We’ve felt for several weeks that financial markets were too optimistic in expecting a rapid re-opening of the Strait of Hormuz (see Calmer But Not Resolved and A Healthy Correction). Commercial shipping can only resume once the threat of Iranian attacks is resolved, an achievement  we felt was beyond the ability of military action short of a large-scale ground invasion. The mere threat of a drone strike is enough to dissuade ship owners, and drones can be launched from the back of a truck. This is Iran’s call.

As the White House indicated it’s settling in for an extended blockade, oil and gas prices have responded. Although $4 gasoline is exciting political commentators, it remains in the 3-4% range of household expenditures. Gas prices were here as recently as four years ago and the world kept turning. Energy prices are causing pain in Europe and Asia, but the US economy is less energy-intense than in the past as well as being energy independent.

Trump may have concluded that in November’s mid-terms the House is lost. But Democrats still haven’t moved beyond promoting unchecked immigration, high taxes and male athletes competing as women, so the Senate for now is not lost. It’ll take at least $5 gas prices to affect that calculus.

This may be coming. The loss of global supply is estimated at 10-14 Million Barrels per Day (MMB/D). Continued global consumption of around 105 MMB/D is relying on inventory drawdown around the world, with an estimated 500 Million barrels used so far. The last pre-war shipments from the Persian Gulf docked over a week ago. Consumption will soon need to drop below 100 MMB/D, which will require prices high enough to cause demand destruction.

The departure of the United Arab Emirates (UAE) will weaken OPEC and lower oil prices at the margin, just not yet. The UAE has long been frustrated at its cartel-mandated production allocation of 3.6 MMB/D versus its capacity of around 4.2 MMB/D, which it expects to reach 5 MMB/D by next year. Presently they’re exporting around half of their pre-war figure, all of it from Fujairah, which is outside the Persian Gulf and receives its oil via pipeline. But eventually they’ll use their reclaimed flexibility to produce closer to capacity.

Qatar began shipping Liquefied Natural Gas (LNG) last month. Not from the Persian Gulf, but from the Golden Pass LNG export terminal in Sabine Pass, TX, where QatarEnergy has a 70/30 JV with ExxonMobil. Feedgas volumes to US LNG terminals have been running as high as 19 Billion Cubic Feet per Day (BCF/D) recently.

FERC set the new inflation adjustment that covers most interstate pipeline tariffs at PPI-0.55%. This is the link that provides pipeline investors with inflation protection. Shippers (i.e. pipeline customers) had argued for a bigger negative adjustment and pipeline owners for a positive spread. The result was a compromise, although better for investors than the original proposal in November of –1.42%. It will be in effect from 2026-31.

The unpopularity of data centers reached our neighborhood recently. Coreweave is building on a 40 acre site in Kenilworth, NJ near our long-time home in Westfield. Construction began in September but local residents only recently learned about the new use for this former Merck campus. PJM, the country’s largest grid operator whose territory includes New Jersey, has blamed AI for rising electricity prices. Data centers create few jobs and need to displace workers to justify the hundreds of billions being invested in them annually. So there’s not much to like beyond their need for natural gas fired electricity, assuming you’re so invested as we are.

We spent last week in London. The UK news always reminds me why I left in 1982. This FT article Britain acts richer than it is includes a chart showing that Britain’s standard of living is nearer to Poland’s than the advanced economies that used to be its peer group. I find it quite sad.

The Prime Minister (PM) is being hounded out of office by a tabloid press that regards ejecting leaders as a blood sport. Since David Cameron resigned after the 2016 Brexit vote they’ve had five PMs and it’ll soon be six. The two main political parties are each threatened by more extreme versions on their flanks. The Greens, a socialist party where New York’s Mayor Mamdani would feel at home, are second in opinion polls. The country is ungovernable.

Two members of a gang that stole motorbikes from a warehouse received prison terms of 19 and eight months even though they had multiple prior convictions. They were expected to be released immediately due to time already served.

Britain’s politics is left of America’s in all respects, most of them harmful.

But London is one of the world’s great cities. I love returning, catching up with old friends, visiting familiar places and feeling at home. Trips back are naturally synchronized with Arsenal’s Premier League games. The parks across central and west London provide a glorious thoroughfare. You can walk from Trafalgar Square past Buckingham Palace to Kensington Palace almost completely through green spaces covering three miles of Britain’s history represented by so many statues and monuments. On sunny days, which were plentiful, it is a truly wonderful place. I’m proud of my heritage.

In London I saw David Wilson for the first time since we were at school together in the 1970s. David has enjoyed an illustrious career including a partnership at UK law firm Simmons and Simmons before being poached by Goldman Sachs. Today he runs an executive coaching firm and is wrapping up his second five year term as Chair of Governors at Forest School, where we first met. David treated me to a most convivial lunch at the Hurlingham Club where we shared stories about former pupils (US: students) and our lives in the 46 years since we were both at Forest.

And now I’m heading back to America, which is my home and where I prefer the lifestyle, climate and politics.

We have two have funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

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