The New Dark Age

The time between Germany’s invasion of Poland (September 1939) and the invasion of France (May 1940) was called the “phoney war” as France and the UK decided not to seriously attack Germany’s western border. During this time, the French and British were putting together a force to help the Finnish in their war with the Soviet Union. Thankfully, that ended before the Western forces could get to Finland but it underlines the priorities for the British and French elites; fighting the communist Soviet Union rather than fascist Germany.

The financial markets are treating the US-Iran War as a phoney war, when in fact it is a very hot war with major global financial and economic impacts. They have only just started to respond to this future reality with the Israeli bombing of the Iranian gas processing facilities and Iran’s retaliation attacks on the Qatar LNG infrastructure. But they still have a long way to go. Trump and his administration constant jaw boning and misinformation has managed to keep the rise in oil and LNG prices under control, together with the lifting of sanctions on Russia oil (and perhaps Iranian oil very shortly). As have what appear to be AI-generated appearances of Netanyahu (the latest one seeming to be a mixture of real historical footage and AI-generated footage with an auto-lengthening sleeve). These efforts have a sell by date though, and the financial markets will fully awake from their slumber in quite violent fashion.

When will this happen? No one can fully predict this, as markets can live in denial for substantial periods. The war has lasted nearly 3 weeks (20 days) now with quite rapid escalation, while the US administration and its helpers weave numerous fairy stories to calm the markets. One of these is the ridiculous claim that the US/West can somehow gain control of the Strait of Hormuz; a claim taken apart below.

Another is Trump’s claim that he has mythically already “won” the war, or that he could end it any time he likes. It is Iran that will now decide when it ends, and its’ leadership has been forthright in its’ plans for a long war and a post-war continued control over the Strait of Hormuz with other nations having to pay for their transit through the Strait.

It will soon be April/May when the EU nations will have to start refilling their natural gas storage for the winter, from a seasonally low level made even lower by a cold winter. That is when we may see the “TTF Gas” (price for a MWh of electricity generated using gas) price explode to the levels of 2022; it is already starting to break out, up over 200% since the war started . Numerous countries are also tapping their strategic reserves of oil, but as I have noted previously the flow from these reserves is perhaps only 2 mbpd on a global level. Also, in some countries the reserves are very limited. For instance, an Australia that is self-sufficient in gas has only 36 days worth of petroleum, 29 days worth of jet fuel and 32 days worth of diesel in its reserves. What happens when they run out sometime in April? A country which may be hit even faster is a UK with negligible natural gas and oil reserves. It will not be just the impact of paying the higher prices, but a very real possibility of no supply at any price. Especially with Europe going on a Russian oil and gas hunger strike. A situation made much worse by ballooning government debt interest rates and a falling currency.

The probability is that if Iran stays in the war through April (6 more weeks), with more oil and gas infrastructure being damaged, we will be in a full blown energy and financial crisis; with financial markets highly extended in valuation terms and many financial players extremely leveraged. With queues at the petrol pumps reminiscent of the 1970s, with the European EV owners only able to gloat a little given the sky high electricity prices. Made possibly worse by US controls on oil and gas exports. Europe, South Korea, Japan, Australia and New Zealand will be severely hit. While Russia works to redirect oil and gas tankers to its Asian friends, such as India and China.

There will also be an awful lot of coal-fired power stations being better utilized or brought out of moth balls in places such as China, India and ASEAN; together with a rush to install new solar and wind projects. A more intense focus on energy sovereignty may also be a result, benefitting electrification and non-fossil fuel energy sources; which Russia (nuclear) and China (nuclear, electrification, wind, solar) will be happy to sell to everyone.

Countries with large tourist sectors may be also doubly hit, as high prices and shortages of jet fuel starts to severely limit the global airline industry. Countries where tourist travel long distances to reach, such as Thailand with respect to European and US tourists. Especially with the inability of airlines to even fly from Europe to Asia; the lack of overflight of the Middle East now compounding the Western airlines inability to fly over Russia, the result of banning Russian flights from European air space. The GCC states that allowed their territory/air space to be used to attack Iran will pay dearly, and the US vassal states in Europe and Asia will be in severe economic and financial crises.

Enjoy the Phoney War, before the shit truly hits the fan.