2026 Fuel Prices & Security of Supply

pdh:

Except who thinks that there are no other oil suppliers in the world ?
Who thinks that the many world oil fields won't be cranking up production - now that the value of their output is up by 20%.

It's not merely about can the US pump out more oil. Can the US load that extra oil onto tankers? You don't typically build twice as much capacity as you need and then just let it sit idle. Source: can barely get enough budget to build the stuff that keeps the lights on. Double that? As if.

But even if they could double their output and load it onto tankers, there are fewer tankers available to take it because a bunch are stuck on the wrong side of the Strait and the ones that can be used have to travel twice as far to get to Asia. If your tanker has to travel twice as far, then it can only carry half as much oil in any given time. Some tankers can take shortcuts through the Suez or Panama canals, but those are the smaller ones and there are traffic limits, especially on the Panama canal which has a water shortage.

You also can't just dump any old oil into a refinery. It has to be tuned to the kind of oil you're using. I assume modifying the refineries doesn't take years but it isn't just a knob you turn either.

So it may not be true that we are heading for a zero oil crash, but it's also not true that it's business as usual just with higher prices. Shortages are coming if the situation does not resolve. And that's just the oil - the other countries might not be setup to make up the shortfall in the byproducts and closely associated petrochemicals we are also missing out on like sulfur and helium, or fertiliser.

In the longer term Iran will lose because the other Gulf states will arrange with Saudi to put pipelines across to the Red Sea, other countries will increase their output, more tankers will be made available, and in the meantime any sensible country will finally be fast tracking their projects to actually get off of oil once and for all. I would not put my money on Iran simply shrugging and quietly walking away though. They still have a ton of missiles, drones and launchers and 400kg of partially enriched uranium, and they can build more missiles and drones in particular a lot faster than the US can build more interceptors. For all we know they may have built well enough and deep enough that the enrichment facilities only need to be dug out and they can start up again, and at this point if you're Iran you are absolutely building a bomb because it's clear that Israel and the US will just go ahead and bomb the crap out of you whenever they feel like it, but funnily enough they don't do that to North Korea for some reason. Worst case you can mix a bit of spent fuel crap from Bushehr into the warheads of your conventional missiles to contaminate everything they fall on just for fun.

Once it begins to look like their chokehold on the Strait is about to lose its value, they're going to fire off everything they have in order to destroy as much as possible around the region while it still matters.

So the way I tend to see it is that we're going to get shortages, possibly serious, which will gradually improve again over the course of the next year until Iran sees they are losing their leverage, then everything across the Gulf gets seriously damaged or destroyed leading back to more serious shortages, which will then gradually improve again.

And either way the path forward for the people of Iran is going to be very bloody because the theocracy has all the guns but at some point the situation there is going to get dire enough that throwing yourself at the IRGC until they run out of bullets so you can tear them apart with your bare hands will start to look like the least worst option.

pdh

SaltyNZ