Yves here. I had said I would not post on the Iran war today but I feel compelled to offer some low-effort clarification. I had expressed mystification that the US officials could seem so completely chill about the implications of the continued choking of the Strait of Hormuz, as manifested by how they are ignoring the Memorandum of Understanding (MOU) save on provisions that get more oil to the market, even if Iranian. Not only is the US engaged in stonewalling in the form of refusing on to budge in its interpretation of limits on how Iran spends the $6 billion in frozen assets set for release in a 2023 Biden agreement and moving more men and material near Iran (this was an Iranian complaint to Qatar and not a mere Twitter rumor).
That had suggested to me that there must be some unobserved factor(s) influencing the US posture. I had speculated that perhaps even the low-compared-to the-old-normal energy flows out of the were still sufficient for the US to have a hope of eroding the oil cliff. Philip Pilkington not only decisively debunks that idea but explains why so much of the bizarre behavior, of paper oil prices being wildly out of whack with real world supply and demand. Pilkington unpacks the role of algorithmic trading: how they react to the obsessively cheery takes from the business and popular press (recall my regular criticism of Bloomberg in this regard), how the algos give weight to beginning-of-the-week positions, which enables traders to manipulate markets, and how the algos operate on momentum on top of that.
The advantage of having fewer information entries is you can spend more time on the ones provided. This segment with Mario Nawfal is a must watch. For those who are not big on videos or podcasts, you can find a machine-generated transcript here.
Long-standing readers may recall that we were early to feature Philip. He wrote for Naked Capitalism regularly in 2012 to 2014, before he went to the well-regarded fund GMO (we like to think his work here helped advance his career). He focused on bad mainstream economic ideas and how they showed up in misguided policies, often using Paul Krugman and Thomas Piketty as object lessons.
Reader DD GE pointed to an important Nate Wade post that we had managed to miss: Better Flows Were Clearing a Backlog, Not a Recovery. It addresses one of our questions: whether the tankers coming into the Gulf and being loaded with oil (as opposed to full tankers that had been trapped getting out) was getting to a level that could amount to meaningful relief. Wade’s reading is decisively not, based not just on transits but an unsentimental look at the state of play and trajectories. Key parts from his important article, starting with his overview:
The ceasefire holds, but the underlying deal has stalled on the points that determine whether reopening is sustainable.
Iran is entrenching control over the strait through mechanisms – mines, fees – that outlast any ceasefire.
Iran’s institutions can’t agree among themselves, so even a signed deal still may not compel the IRGC, hence the physical reopening the market is pricing isn’t coming on the MOU’s own timetable.
Meanwhile the price is being held down by three cushions – released barrels that had been trapped in the Gulf, SPR drawdowns, and Chinese reserves and reduced imports – that are all finite, so the mispricing identified in Two Spikes Coming hasn’t resolved.
New evidence this week – inbound tanker numbers, floating storage, operator testimony – confirms the physical picture rather than the price picture.
However, note that despite almost daily announcements by Iran that it is in control of the Strait of Hormuz and Oman side transits are therefore supposedly not on, they have been more on the Oman side than the Iran side:
The tankers are smart, they are using the funeral to go back in through the Oman route. https://t.co/XGG0sxf1I5 pic.twitter.com/82RCvD3GSC
— HFI Research (@HFI_Research) July 3, 2026
The detail:
Later in Wade’s post:
Roughly 170 million barrels of crude that had been trapped in the Gulf cleared the market once the MOU allowed it out. The SPR is drawing at a pace that leaves perhaps three to six weeks of room. Chinese crude imports have fallen by something like 5 mb/d since March, while China’s visible commercial stocks have barely moved, which means the shortfall is being met from reserves that do not appear in any published series. Cushing itself fell to 18.96 million barrels in the week to 19 June, the lowest since October 2014 and near the roughly 20 million barrels traders treat as an operational floor. A partial reopening of the strait does not fix that on its own.
Mind you, the level at Cushing has recovered a bit to 19.666 million barrels, but there is no reason to think improvement will continue.
An informational issue: Wade wonder if the $12 billion in Iranian frozen assets that Pezeshkian has been talking up have in fact been conveyed to Iran. As we have discussed long form, no. The US and Iran are still arguing over an aforementioned $6 billion and the other part has not yet been addressed.
And the US has admitted it has a wee fertilizer problem:
DECLARATION OF EMERGENCY AND AUTHORIZATION FOR TEMPORARY DUTY FREE IMPORTATION OF PHOSPHATE FERTILIZER FROM MOROCCOhttps://t.co/fouqFzMcFv
— U.S. State Dept – Near Eastern Affairs (@StateDept_NEA) June 30, 2026
You may see the headline as being hyperbolic in light of the tariff waiver applying (so far) only to Morocco, but we were not the one to use the “emergency” word.
See you (assuming a festive and no-kinetic-development weekend) Monday!
