The escalation

Simon’s a retired petroleum engineer living way up there in Lund, BC. (Hopefully near Nancy’s Bakery. Yum.)

He’s worried now. This morning West Texas oil hiked over $100 a barrel again, on new war escalation. Gas north of Van is routinely above $2 a litre these days. So Simon thought he’d dive into exactly where BC gasoline is sourced.

He wishes he hadn’t asked AI to look.

“Copilot says that 25-35% of BC’s refined petroleum products (RPPs) currently originate from the Strait of Hormuz, get refined on the US west coast, then are sent up here,” he says. “When that crude oil supply is interrupted it takes 20-30 days before the tankers stop arriving in Washington state and California, and the finger pointing starts.

While some BC gasoline comes from Alberta and some is refined in Burnaby, most of it comes from US west coast refineries. The infrastructure to get more RPPs from the rest of Canada, either by rail or pipeline doesn’t currently exist. BC will therefore need the Americans to be very nice and accommodating so they continue to supply us left coast Canadians with gasoline while they are short of it themselves. Hmm!

I see no evidence that the BC or federal governments are aware of this impending issue. Nobody is talking about it or preparing the public. Perhaps you might like to write about it and forewarn them?”

Simon’s right. The distribution web for oil and refined products is intricate and convoluted. For example, most Americans think their country is energy independent and a net oil exporter. But America sucks in more than four million barrels of Alberta crude a day – twice the level of 15 years ago – with a quarter of all the stuff US refineries take in coming from Canada.

By the way, the world price for oil as I write this is $115 for Brent and $102 for West Texas. But Canadian oil is being sold to the States for about $88 a barrel. Yes, they get a deal. It proves again President Trump has a shaky relationship with truth, after saying America doesn’t need Canada for anything and that we’ve ripped his nation off for decades.

So what’s new that Simon should worry about?

The Iran-backed Houthis have jumped into the war, lobbing missiles from Yemen into Israel and threatening to further restrict the flow of oil by blocking then narrow Bab el-Mandeb Strait. That matters since about seven million barrels a day get transported there after flowing through a pipeline meant to get around the Strait of Hormuz, which the Iranians have gummed up.

Add it up. That’s a 23 million-barrel-per-day hit for the global economy. If it continues, recession may follow.

There’s more, S.

Trump posted this morning that talks with Iran are going well (he may have made that up) but if they don’t succeed he’ll bomb all power plants, desalination facilities and the massive oil terminal at Kharg Island – where 90% of Iranian oil is loaded. Just imagine what they would do for prices.

Oh, and did we mention 3,500 US assault troops who just landed in the hood, looking for something to do? Or the other 50,000 American soldiers stationed in the region? Or the fact the Iranian do not trust the White House dudes after they twice attacked during negotiations? Would you put faith in this gang? In Jesus-Crusader lethality Hegseth?

It’s a mess.

Says Scotia economist Derek Holt, wisely:

The US administration may have seriously underestimated what it was getting into with Iran and so it’s unclear how to extricate itself without being perceived to have largely failed to achieve the prime objectives of regime replacement, removing enriched uranium stockpiles and effectively eradicating the nuclear program and its staff.

Iran is not a democracy. Iran does not face any election timeline like the US does. Iran is not an openly capitalist economy. Iran is used to hardship. Iran has fought many vicious wars and experienced enormous suffering. Iran’s geography makes escalating a conflict a high-risk venture. Iran has friends in low places with similar characteristics. Iran’s vicious tentacles reach across the world. Iran’s regime hates the west and everything it stands for. It’s naïve to assume that hordes of Iranians will rise up against the regime versus embracing nationalism against a bigger perceived enemy that is attacking them; the enemy of my enemy is my friend.

Now, given all thus, why did the stock market open hundreds of points higher this morning?

Sure, hopium that Trump really, really, really isn’t fibbing again about ‘great progress’ in the talks with Iran and won’t blow up Kharg Island. Or send in the Marines.

More importantly, stocks now look cheap. The Dow is 10% below its record peak and given the increase expected in corporate profits this year, the S&P 500 might be on sale at a 17% discount. This could be as close to an equity bottom as we get, some Wall Streeters are saying. And, after all, the war has to end. It’s inevitable. This is killing Trump’s fading chances in the November midterm elections. The last thing he wants is a stock slump with his name on it, or spiralling bond yields making the national debt harder to finance.

TACO, baby. What Doug wrote about on Saturday.

Stay invested and reap, Simon. You’ll need it to gas up.

About the picture: “This pic is of our rescue pup from Lebanon,” write Colleen and Dennis. “She is clearly not impressed with our grandson’s new toy! Thx for all your advice.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.