All about Energy

Geopolitical events, when sustained long enough, end up morphing into economic events. They can be episodic, or they can be permanent, creating a new paradigm. The Iran war is starting to affect the energy sector globally, but as you can see in the chart below, we are in the early innings of what can happen. Both oil and Natural gas are well below their historical highs, and they are already the headline news around the world: (1) Japan refiners are requesting to tap the strategic oil reserves, (2) China has ordered (not suggested) big national refiners to not export any gasoil or gasoline outside China, and (3) Putin is playing with the idea of cutting gas deliveries to Europe. (4) A ship has surprisingly exploded in the strait of Hormuz, signaling that Iran is not bluffing (although it’s not 100% clear who is behind the explosion). If the energy markets don’t calm down, inflation is going to rise by 0.3% in March, which may risk any potential rate cut in the near future, and pressure American pockets, which are already struggling. Bitcoin is being bid, and Treasury yields and equities have roundtripped up to last weeks levels, prior to the attack. No clear direction yet.

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