Iran Erupts Again: Is a Major Oil & Market Shock Coming?

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**David Woo** (1:11)
They would love to see $100, $120 basically Brent right now and push the US stock market down 10%. The force trumps are basically taco.

**Steve Hanke** (1:18)
Once you run out of inventory, you no longer have a deficit, you have a shortage.

**Art Berman** (1:24)
The bottom line, adaptation is not a solution.
It's hugely complex. But the bottom line, the part that I think your viewers and investors need to understand is that adaptation is not a solution.
And ultimately, the solution is you make the constraint go away, which doesn't mean you ever go back to where you were, or you cut demand and adaptations reaching exhaustion. And the answer is no, they never do, because the default is demand reduction. I mean, that's ultimately how the market clears, and that's what we're talking about here. I mean, if there's an imbalance between the fundamentals, and I'm going to say supply and demand, even though those are reductive kinds of concepts, but okay, everybody understands them. I'm playing political leader. I'm playing media analyst, whatever. If supply and demand are in some way out of balance, the market's going to find a way to clear. It has to. And it's either going to clear by raising price, so that creating scarcity, so that some buyers are left out of the market, or it's going to achieve a similar result simply by logistical limitations of not being able to get the supply to wherever it's going regardless of the price. And that reduces demand simply because you can't get what you want.

**Steve Hanke** (3:22)
One flow comes from the wells, okay? And the other flow comes from inventory that you have stored. And if the flow from the wells goes down and inventory drawdowns replace that slowdown coming from the wells, what happens? You get kind of a cushioning effect.
It doesn't, you don't get an immediate spike. And that's basically what's happened. So inventories have made up for the deficiency coming from the Persian Gulf and other producing areas. And what you end up with, eventually, you put the dipstick in the tank and bingo, there's nothing in it.
So we have our, for example, if you take the Strategic Petroleum Reserve in the United States, it's down to the lowest level it's been since 1983 So they're running down the inventory. Private inventories have been run down also.
And if the war continues or the strait continues to be plugged up, both the strait connecting the Persian Gulf as well as the strait connecting the Red Sea, you've got things plugged up. And we eventually will get those inventories down at very low levels. And I think we'll end up seeing another spike in the price of oil. Well, I think we've been running a deficit and the deficit has been accommodated by these inventory drawdowns. But once you run out of inventory, you no longer have a deficit, you have a shortage. And when that happens, the only way that you can ration and bring things into balance is to have a price increase and destroy demand.

**David Woo** (5:35)
From the Iranian standpoint, they don't want to see this prolonged stalemate either, right? They want, their objective is trying to push oil price up as fast as possible, as quickly as possible, as much as possible. I mean, they would love to see $100, $120 basically Brent right now that would really like and push the US stock market down 10 percent, that forced Trump to basically tackle. That's what they'll want. So you're going to have to assume that they're leaning on the Houthis or the Iraqis, whatever, to start attacking basically the red sea traffic. So I'm going to assume that this is going to happen soon.