Strait Of Hormuz | Armstrong Economics

QUESTION: Will oil go crazy if Iran closes the Strait of Hormuz?

Sam

ANSWER: It is questionable if Iran would do that, for we get only about 3% of our oil through that strait, whereas 80% or so goes to China. Nevertheless, February was a Directional Change and March remains a key target until we have a Panic Cycle in June. We also have a Yearly Panic Cycle in 2028.

China has built the railway infrastructure that connects Iran to China, creating a potential land corridor for energy and trade. While not a dedicated oil pipeline, it is a crucial piece of China’s strategy to secure overland energy and trade routes. The railway to Iran is not a solution to a Strait of Hormuz closure, but it is a component of a much larger risk-mitigation strategy. Consequently, this is a strategic, diversified, overland route for some energy and a lot of trade, enhancing China’s leverage and resilience.

A Strait of Hormuz closure will ignite a national energy security crisis for China that the railway alone could not solve. It would cause immediate global oil price spikes and severe economic pain for China. We would expect oil to rise to $140 level and an all out war it could even reach $240. Therefore, while China is actively working to reduce its vulnerability to a chokepoint like Strait of Hormuz through projects like the Iran railway, it remains overwhelmingly dependent on that sea lane. Its overall strategy is one of diversification and incremental risk reduction, not the possession of a single, ready-made alternative.

The question of whether a Strait of Hormuz closure would impact Europe more severely than the United States cuts to the heart of energy geopolitics and the fundamental restructuring of global oil flows over the past decade. The answer is unequivocally yes—Europe would suffer catastrophically while America would face manageable disruption. This asymmetry represents one of the most significant geopolitical vulnerabilities in the current international system.

The Democrats after imposing sanctions on Russia, saw gasoline prices rising and Biden called it “Putin’s Inflation.” He then started selling off the Strategic Petroleum Reserve (SPR) all for political purposes to pretend his actions were not stupid. As always, the Neocons are INCAPABLE of dealing with more than one issue – defeat Russia. They care nothing about the people or the country. To them, this is like the children’s board game of WAR.

In 2022, in response to high gasoline prices following Biden’s Neocon sanctions on Russia, the Biden administration authorized the largest-ever release from the SPR amounting to at least 180 million barrels over several months. The SPR inventory dropped from about 638 million barrels in late 2021 to around 347 million barrels by the end of 2022—its lowest level since 1983.

We are plagued by the absolute worst politicians in human history for they act ONLY in their self-interest and NEVER for the people or the country long-term. They have ZERO sense of history and ZERO interest in even looking at the past. Europe is especially vulnerable for a series of really stupid decisions.

Europe faces an entirely different situation. The European Union consumes approximately 13-14 million barrels of oil daily while producing less than 3 million barrels domestically (primarily from Norway, which is not an EU member). European oil import dependency exceeds 85%.

Critically, Europe imports approximately 2.5-3 million barrels daily directly from Persian Gulf producers, primarily Saudi Arabia, Iraq, and UAE. This represents roughly 20-25% of total European consumption. However, the impact calculation is far more complex than this direct percentage suggests.

If Persian Gulf oil disappears from global markets, every importer competes for remaining supplies. Europe would be bidding against China, India, Japan, South Korea, and other Asian consumers for non-Persian Gulf oil from Russia, West Africa, Latin America, and North America. Europe’s bargaining position in this competition has been severely weakened by deliberate policy choices.

Angela Merkel’s government decisively shifted Germany’s energy policy following the Fukushima nuclear disaster in Japan in March 2011. Merkel appointed an ethics commission on “Safe Energy Supply.” Based on its recommendations, she announced in May 2011 that Germany would phase out all nuclear power by 2022. That decision alone demonstrated that she lacked the quality to be an actual world leader. She is the one who opened the flood gates and allowed everyone to pour into Europe because she was being criticized for refusing to help Greece and was concerned only about her image. Those two decisions alone are putting the nail in the coffin of the EU.

Merkel was so concerned about her image to make person of the year, so did Hitler, Stalin, Zelensky, and Gretta no less how wonderful it would be with Biden and Kamala. Time’s track record of picking losers seems to be pretty on point.

Europe imposed comprehensive sanctions on Russian oil following the Ukraine invasion, attempting to reduce imports from approximately 2.5 million barrels daily to near-zero. While European countries have found workarounds (purchasing Russian oil refined in India and Turkey, or transported through obscure intermediaries), the relationship has fundamentally deteriorated.

Then every source I have says Zelensky gave the order to blow up Nord Stream. The cover-up is claiming a general defied Zelensky’s orders and blew up Nord Stream. Of course, they have to claim that or else why would Europe go to destroy itself for Ukraine? Zelensky is vindictive, I believe a closet Neo-Nazi who pretend to be a christian before becoming president in an election many believe was rigged.

In a Strait of Hormuz crisis, Europe could not rapidly re-establish Russian supply contracts. Russia would prioritize China and India—who did not sanction Russian energy and have built payment infrastructure in rubles and yuan. Europe would be at the back of the line, forced to pay premium prices for whatever Russia was willing to sell. If I were Russia, this would be the time to crush Europe into the dirt. Paybacks can be a bitch, as they say. If the EU is stupid enough to listen to the NATO Neocons, then Russia would be wise to cut off all exports to ensure that NATO is undermined.