Eve is here. I said I wouldn’t post about the Iran war today, but I’d like to explain it a little less forcefully. I have always wondered why U.S. officials seem so completely indifferent to the effects of the continued blockage of the Strait of Hormuz, as evidenced by their disregard for the Memorandum of Understanding (MOU) except for provisions to supply more oil to the market, even from Iran. The US is not only stonewalling in the form of vetoing the budget and moving more personnel and supplies closer to Iran with its interpretation of spending limits on Iran’s $6 billion in frozen assets that are scheduled to be lifted in the 2023 Biden deal (this is Iran’s complaint against Qatar, not just a Twitter rumor).
This suggested to me that there must be some invisible factor influencing the US attitude. I had speculated that perhaps even lower energy flows compared to the old normal were still enough for the US to have any hope of eroding the oil cliff. Philip Pilkington not only conclusively debunks that idea, but also explains why many of the strange behaviors occur, with paper oil prices so out of sync with real-world supply and demand. Pilkington unpacks the role of algorithmic trading. How the algorithm reacts to the unusually cheerful views of companies and the popular press (remember that I am a regular critic of Bloomberg on this point), how the algorithm weights early-week positions and allows traders to manipulate the market, and how the algorithm operates based on momentum on top of that.
The advantage of fewer information entries is that you can spend more time focusing on the information provided. This segment with Mario Naufal is a must-see. For those who don’t really like videos or podcasts, you can find a machine-generated transcript here.
Longtime readers may remember that we featured Philip early on. He was a regular contributor to Naked Capitalism from 2012 to 2014 before going to the well-regarded GMO Fund (we believe his work here helped advance his career). He focused on mainstream bad economic thinking and how it manifested in bad policy, often using Paul Krugman and Thomas Piketty as a lesson in his subjects.
Reader DD GE pointed out an important Nate Wade post that we had missed. “Better Flows Are Clearing a Backlog, Not a Recovery.” This answers one of our questions: whether tankers entering the Gulf and carrying oil (as opposed to trapped full tankers escaping) are at a level that qualifies as a meaningful rescue. Wade’s reading is not definitive and is based not only on transitions but also on a non-emotional view of the state and trajectory of the play. Key parts of his important articles (starting with an overview):
A ceasefire remains in place, but a basic agreement has stalled in determining whether a resumption is sustainable.
Iran has tightened its control over the strait through mechanisms such as mines and tolls that will survive any cease-fire.
Signing an agreement may not force the Revolutionary Guards to do so, as Iran’s institutions have not been able to reach a mutual agreement, so the physical reopening of the market would not be on the MOU’s own timeline.
Meanwhile, prices are held down by three cushions (emission barrels trapped in the Gulf, SPR drawdowns, and declining Chinese reserves and imports), all of which are finite, so the mispricing identified in Two Spikes Coming has not been resolved.
New evidence this week (number of tankers in port, floating storage, operator testimony) confirms the physical rather than price situation.
However, it should be noted that there are more crossings on the Omani side than on the Iranian side, even though Iran announces almost daily that it is in control of the Strait of Hormuz and therefore no crossings are taking place on the Omani side.
The tanker was smart, taking advantage of the funeral to return home via the Oman route. https://t.co/XGG0sxf1I5 pic.twitter.com/82RCvD3GSC
— HFI Research (@HFI_Research) July 3, 2026
detail:
The second half of Wade’s post reads:
Roughly 170 million barrels of oil that had been trapped in the Gulf were taken off the market after a memorandum of understanding authorized their release. SPR is probably drawing at a pace that leaves room for 3-6 weeks. China’s crude oil imports have fallen by about 5 million tons per day since March, but visible Chinese commercial inventories have barely moved. In other words, the shortfall is compensated for by reserves that have not appeared in any series. Cushing itself fell to 18.96 million barrels in the week ending June 19, its lowest level since October 2014 and closer to the roughly 20 million barrels that traders treat as the lower bound for operations. Partial reopening of the strait will not solve the problem by itself.
As a reminder, Cushing levels have rebounded a bit to 19.666 million barrels, but there is no reason to think the improvement will continue.
Information problem: Wade wonders if the $12 billion in frozen Iranian assets Pezeshkian is talking about was actually passed on to Iran. As I explained about the long form, no. The US and Iran are still in dispute over the aforementioned $6 billion, with the remaining portion still unaddressed.
And the US admitted there was a small problem with fertilizer.
Declaration of state of emergency and permission for temporary duty-free import of phosphate fertilizer from Morocco https://t.co/fouqFzMcFv
— U.S. Department of State – Near East Affairs (@StateDept_NEA) June 30, 2026
We were not the ones who used the word “urgent”, although the headline may seem exaggerated given that the tariff exemption only applies to Morocco (for now).
(Assuming a weekend of festivities and no athletic development) See you on Monday!
