal" can be very very thin. Some of the "deals" Trump got on trade were basically cut the tariff to a tenth of the announced value with additional carved outs for Canada to look for the real fentanyl dealers.
Concepts of a deal
right, even if Trump blinks today he has already swatted the hornet's nest and the Iranian regime isn't just crawling back quietly.
As much as I'd dearly love to believe that, I see no reason to be so optimistic.
Can you unpack why you think that would be good?
It would be good because not just Trump, but America's entire foreign policy and media elites, need to not just touch the hot stove, but have their hands burned off into cauterized stumps for a generation like with Vietnam.
I think it would be better Iran were cowed (however unlikely that may be) and we “win” (whatever that eventually means; it keeps changing with these bozos!), but thank you for explaining your view.
I'm long oil. Went longer after that Truth post. The question I have is what does Iran want this conflict to look like? They have almost no cards, but right now they get to determine when the SoH opens conditional on keeping domestic control and maintaining the ability to create kinetic effects in the SoH.
Maybe the US can affect one of these two conditions, but it'll take time and/or a lot more resources.
But what can Iran reasonably expect to get out of this? They aren't going to be compensated for all the destruction. US bases aren't going anywhere because they want it. What do they want for opening the Strait that Trump would be willing to give them? I don't know what that looks like.
Let's pencil this out. The Iranian regime's main priority is survival. Prolonging the war threatens their survival, but they also don't want to back down if it just means the US/Israel will turn around and attack them again a month later. So ideally they'd want some kind of security guarantee, although they probably wouldn't think they could trust Trump's word and rightfully so. So they'd likely demand something concrete that would make a renewed assault riskier or more painful for their enemies.
I've got it: Trump can give them nuclear weapons. That would solve the problem.
Historically this is why leaders would exchange hostages. We should give the Iranians Trump’s kids as collateral.
This assumes more concern for the welfare of his children than I personally model Trump as having.
(Trump voice) "Poor Eric, great kid, a little dumb, but great guy, kind of like the Fredo of the Trump family. I will miss him dearly..."
Under circumstances like these I could see Eric going native, converting to Shi'a Islam, etc.
> I've got it: Trump can give them nuclear weapons. That would solve the problem.
Depends on how they are delivered.
Iran could resort to playing the "fuck Donald Trump" game which would be a fun remix of the "fuck Jimmy Carter" game, which ended with the hostages being returned the day Reagan was inaugurated. Strait reopened the day next president inaugurated? Big if true.
While process objections remain incredibly lame this is another great example of why "going through the process" is important, if only to clarify what our actual goals are here. Is the goal to cut a new "better" deal with Iran's new leaders (see this discussion for details https://www.youtube.com/watch?v=dpEF6QPSVJE) or is the goal to overthrow the regime itself, say replace the Islamic Republic with some sort of more pliant military dictatorship, or the goal the destruction of the Iranian State itself (something Netanyahu has been hinting at, see also calls to arm ethnic militias etc). Turns out these are very different goals requiring different means and will probably result in different responses from the new Iranian leaders (whoever those turn out to be).
Had we gone through the lame process we'd have more clarity on this but we didn't so here we are.
"the US is left playing a very expensive game of whack a mole"
Only if we choose to. Now that we've got Venezuela on our side, we can just walk away from the Gulf, tossing a match over our shoulder as it bursts into flames, and call it "taking out the competition".
Delusional cope.
1 - Venezuela oil production badly needs investment to get back to production levels needed
2 - that investment must come from American oil companies
3 - zero American oil companies have jumped at the chance to invest in Venezualan extraction because they think the current arrangement is unstable
I don't think it's "cope" to realize the United States has bitten off more than it can chew with this war, and we need to get out now before going deeper in the hole (like Putin did with his failed Ukraine war). The rest is mostly salesmanship and spin.
Not all bets pay off, whether or not they were good bets ex ante.
Casey's right. The cope is the venezuela piece. Oil is a global commodity, Asian buyers will bid up the American oil and create large problems for Americans as well. There's no magic 20% of global production capacity sitting around to prevent large price shocks.
The ball's really in Iran's court conditional on it holding together its domestic political/security power and maintains the ability to create kinetic effects in the SoH. The only lever they have is this one. But it is a lever.
It is absolutely cope to think that "now that we've got Venezuela on our side we can just walk away from the Gulf, tossing a match over our shoulder as it bursts into flames, and call it 'taking out the competition'"
Right obviously by now I hope even Trump realizes that this has gone poorly. But that doesn't mean that TACOing now will restore the previous oil price.
Even if Iran agrees to let oil transit and we go back to a non-war state where Iran doesn’t seek to punish US actions we will still see a ~$20 a barrel risk premium. That risk price will stick for a while.
What price would oil have to get to make investments in restoring Venezuelan capacity pencil out?
This shows less than zero understanding of any of (a) oil and wider hydrocarbons markets, (b) Vezeulan specifics on notably (i) regime actual 'support' to Trump, (ii) investability of Venezuelan oil assets for production given (i) and especially no written stability that what is agreed at gun-point holds, (iii) the long-term investment needs in hard-assets to return heavily degraded Venezuelan oil extractions [a] [heavily degraded oil fields that may have experienced permanent damage, but at least as per general information are degraded and will need expensive remediation], [b] heavily degraded production facilities that now have ~10 years of neglect and degradation after Maduro started starving them of capital and putting in lackies [Chavez abstained from that], which quite aside from the fields degradation are a huge capital investment.
Base expense even prior to degradation Venezuelan oil was nowhere near as cheap to extract nor to refine as Gulf, the Gulf has about 'ideal' real world fields for low-cost extraction.
Walking away (without the match) might have been possible *before* we started this conflict, it is not now, absent the US simply barring exports to hold domestic prices down and watching all our alliances abroad disintegrate.
Barring exports to hold domestic prices down would also require steamrolling the oil industry.
You could probably set a price ceiling on domestic crude that keeps prices at the pump around where they are today, force oil producers to sell domestically to hold that price, and then allow them to expand production to sell excess abroad at whatever market price hold, but... this is difficult politically as you note, requires retooling at least some refinery capacity, probably necessitates Canadian participation (and why would they want to?), and, as I noted above, just completely shafts Europe and the Pacific Rim.
Iran's goal is clearly regime survival. It's strategy for doing that is absorb the pain, inflict pain on others, and hope that Trump and Israel's tolerance for pain is lower than theirs.
That this is working so far shouldn't be confused with a belief that they are in a strong position. They are squeezed for survival from both within and without. Just weeks ago they had to slaughter tens of thousands of their own people to stay in power. Today it really is true that their military, security forces, and regional proxies have been pounded badly. And their senior leadership has been killed.
The best outcome for them right now is a cessation of hostilities so they can reconstitute their authority, stabilize their leadership, and start rebuilding their military and security forces. They do still have a lot to lose. Whether Trump and the US military would start to target more civilian infrastructure is an open question, but the Iranians have no illusions about what the Israelis are willing to do, and they'd be happy to do the dirty work to plunge the country into true misery and chaos.
Maybe some deal involves a slight lifting of sanctions on Iranian oil, or maybe it's just we'll stop bombing and they'll open the Strait. Either deal is better for them than the alternative, and they will almost certainly take it.
>...but here even though Iran is pretty spanked in a conventional military sense they can still go Hyper Houthi and lob Shaheds and other munitions for what's probably indefinitely...<
"Indefinitely" seems a bit strong. Presumably the Iranian government at some point is going to need to have an economy to preside over. Their staying power to continue fighting seems quite robust—probably a lot greater than President TACO's—but it's not infinite.
Great point, and it is something that former Defense Secretary James Mattis just spoke about as well yesterday.
He said that If Trump declares victory and pulls back the U.S. military, Iran "would now say we own the Strait," Mattis said, adding: "I think that you could see a tax for any ship going through — something completely unsustainable in the international market."
https://www.axios.com/2026/03/24/mattis-trump-iran-strait-hormuz?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosgenerate&stream=top
I honestly have no idea why traders or anyone takes Trump at his word... It's almost like people just like believing lies.
Unfortunately, I fear that the Iranians are always going to have substantive things they want that they will trade for in exchange for not humiliating Trump. This means that we are almost certainly going to trade away important national security interests so Trump doesn't get publicly humiliated.
Fuck, I suspect the primary reason this conflict happened is Iranian negotiators didn't realize the real red line was not making Trump look strong.
That's always been the threat. Notable that, until now, they *didnt* try to tariff the strait, even though their regime is desparate for hard currency.
I think its still too soon to tell. For one, they can't just lob drones forever because the US is detroying all their. launchers and factories, especially the most dangerous ones near the cost. Two, there does reach a point where governments will pay tankers to just take the risk and run the strait, as the did in the 80s tanker war.
The other short term adaptation that's available now to some people that wasn't in the past is remote work. Obviously this takes cooperation of the employer, but in a real crunch I suspect it would marginally increase elasticity compared to the seventies crises.
Excellent point. Let's introduce Strait of Hormuz Fridays!
I'm doing my part! Service guarantees citizenship!
Correct. While a lot of employers have been trying to get employees back into offices (with mixed success) the fact that almost all went remote during the pandemic would make it hard for them to say no.
The RTO stuff is mostly about cutting staff without layoffs.
Almost every company that did that decided to unwind it later. I can see them going “we’re not doing this again” and refusing on principle.
While almost every company pulled back from the maximum of remote work they had, almost all still have more than they did in 2019, and there are a lot more remote-only companies now than there were in 2019. It’s a part of the normal work mix now in a way that it wasn’t then.
It's easy to say no - the economy is weakening and we could do with some reduced headcount.
employees: We'd like to work remotely due to high oil prices
employers: Go fuck yourself.
employees: I quit!...Well maybe not with the economy weakening...
The downside is that this thinking often weeds out exactly the wrong employees.
Underperformers without better options are much more likely to accept it and stay put, while high performers that are more marketable are more likely to use it as motivation to get off their butts and seek out other opportunities.
I believe many companies made the decision after it was made clear that the lowest performing employees were also the ones most eager to work remotely. JP Morgan made the call when it was discovered that their best performers were already in the office most days even before the requirement.
This is my general experience as well.
The far out superficial picture is quite funny. Trump reduces carbon emissions by increasing the prices of carbon and his left wing opponents are furious.
No democrat can beat trump’s keep it in the ground policy.
Biden had an America First keep it in the ground policy, cosmopolitan Trump managed to spread his policy across the world
Unfortunately his policy isn’t “keep it in the ground” so much as “burn it in the oil fields”.
I joked at the start of this that Trump realized that the U.S. couldn’t tackle climate change domestically so he decided to enact a global carbon tax.
I understand why reaching for this dunk is fun for people, but the actual reality is a lot more complicated— Indian households are being forced to switch from using LPG for household cooking and hearing to much more high-emissions fuels; LNG being cut off forces large-scale gas to coal switching in India, China, and Europe, and the bombing of oil and gas infrastructure in the Persian Gulf significantly increases the likelihood of large methane leaks.
Yeah there is a reason China has been building all those coal plants, even though coal plants suck compared to gas plants. They have lots of coal and wanted a resilient grid to insulate from a loss of access to gas (they were probably thinking American gas, but hey). Those are going to be firing more, and more will be built.
They've probably hit saturation on the need for more coal peaking plants. Though, in fairness, this whole thing began as "let's keep building infrastructure that will employ the people who mine coal and know how to build coal power plants" before morphing into a more rational attempt at energy autarky.
But the coal peakers are going to be running a lot more without LNG, because they need the natural gas for other things than electricity generation...
Between 2012 and present they've had two signature air quality initiatives in the north especially: scrub their coal-fired generating fleet and coke-fired steel industry with modern emissions control systems, and replace small coal-fired block/building heating systems (state subsidized north of the Yellow River) with natural gas ones because the former are too dirty and too small to economically scrub. They're probably about halfway through the fleet, maybe more.
There's no going back on the block heating systems. There are tens or more likely hundreds of thousands of these things; without LNG somewhere between 250 and 400 million people shiver their way through winter, including the entire citizenry of Beijing and Tianjin, both wealthy and influential.
Going to be some "great" papers in a couple years on the increase in the number of deaths due to indoor/ambient air pollution attributable to the Strait of Hormuz closure.
He also carefully planned to ensure the strategic oil reserve wasn't filled before choosing to start the war, ensuring an even greater supply shock.
All part of the cunning plan.
The Thanos snap would also reduce world carbon emissions and gay marriage at the same time, but nobody would be happy about it.
Paul Ehrlich did just die but he still has plenty of fans.
Online we really just need to understand that "nobody" actually means "nobody, +- a rounding error consisting of morons and trolls".
Even Thanatos wasn’t really happy with what he did when you think about it….
It's the same malignant reactive ping pong that's been going on with the two parties for over a decade. In regards to climate change it's become such a religious belief, like the arch right apocalypse adherents, that if the problem was solved tomorrow they would find a reason for it not to be.
When gas prices went up significantly in Biden’s term, I distinctly remember the stickers at gas stations with Biden saying “I did that.” I see on Amazon you can now get ones with Trump saying the same thing.
It’s the picture of Trump staring and pointing at the eclipse
shaking hands meme
left wing right wing
vandalizing third-party gas stations to make a point
I would like to consume more of my memes in this type of plain text format
Strait of Hormuz closure is actually Biden's/Dems' fault for not winning the 2024 election and letting Trump do this. Never voting for Dems again thanks to their inflationary policies.
You forgot to switch back to your regular account, Razib.
Republicans shoot economy.
Why_would_Democrats_do_this_meme.jpg
Oh please.
I may or may not have just bought a hundred of those.
I have no idea how it is resolved but an Iranian squeeze on oil prices to hit America hits China, Japan, India and Europe harder than it hits America. There is an international oil market so it is very hard to localise the oil price.
Yes, this is important. At some point, it will behoove those nations to send ships to open up the gulf, no matter how much they might personally dislike Trump. Some have already agreed to help, although they're vague on the details. Right now the US only has only 8 destroyers actively engaged in the operation, so it'll really help if allies can send extra ships.
Nah, they’ll just pay the Iranians
Indians and Europeans paying the Iranians solves America's oil squeeze issue
The UK at least seems to be pushing to help https://www.politico.eu/article/uk-offers-host-summit-reopening-strait-of-hormuz/ and others are saying they'll help. Democracies usually prefer to not send ransom fees to terrorist groups when they have other options.
Kind of, the UK government is discussing where to hold a meeting whose objective is to do something about the crisis.
They first need to amend the triple lock to also include a fourth "lock" based on increases in oil prices.
It would be a 5th lock, the 4th lock is a promise that pensioner's will never pay tax on their pensions. From April 2027 pensions alone would exceed the tax threshold.
There's a difference between "we have military escorts so send your ships through" and "insurance companies dropped their rates so send your ships through". Wartime insurance policies have risen 1000%-5000% so a lot of shippers will not even attempt to go through the Strait in order avoid having to take out those premiums. Remember the Houthis took weeks to suppress and weren't even as well supplied as the Iranians. And traffic took months to recover because of higher insurance costs. It only takes 1 missile, drone, mine, or attack speed boat to get through and ruin a shipper's and an insurance company's day.
I feel like the focus on insurance rates is trying to play 4d chess. Insurance rates are crazy high right now for the simple reason that they just can't sail through the Strait right now without getting shot. Change that, and the rates will come down. There's a bunch of tankers stranded in the gulf right now, and their owners don't want to just let them starve to death. They'll do *something*, whether that's military force or cutting a private deal with the IRGC. Its a bit different from the situation with the Houthis, because there was an alternative route in that situation (sailing the long way around Africa) so they could just balance that extra cost vs the cost of insurance. Here, there's no alternative route for the gulf countries or the countries that depend on their exports.
I agree insurance rates will drop once the strait is open but it's not going to be immediate. Insurers will want to see proof that Iran actually isn't able to shoot at ships or that escorts can adequately defend ships from damage.
Exactly the question of whether we should have started the war with iran is pretty moot at this point.
The question is, what do we do now. Especially for allies, it seems the only workable answer is open the straits and probably regime change in iran
I don’t think it’s obvious that “open the straits and regime change in Iran” is cheaper or safer or less supportive of terrorism than just paying the toll.
But others paying the toll solves America's oil issues and let's America continue the fighting.
You can’t pay the toll if there’s still fighting!
You can, the blockade is caused by deliberate strikes. Sailing through a warzone isn't fun and will mean paying more in insurance but it is different from a situation where ships are deliberately being hit for not paying a toll.
It's worth noting that tax makes up a far greater percentage of the cost of gasoline in Europe than it does the US. This has the dubious advantage of making the overall increase in fuel price lower when oil prices rise than it does in the US.
The US would have to have to actually cut back on mobility in a big way and for a long time if gas is long-term unaffordable, whereas these places have a access to a combination of good mass transit and cheap Chinese EVs. They’re better positioned to adapt in the medium term
We will see.
China, India and Canada all have higher carbon intensities than the US. I am not sure how they would deal with power cuts and fuel shortages.
https://en.wikipedia.org/wiki/List_of_countries_by_carbon_intensity
And here is an article talking about the gulf countries joining the war
https://www.wsj.com/world/middle-east/iran-gulf-states-offense-decision-b8d98ff9?st=8XuhNY&reflink=desktopwebshare_permalink
> refineries differ in the type of crude they’re set up to refine
Just for a little extra context - a lot of refineries run on chemical processes that are basically from the 1980s, or even earlier. But to the extent that the refinery industry has advanced in the last few decades, most of that effort has gone towards making refineries adaptable to handle different feedstocks and different demands for outputs. The oil companies understood that sinking a $10B investment into a refinery that is vulnerable to the whims of geopolitics and supply chain constraints is not a winning move. But obviously there are limits to how flexible you can be, so it's not like it's a panacea, just a useful band aid.
In these difficult times oil producing countries around the world should come together and agree to name crude oil and oil fields descriptively.
What or who is Johan Sverdrup? What is Brent? Arab Light is better, though it could be confused for a cigarette. Ural Crude is somewhat ok but we already know it's crude. Also both the Urals and Arab cover vast geographies.
Here is a modest proposal:
1. Norwegian North Sea Medium (Johan Sverdrup)
2. East Shetland Light Sweet (Brent)
3. Al-Ahsa Light Sour (Arab)
4. Volga-Siberian Medium Sour (Ural)
5. West Texas Intermediate (West Texas Intermediate, which is the only sensibly named crude)
Jeff Mauer points out that if he was a porn star, his screen name would be Brent Crude.
Next thing you're going to start suggesting that interests in oil and gas leases be measured in percentages instead of in eighths and combinations and fractions of eighths!
Let's not get too crazy here.
I think the random names are fun, it's like a fantasy novel :)
Maybe. You have to balance TACO with TOFU: Trump Operationally F____ Up.
or TAFO (Trumped Around, Found Out)
Don’t know how this going to end but it would be nice if the people who deserve this mess (right wing Americans and Israelis plus the IRGC) got to suffer its consequences instead of the rest of the world.
If Xi Jinping were half as smart as he’d pretends to be, he’d threaten an embargo on US trade until Trump reopens the straight of Hormuz.
He's got 90 days worth of supply stockpiled. The war is only in it's 4th week so Xi is probably not going to start sweating until week 6.
One big thing that I think hasn't happened yet is that there is normally a fleet of fully loaded tankers standing offshore as a kind of strategic reserve for China and other East Asian countries. Those tankers are now all being brought into port and when they are emptied then the shortage of Persian Gulf oil will really hit those countries and will push prices up. 'The hipster crudes cannot make up for the lack of Persian Gulf crude.
Also all of those tankers standing still in the Gulf....they need to move or they literally break down. Refrigeration of LNG stops working and we do not want that but other parts of the ships will start to fail as well. Eventually they will get to the point of not being able to sail when the Straight is reopened which will cause a crisis in the lack of tankers worldwide.
Can they just pace back and forth between Dubai and Kuwait?
Another really important element to understand here is geographic spreads. Oil price benchmarks track the price of particular grades at particular locations, and the process of getting oil from point A to point B is nontrivial and sometimes can get sharply more difficult and expensive.
In grade and molecule composition terms, WTI and Brent are quite similar to each other, and under normal conditions, the spread between them is constrained by the possibility of arbitrage trades where physical commodity traders hire a tanker in one geography, fill it up, take it across the ocean, and collect the spread.
But the current disruption has enormously scrambled oil relative values all over the world, and most of the tanker fleet was initially in the wrong locations to take advantage of it. (Big ships are pretty slow and it takes weeks to move them from say, the Indian Ocean to the Atlantic). Consequently, the hire price for crude tankers has skyrocketed and even the tankers which *are* available take a while to get to where they need to go for arbitrage trades.
Eventually, WTI will be pulled towards other global crude benchmarks when a whole bunch of tankers arrive at our shores and start filling up. But that process will take a while; the current price surge is partly driven by declining product and heavy crude imports but also largely by stockpiling in anticipation of this arb trade.
"Chemists" chemical engineers, thank you very much. Those scientists have no idea how to design a cracking column.
It’s basically chromatography, but embiggened
The embiggening part is not straightforward and I have the textbooks to prove it.
I don’t doubt that, it would be a lot of silica were that not the case
Distillation was 90% of my separations curriculum, so seeing this come up in SB was fun
Economists reassure us that oil price shocks are temporary and may only impact 1-3 months worth of inflation prints. Yet the bottom 80% of households will have a much tougher time weathering $1/gal increases at the pump, and that's not to say anything about an increase in food prices. It's hard not to see economic contraction in the states even if Trump winds down operations in Iran by April. The American consumer is in deep credit card debt and overextended.
It's hard not to wonder if a lot of these knee jerk 'policies' from this administration are a sick way to rig the market and buy low, sell high.
$1/gal sounds like a lot for all the countries that aren't the richest country in world history.
So what're the political consequences in those 194 other countries? Are we looking at another wave of incumbents being tossed out and, what, right wing coming in?
A lot of European countries have gas prices over $10/gal already so $1/gal doesn't seem like such a big increase, and governments have something of an option to cut taxes to absorb the shock - though that creates revenue problems for a lot of countries which already have debt problems.
Thanks to high gas taxes and infrastructure investment, though, most Europeans have more options for reducing their gasoline/diesel consumption. Personal vehicle travel has long been more of a luxury than a necessity.
Heating is more of a problem, but that won't be an issue unless this goes on for more than six months.
The marginal cost of a price increases is higher at a high price than low one.
Sounds consistent with the National Security Strategy's policy toward Europe. Maybe it's all been 4D chess after all.
$1/gallon sounds like a lot for even the richest country in world history
Reading more about the huge airport slowdowns because of the TSA being unfunded, and it really does seem like no one wants to say the obvious.
Just start waving people through. It's fine actually. We can indeed go back to the days when anyone can wander up to the gates without intrusive checks and it'll be no big deal.
The crazy mass shooters would be there the next day. I think you're wildly underestimating how much the TSA does to keep the crazies out.
I don't think they do anything very useful, no. And the argument has never been that they stop "crazy mass shooters"; those could show up at literally any crowded venue. The argument has been that they stop plane hijackings, and I think the juice isn't worth the squeeze on the level of security for result.
See, e.g., the 1985 Rome and Vienna terrorist attacks by the Abu Nidal Organization, where the targets were check-in lines, i.e., the outside the security screening zone: https://en.wikipedia.org/wiki/1985_Rome_and_Vienna_airport_attacks
"And the argument has never been that they stop "crazy mass shooters"; those could show up at literally any crowded venue. "
That was the argument and as tempting and high profile a target as airports are they don't have mass shooting events.
They do tend to have actual police stationed there who could respond very quickly, unlike many mass shooting targets.
Mass shooters? They could shoot everyone waiting in line today if they wanted. The ostensible point of the TSA is they prevent people from taking over airplanes, not that they prevent mass shootings.
Yet they don't. Because it's perceived as a hard target unlike an elementary school.
The reason shooters go to schools is because they’re mad at the school and/or trying to cause the worst damage they can, not because they’re soft targets.
I believe many are doing it to get the most attention possible with the lowest risk of being stopped before they cause their damage.
Yeah, most school shooters usually go or went to the school in question
Amazing to think that all these complex knock on effects flow from a single octogenarian being swayed by various self-interested parties into acting upon a whim.
Amazing to think that more than half the American population being functional morons could result in a giant clusterf@ck for the world economy. Vote for maniac, get insane policies…
Imagine being a Filipino scooter delivery driver and you can't work because there's no gas because Bibi and Lindsey Graham convinced Trump they'd be in-and-out in a week.
He'll be delighted to learn that MBS is coaxing Trump to keep the war going.
https://www.nytimes.com/2026/03/24/us/politics/saudi-prince-iran-trump.html
"Don't worry, Saudi Arabia just needs to secure its security strategy and you'll be back to work in two months; twenty years tops"
Thanks Joe Biden.
Thanks Obama
Ha ha, I love your sarcastic wit!
Um, that *was* meant as sarcasm, right?
Did Trump talk to the shah’s son and then claim he talked with Iranian officials?
Lolllll I didn’t even consider that possibility but it would 💯 track his M.O.