Soon Comes the Mother of All Supply Shocks

It’s getting pretty hard to tell who is more delusional: The Donald or the noisy boy band of school-yard incompetents that surround him.

Either way, it’s not surprising that Trump posted this missive earlier today. He apparently actually thinks that his cockamamie Iranian War, which is on the edge of stalemate or actually being lost, is nearly all over except for the shouting.

Of course, it’s no mystery as to where the Donald is getting his utterly misplaced optimism. To wit, almost every POTUS of modern times—financially challenged or solid in his own right—has had a strong Secy of the Treasury to keep him tethered to reality.

After all, Herbert Hoover had the outstanding Andrew Mellon. FDR finally got himself anchored down by the capable Henry Morganthau. And General Eisenhower, who was himself no slouch on fiscal matters, had the rock solid midwestern banker, George Humphreys.

Likewise, economics were not JFK’s strong suit, but all matters financial were second nature to his Treasury Secretary, Douglas Dillon. And even after his screw-ups at Camp David, Nixon turned to the brilliant Bill Simon, while the peanut farmer from Georgia had the world class industrial CEO, Michael Blumenthal at the Treasury post.

Contrary to the main stream stereotype, Ronald Reagan was actually deeply learned on economic matters, but even then he had the exceedingly capable Jim Baker at the Treasury during this second term. Similarly, Clinton had Wall Street titan Bob Rubin and G. Dubya Bush had the exceedingly capable Paul O’Neill.

Not the Donald. The first time around he had a Goldman Sachs nepo baby, Steven Mnuchin, whose economic policy grounding was as razor thin as the Donald’s. And now he’s got former George Soros, trainee, Scott Bessent, who apparently fancies himself to be a big think strategist, who actually doesn’t know shit from shinola on most matters within his brief.

So in even more declarative terms than the Donald, Bessent now tells us that the Iranian’s are literally days away from waving the white flag of surrender because he and the Donald have constipated their oil wells with the naval blockade.

While the surviving IRGC Leaders are trapped like drowning rats in a sewage pipe, Iran’s creaking oil industry is starting to shut in production thanks to the U.S. BLOCKADE. Pumping will soon collapse. GASOLINE SHORTAGES IN IRAN NEXT!

Sorry, Scottie. We don’t think so. Not even remotely so, as we amplify below.

To be sure, the US naval blockade is supposed to be a clever alternative to the dreaded “boots on the ground” moment. That occurred a few weeks ago when it became clear that bombing them to the stone age for six weeks hadn’t done the trick between February 28 and April 13th.

The claim was that the US naval blockade was one of the Donald’s patented 4-D chess moves. It would first dry up their cash inflow. And then shortly thereafter hit them with a double-tap, causing Iran’s limited storage tanks to be topped-up to the brim.

In turn, this would allegedly force the Iranian’s to either surrender or run the risk of literally blowing up their oilfields and causing catastrophic damage to their reservoirs owing to hasty well shutdowns.

Alas, the Donald’s genius boy band including Pete Hegseth and Little Marco Rubio forget the elephant in the room. To wit, it was always a question of which of the dual blockades–Iran’s at the Strait or the US Navy’s outside on the Gulf of Oman—-would would run out of time first.

The fact is, since February 28th the only meaningful amount of oil, LNG, naphtha/petrochemical feed-stocks, LPGs, ammonia, sulfur, aluminum, helium and sundry others that have passed thru the SOH is Iranian product in vessels hugging the coastline along the Iran/Pakistan/India route to the Indian ocean and beyond.

This means, in turn, that the greatest bow-wave of missing physical shipments will soon be lapping up on the ports in India and the Pacific east-wise and Rotterdam and the European ports to the west. As a practical matter of vessel time on the water, it takes VLCCs roughly 20 days to get from SOH to Japan, 30 days from SOH to Rotterdam thru Suez and 40-days if the Houthis shutdown the Red Sea Route and force tankers around the Cape of Africa, which is likely as the war winds on.

Accordingly, and as we have previously noted, nearly 900 million barrels of oil, or roughly 55% of the normal 1.7 billion barrels of seaborne oil shipments are now missing from the global tanker traffic heading to ports. So even if a complete peace deal and return to open-ended free navigation were to be agreed to by mid-May, there would be no new tankers coming into Rotterdam until July at the earliest.

So the “blockade” is about to cause mayhem alright, but that would be the Iranian blockade doing the thundering damage to European and Asian economies.

Needless to say, the longer the SOH remains closed, the more the bow wave of missing vessels will compound and extend through the summer and beyond. And that’s why the strategy of waiting for Iran’s cash to run out and storage tanks to get constipated is just plain nuts. Time is on their side, not the Donald’s.

To wit, contrary to Bessent’s school boy trolling, Iran is not close to running out of either cash inflows or storage tank capacity. It’s actually not even close.

In the first place, the Donald geniuses forgot about the massive Iranian dark fleet that was already on the blue water heading for deliveries in India, southeast Asia, China, South Korea and Japan; and also that under the typical international payment terms upon deliveries of 60 days there was also in the pipeline a large floating batch of receivables coming due.

In a word, Grok 4 estimates that there were about 70 million barrels of already delivered oil in the 60-day receivables pipeline for cash payment, and another 130 million barrels of undeliveredIranian oil in transit on the blue water.

In all, that amounts to 200 million barrels of oil on the far side of the blockade. In dollar value that’s equal to upwards of $20 billion of cash collections over the next several months.

Likewise, the table below provides Grok 4’s best estimates of current mid-point values relative to the storage tank constipation gambit. As of late April, Iran has already reduced it daily petroleum liquids production pace to about 2.75 million barrels per day (mb/d), down from about 3.5 mb/d prior to Feb. 28th.

Now it happens that Iran has upwards of 2.8 mb/d of domestic refinery capacity designed to meet the needs of a 90 million person population, as well as provide some small product export volumes. However, as of the present time its refinery runs are averaging about 1.75 mb/d according to Kpler and other tracking publishers, but another 150,000 b/d or so is being brought on line to process its now abundant crude oil.

Kpler and others also estimate that the US naval blockade has been quite leaky at up to 1.0 mb/d in the early weeks of the US blockade, but that conservatively speaking upwards of 150,000 b/d are still finding an exit via the dark fleet ships hugging the coastlines of Iran, Pakistan and India on the way to STS (ship-to-ship) transfer and end markets.

In all, Grok 4 therefore estimates that at current production rates—with no further well shut-ins or reserve damage—Iran would need to store about 700,000 b/d. That is, in order to avoid backing up the system into the Donald’s imaginary oilfield blow-up.

At the same time, Iran is estimated to have about 41 million barrels of available storage between above ground tanks and floating storage on Iranian controlled tankers still in Iranian waters. And that’s before any longer term solutions such as salt dome storage are brought on line.

In short, Iran is appears to be very, very far from topping the tank in the next week or two. It may have upwards of 59 days of absorption from current domestic production after allowing for enhanced refinery runs and a modest level of export leakage through the US Navy blockade.

¹ Footnote on the 41 mbbl storage estimate (Kpler April 27–28 report):

Total assessed onshore capacity: 86–95 mbbl. less current onshore stocks of ~49 mbbl less practical operation limits= 26 mb of available tank storage. In addition, floating storage available in Iranian waters is estimated at 15 mbbl (7 VLCCs + 2 Aframaxes + reactivated VLCC M/T Nasha). Combined effective buffer: ~41 mbbl.

So here’s the thing. If you don’t think an ill wind is blowing in the global economy, take a gander at the graph below, which compares the price for delivered Dubai crude with the WTI cash spot price in Cushing OKLA. Never, ever has the spread at today’s $35 per barrel been remotely this wide. Actually, it has been negative for much of the time since 1990 because US sweet crudes have inherently higher value than the Brent benchmark crude.

So, yes, the parabolic rise of the line on the right margin of the graph is far from a stable condition. To wit, the massive bow wave of missing vessels coming out of the SOH means that the global oil, energy and other commodity markets are more out of balance and dislocated than at any time since the original oil embargos in 1973.

What will be unfolding at unprecedented scale during the months ahead is dislocations, screaming imbalances, severe bottlenecks and absolute physical shortages in global markets for upwards of 200 million BOE of liquid petroleum, LNG, LPGs and hydrocarbon processing by-products—fertilizer, sulfur, helium, aluminum etc. These unfolding dislocations will be roiling the global economy like never before.

On the one hand, “demand destruction” will be pulling global output lower as production is curtailed either by swelling costs or availability. On the other hand, soaring premium prices will be attempting to bring drastically dislocated supply/demand relationships back into balance via arbitrage all around the globe.

Once the adjustment process gets a full head of steam, the Mother of all Supply Shocks will hardly do justice to describing the carnage, as we will further amplify in Part 2.

Needless to say, the Donald’s penchant for lying and making up shit as he slides by the seat of his amble britches is about to catch up with him. Big time.

After all, Iran did not actually write the proposal he rejected in the above quote. Nor has Iran called the White House. And it did not send a distress note by email, fax, or carrier pigeon.

What actually happened is that Donald Trump stood in front of cameras and told the world that Iran is “begging for a deal,” that his phone is “ringing off the hook,” and that foreign leaders are “saying things to me that you wouldn’t believe.”

No. They aren’t. He made it up. Every damn bit of it.

https://davidstockman.substack.com/p/soon-comes-the-mother-of-all-supply