EU considers stockpiling fertilizer as global oil stockpiles get closer to empty

(Originally published May 21 in “What in the World“) Markets seem confused about the likely outcome of Trump’s efforts on Iran.

Oil prices rebounded Thursday after falling sharply Wednesday after Trump said Tuesday he postponed fresh attacks at literally the 11th hour in response to pleas from Gulf allies for more time to negotiate a peace deal. “I would say we were, I was an hour away from making the decision to go today,” Trump said.

Trump said Iran now had an unspecified number of days to acquiesce to agreeable terms, i.e. surrendering its nuclear program. That seemed to embolden markets that a peace deal would prevent a return to war, and result in the reopening of the Strait of Hormuz and the resumption of global flows of crude oil and refined products.

But there is little evidence a peace deal is imminent. On the contrary, Israel is gearing up to resume attacks, skeptical that Tehran will deliver the kind of capitulation Trump is demanding. On the contrary, Iran has demanded the removal of US forces from near Iran, reparations, and an end to any attacks against it and its allies in Lebanon, Hezbollah. Oops. Lebanon says a fresh Israeli air strike in southern Lebanon killed 19 people despite an agreement to extend its ceasefire by 45 days.

And as has been pointed out repeatedly, even if the Strait reopens tomorrow, it will take weeks and even months for shipments to return to normal levels. Citigroup analysts on Tuesday forecast that supply disruptions would push Brent crude prices to $120 a barrel, from $105. Wood Mackenzie warns that Brent could reach $200 by the end of the year if the strait of Hormuz stays closed.

Financial Times columnist Martin Wolf lays the case out again, however, in a piece leaning heavily on another Substack newsletter:

• Iran’s attacks have caused long-term damage to its neighbors’ gas and oil infrastructure that will take week or even months to repair;
• Gulf crude and other petroleum byproducts can’t be as easily swapped with alternate supplies as might seem the case; refineries are often carefully calibrated to work with specific types of crude produced only in the Gulf. This is why prices for gasoline in the U.S. have topped $4/gallon ($1.06/liter) despite the U.S. being a net energy exporter.
• The impact has been mitigated by drawing down existing stockpiles, but they won’t last much longer. The U.S. has been leading record global depletion of strategic petroleum reserves. And nations thinking of falling back on coal may be in for a shock: the world’s biggest exporter of thermal coal, Indonesia, just announced it would control its export along with those of other vital commodities—such as nickel and palm oil.
• The shortages go well beyond crude oil to its byproducts, including natural gas, naphtha, and even bitumen. The EU is thinking of creating its own fertilizer reserve to address growing shortages.

“Markets,” Wolf writes, “seem to have persuaded themselves that these looming realities will lead, sooner rather than later, to a stable ceasefire and a reopening of the strait. This might happen. But it is not hard to imagine why it might not.”

And where would that leave us? Not with the status quo ante. Council on Foreign Relations Adjunct Senior Fellow Gideon Rose argues in Foreign Affairs that Trump’s present predicament resembles what Nixon faced in Vietnam: an unwinnable war that led him to seek a gradual withdrawal, a.k.a. surrender. Most importantly, the 1973 agreement struck with Hanoi allowed North Vietnam to hold on to its gains in South Vietnam, ultimately leading to Saigon’s fall. Trump’s only way out would leave Iran in control of the Strait of Hormuz.

But maybe markets aren’t confused. Maybe they’re simply taking their cues from a very large investor with the best inside information—Trump. According to disclosures by the U.S. Office of Government Ethics, Trump’s personal financial managers accelerated his trading of stocks in the past quarter, making more than 3,700 trades that included million-dollar buys of Dell, Nvidia, and other tech stocks. He also traded in oil stocks such as Chevron, ExxonMobil, and Phillips 66. Trump’s organization and family have denied he directs the trades. How could he? There are too many. Besides, that’s what he pays his financial managers to do.

In that way, Trump can not only profit from his own policies, but he can also influence the market and mitigate its ability to register displeasure over them. Instead, he can do what China was once famous for doing in Hong Kong’s stock market: engage in “price-keeping operations.”