The Donald Gets a Double-Whammy

It sure looks like the Donald is on the receiving end of a double-whammy. His victory declaration in Iran looks to rank right up there with George Dubya Bush’s “mission accomplished” pratfall on the deck of a US aircraft carrier in 2003; and that also means that his SOTU boasting about defeating “Joe Biden’s” inflation and getting the gas pump price under $2 per gallon is out the window, too.

What’s back in play front and center, therefore, is the AFFORDABILITY issue come November. The Dems have no clue about how to fix it, of course, but they sure as hell will be brutally pounding the GOP candidates and the Donald with the latter’s own bogus hot air on the matter.

For want of doubt, consider the conflagration in the global oil markets at this very moment. At ground zero in the Persian Gulf, the major crude oil from the region have already shot the moon.

Thus, Oman crude prices are up to $154/barrel, crossing $150 for the first time ever. At the same time, Dubai crude is up to $130/barrel, while Brent is trading at $110.

This means, in turn, that the gap between Oman and world prices is off-the-charts wide, and now stands at 30% or $44 per barrel. By comparison, before the Iran War, the difference between all benchmarks was just $5 per barrel during January and February.

In very short-run, of course, Brent and WTI are priced based on US and European supply conditions, while the actual disruption is concentrated in the Middle East, meaning they do not fully capture the severity of the physical shortage. YET.

On the other hand, global crude oil markets everywhere and always eventually get arbitraged, causing the major marker grades to fully reflect worldwide supply, demand and inventory conditions. So unless the Gulf is re-opened within a matter of days, the marker grades will soon rise toward these Gulf prices as global inventories continue to be liquidated.

Short-Run Breakout of Persian Gulf Crude Oil to $150/bbl

We therefore needs turn to the Brent marker crude oil price, which is the economic thermostat that measures conditions in global energy markets based on worldwide supply, demand and inventory factors. And what we can see is that Brent is already back up to nearly $110 per barrel, which is the zip code where global crude oil peaked during the June 2022 inflationary blow-off.

Brent Crude Oil Price, 2022 to 2026

Of course, the Donald bravely claims that oil prices will “drop like a rock” as soon as markets realize that the so-called Iranian Terror State is no more. But actually the opposite it true.

Contrary to White House misinformation and Hasbara lies from Bibi Netanyahu/neocon brigades on the internet, Iran still has large stashes of missiles and drones buried deep in protected underground vaults—many of them lining the Persian Gulf. These lethal weapons can and likely will turn the Strait of Hormuz into the mother of all economic dumpster fires.

Already, crude oil tanker traffic has slowed to a crawl, meaning that effective supply in the world is running at about 85 million barrels per day (mb/d), while demand was running at 105 mb/d prior to the Bibi & Donald attack on Iran. In turn, this means that OECD commercial stocks of about 2.86 billion barrels before the war are being drawn down by 5% each and every week that the war continues.

And, no, the ballyhooed IEA release last week of 400 million barrels from strategic petroleum reserves won’t make much difference. It will off-set just 1.7 weeks of lost Persian Gulf supply.

And that’s not the half of it. As usual, the Israeli’s are busy adding insult to injury. So last night they triggered a further Persian Gulf escalation by bombing the world’s largest natural gas field, the Iranian South Pars site. The latter is offshore in the Persian Gulf, where it is shared with what Qatar’s calls the North Field.

Not surprisingly, therefore, Qatar’s foreign ministry minced no words:

“The Israeli targeting of facilities linked to Iran’s South Pars field, an extension of Qatar’s North Field, is a dangerous & irresponsible step amid the current military escalation in the region,” says Qatar’s Foreign Ministry spokesman Majed al-Ansari on X.

“Targeting energy infrastructure constitutes a threat to global energy security, as well as to the peoples of the region & its environment……”

In response, the allegedly defenseless Iranians have now given fair warning for the evacuation of most major Gulf production facilities, meaning that a new barrage of disabling missile and drone attacks are likely on the way. That is to say, the global blockade of world energy supplies behind the Strait of Hormuz is about to take a further turn for the worse.

As shown by the map below, the Persian Gulf may soon go up in flames entirely. And that means not just continued blockage of crude oil and refined product flows, but also a blockage of major shares of global trade in LNG, LPGs ( primarily propane and butane used for cooking and heating), sulfur, nitrogen fertilizers and helium which is vital for semi-conductor production, among others.

The IRGC published satellite images of five specific Gulf facilities with identical Arabicevacuation warnings: military strikes within hours. Ras Laffan and Mesaieed in Qatar. Jubail and Samref in Saudi Arabia. Al-Hosn in the UAE. These are not vague threats. They are targeting packages published on open channels with coordinates the entire world can verify.

Needless to say, when the global marker crude is rising, pump prices of gasoline in the US are not far behind. Already, the national average pump price has hit just under $4 per gallon, which is up by +27% from the $3.04 per gallon level that was recorded when Joe Biden was packing his slippers, pajamas and hot water bottle to be wheel-chaired out of the White House in January 2025.

National Average Gasoline Price, Unleaded Regular, Last 24 Months

To be sure, the Donald is under the badly mistaken assumption that because the US imports very little petroleum from the Persian Gulf and because he daily genuflects to the “drill, baby, drill” mantra, that the voters in swing districts from Pennsylvania to Arizona won’t notice.

Oh, but the will!

Even junior staffer flunkies on Capitol Hill understand that crude oil is priced in a global market based on supply and demand from all corners of the planet. If the strait remains closed and oil supply stays at the aforementioned 85 million mb/d versus normal demand of 105 million mb/d (+/-), the Brent marker crude will stay well above today’s $110 per barrel; and likely in very short order—as inventories continue to be liquidated—-will ratchet upward toward or even exceed $150 per barrel.

At that point, the Donald surely won’t be “wondering” so much when the fruits of global market price arbitrage are staring him in the face— even if the US doesn’t buy even a single physical molecule of hydrocarbons from the Persian Gulf:

“I wonder what would happen if we ‘finished off’ what’s left of the Iranian Terror State, and let the Countries that use it, we don’t, be responsible for the so called ‘Straight?’ That would get some of our non-responsive ‘Allies’ in gear, and fast!!!” he posted on Truth Social.

In any event, it is not simply our contention that gas at the pump in Flyover America will go to $5/gallon in the event that the global marker crudes continue to rise. What is at work here is nothing less than the laws of markets 101.

For instance, at the Lockdown bottom in June 2020 Brent oil hit $27 per barrel and USA gasoline prices plunged to $1.85 per gallon. But when Brent exploded higher to $118 per barrel in mid-2022, the readings at the USA gas stations marched straight uphill to $5.05 per gallon.

Moreover, the major force in this instance which caused a four-fold swing in the crude oil marker price was demand-side turbulence owing to the Lockdown depression of vehicular traffic, followed by the subsequent sharp rebound as the economy was progressively re-opened and the consumers came out of their fear-driven COVID-bunkers.

By contrast, this time the swing factor will be radical supply shortfalls and sheer uncertainty about when and for how long they will rebound owing to a hot war in the Persian Gulf that is now raging out of control.

Brent Market Crude Versus US Unleaded Regular Gasoline, 2018 to 2022

As it happens, the prospect of $5/gallon next November is not the only element of AFFORDABILITY that is lurching in a southward direction. The producer price index for February released today indicates there is a lot more inflation in the pipeline than just surging pump prices.

In particular, the PPI less food and energy has now clearly turned upward. After peaking at a Y/Y rate of 9.7% in March 2022, just ahead of the CPI peak later in the year, this index marched downhill to a low if 1.8% Y/Y in December 2023. But that’s all she wrote, with this index posting at more than double that rate at +3.9% in February.

But here’s the thing. The trend rate posted for February at damn near 4% doesn’t compute to any kind of victory over inflation in the real world where hard-pressed American wage earners struggle to keep their heads above water. At this rate, at dollar earned or saved today would be worth 55 cents after a decade’s time.

PPI For Final Demand Less For And Energy, 2022 to 2026

Thanks to the Donald’s attempted incineration of the Persian Gulf energy and industrial infrastructure, in fact, global food prices are also heading skyward. For instance, upwards of 50% of global trade in urea originates in the Persian Gulf, as does about 30% of ammonia trade, which is a critical precursor for a variety nitrogen based formulations.

Not surprisingly, coming as it does on the eve of the northern hemisphere planting season, the closure of the Strait of Hormuz has already propelled ammonia prices higher to $590 per metric ton, up by +37% from the 2023-2025 average; and in the case of urea, the current $655 price per tonne represents nearly a +28% rise from the prior three year average.

In short, both food and fuel prices will be rising consistently from present levels. In turn, that means that “affordability” has nowhere to go except to the worse.

Already our trusty trimmed mean CPI has been signalling for several months that the inflation rate has bottomed and is now moving higher. But with oil above $110 per barrel and gasoline heading to $5 per gallon there is no longer any doubt.

That is to say, the Iran War is heading for an even greater disaster in the Persian Gulf and inflation is fixing to leap toward 5% and beyond. That’s a double-whammy however you slice it.

Annualized Change In 16% Trimmed Mean CPI, May 2024 to February 2026