The Oil Shock Nobody Wants to Think About

Let me tell you about a chokepoint.

It’s 33 kilometres wide at its narrowest. Two shipping lanes, each barely wider than a football field. Every single day, twenty million barrels of oil pass through it.

That’s one in every five barrels produced on Earth.

It’s called the Strait of Hormuz. And on February 27, when the first bombs hit Iran, it shut down.

I’ve been writing to you about this exact vulnerability since June last year. In our piece ‘Israel’s War for Lasting Peace Spells Danger for Oil Supply Chains’, we told you: this single chokepoint carries 20% of the world’s oil. If it closes, prices go to triple digits and stay there.

That’s exactly what happened.

Brent crude started the year at $61 a barrel. By April 2, it had hit $128.

Goldman Sachs called it the largest supply shock in the history of the global crude market. Their latest note, published April 9, warns that if the strait stays closed for another month, Brent averages above $100 for the rest of the year. If it drags on longer, $120 in the third quarter.

Now. A two-week ceasefire has the strait nominally open again. Brent briefly dropped 15% to $92 on the announcement. Within 48 hours it was back above $97. By Wednesday morning it touched $101.

The talking heads said the worst was over.

I want to explain why the market is wrong.

The Damage They’re Not Showing You

Here are three numbers that tell the whole story.

More than forty. That’s how many energy assets across nine countries have been severely damaged since the war began, according to IEA chief Fatih Birol. That count is from late March. The real number today is almost certainly higher.

Twenty-five billion. That’s the repair bill so far, in US dollars, according to Rystad Energy. They describe it as an initial assessment. It’s expected to rise.

Nine point one million. That’s how many barrels per day of Gulf oil production the EIA expects to remain shut in during April. Up from 7.5 million in March.

The number is going in the wrong direction.

Those shut-ins happened because countries manually turned valves at their facilities. A process that, week by week, causes corrosion and structural damage. The longer they sit idle, the harder and more expensive the restart becomes.

The IEA says this now exceeds the combined severity of the 1970s oil shocks and the 2022 loss of Russian gas supplies.

Combined.

Let me put that in perspective.

Libya lost 400,000 barrels a day in 2011. Fifteen years later, production still hasn’t recovered to pre-war levels.

Iraq took six years to claw back to where it was before 2003. Six years.

Iran faces an even harder road. Western sanctions cut it off from global supply chains. It’ll have to rebuild with Chinese and domestic contractors. Slower. More expensive. Years, not months.

Qatar’s Ras Laffan Industrial City, the largest LNG facility on Earth, has been offline since March 2. Two of its liquefaction trains were destroyed, cutting capacity by 17 per cent.

The specialised gas turbines needed to restart them are built by only three manufacturers in the world. All three entered 2026 with production backlogs of two to four years. Some of these facilities may not come back online until the end of the decade.

The IEA has already authorised 400 million barrels from strategic reserves. That buys time.

But strategic reserves are exactly that. They’re for emergencies. Drawing them down to fill a structural gap is like paying your mortgage with your emergency savings. It works until it doesn’t.

Even in the best case — peace holds, the strait stays open, everyone shakes hands — we’re still left with wrecked infrastructure, insurers refusing to underwrite tanker routes, and a global market running on borrowed barrels.

Which brings us to the uncomfortable question.

What If the Ceasefire Is a Stalling Tactic?

I want you to think about something.

This war opened with the assassination of Ali Khamenei. The supreme leader of Iran. Killed in an Israeli air strike on his compound, February 28.

His death was confirmed by Iranian state media the following day.

Stop and consider what that means.

For most of modern warfare, killing a head of state has been off limits. The Hague Conventions of 1899 prohibited it. After the Church Committee exposed CIA assassination plots in the 1970s, the United States banned political assassination by executive order in 1976.

That ban held through the Cold War. Through the Gulf War. Through Iraq and Afghanistan. Through decades of proxy conflicts and shadow wars.

Trump shattered that precedent on day one.

The targeting has only escalated since. On April 6, just two days before the ceasefire, Israel killed IRGC intelligence chief Majid Khademi in a precision strike. The Quds Force special operations commander died with him.

Khademi’s predecessor had already been eliminated months earlier. Two consecutive heads of Iran’s intelligence apparatus, taken out.

Think about what that tells you.

If Israel can locate and kill the head of a country’s spy agency, it has penetration inside Iran’s most sensitive institutions. The kind that takes years to build. The kind that doesn’t get used casually.

Now look at the ceasefire through that lens.

A pause in fighting is enormously useful for intelligence work. People who’ve been hiding in bunkers come out to attend peace negotiations. They move. They communicate. They reveal themselves.

A ceasefire is the best possible environment for mapping the next set of targets.

If hostilities resume with a fresh round of assassinations targeting senior Iranian officials, that’s your signal. It means the US and Israel are committed to reshaping Iran’s internal power structure. Whether they call it regime change or not, that’s what it is.

And it means this oil disruption extends for months or years.

Could it go further? Trump has already threatened to bomb civilian power plants and bridges. He’s talked about destroying Iran’s ‘civilisation.’

Nuclear weapons? Still unlikely. Trump has shown caution about civilian casualties and the political cost would be enormous.

But new weapons systems, advanced cyber attacks on infrastructure, categories of warfare we haven’t seen before? All within the range of what this administration has shown itself willing to do.

Here’s what I want you to take away from this.

The market is pricing in a ceasefire. You should be pricing in the full range of outcomes.

But there’s one obvious winner from all of this.

The Great EV Stampede Has Begun

Before the war even started, I wrote a piece called ‘The Great EV Comeback’. The thesis was simple.

EVs hadn’t failed. They’d hit the boring middle of the adoption curve, where early buyers have already purchased but the mainstream hasn’t arrived yet. Battery costs were falling. Chinese manufacturers were flooding the market with cars under $25,000.

Australia had all the right conditions: expensive fuel, long commutes, a grid moving toward renewables.

What I didn’t predict was that a war in the Persian Gulf would pour rocket fuel on the trend.

Here are the numbers.

In March 2026, Australian EV sales surged 40 to 50 per cent. Nearly 4,000 new electric vehicles were registered in New South Wales alone. Battery-electric cars hit a record 14.6 per cent of all new vehicle sales.

For the first quarter, EV deliveries doubled compared to the same period last year. 34,382 versus 17,901.

And this is before rationing.

Australia imports 90 per cent of its liquid fuel. Read that again. Ninety per cent.

The government’s already cut fuel excise by 50 per cent as of April 1 and unleaded is still sitting around $2.35 to $2.45 a litre. Diesel’s near $3 in most capital cities. Record territory.

If hostilities resume and the strait closes again, rationing becomes a matter of when.

I want you to think about what happens next.

The moment rationing is announced, every EV on every dealer lot in the country sells out. Days. Think about the toilet paper panic of 2020, except the product weighs two tonnes and has a six-month factory wait behind it.

This is already starting. Dealers have been told not to sell their demonstrators. Tesla Model Y wait times have blown out to May or August. BYD’s reporting 50 per cent more enquiries, with popular models quoting two to three month waits.

Car yards are emptying.

People who bought a Tesla last year are suddenly sitting on an appreciating asset. The second-hand EV market is about to become one of the most aggressive seller’s markets in Australian automotive history.

If you’ve been on the fence about going electric, understand this: the fence might disappear underneath you.

But the oil shock reaches well beyond the petrol pump.

The Inflation Spiral Nobody Can Stop

We’ve been warning you about runaway inflation as a core risk for this year. Back in January, we gave it a 20 to 30 per cent probability. We told you the market was underestimating it badly.

We argued it was pricing inflation like a post-pandemic fade, when the real risk looked more like the 1970s.

Oil was one of the triggers we identified. Data centre energy demand was another.

Both are now firing.

Let me explain why oil inflation is different.

Oil flows through everything. Every truck that delivers food to your supermarket runs on diesel. Every tractor that ploughs a field. Every ship that brings goods into port. Every plane that moves freight.

When oil goes up, the cost of moving, growing, making and delivering everything goes up with it. The price at the bowser is just the part you can see. Behind it, a thousand other prices are adjusting.

The RBA hiked rates to 4.10 per cent in March. Back-to-back increases for the first time since mid-2023.

They’ll try to ‘look through’ it. Central bankers love that phrase. It means ‘we hope it goes away on its own.’

It won’t.

The ASX rate futures market is telling you something important. It’s pricing a roughly 54 per cent chance of another hike at the May meeting. The implied cash rate path runs toward 4.35 per cent and higher over the next twelve months.

When we wrote about this in March, markets had shifted from pricing two hikes this year to three minimum, with a fourth about half priced in. That’s only firmed up since.

Here’s the part that should concern you most.

Inflation feeds on itself. This is the lesson of the 1970s that everyone’s conveniently forgotten.

Prices go up. Workers demand higher wages. Wages go up. Businesses pass the cost through. Prices go up again. The cycle accelerates.

It took Paul Volcker pushing US rates above 20 per cent to break it last time.

We wrote in January that wages are the ignition point. ‘Wages, like energy, feed into the prices of every good and service.’ That catch-up hasn’t happened yet in Australia.

But it will. It has to.

You can feel it already. That sense that everything costs too much. That your pay cheque doesn’t stretch as far. That’s because wages are still running behind prices.

When they finally move, inflation gets another leg up. The RBA’s job gets harder from here.

So what do we do with all of this?

The Edge

Let me be direct with you.

The ceasefire triggered a brief rally. Stocks surged. Oil dropped. Within days, crude was climbing again.

That kind of snap-back feels good while it lasts. But I want you to be careful here.

Iran’s accusing the US of violating the deal. Israel’s still bombing Lebanon, which Tehran says was covered by the agreement. Washington says it wasn’t. The strait hasn’t meaningfully reopened despite American claims of increased traffic.

Vice President Vance is heading to Islamabad for direct talks. The gap between the two sides remains wide.

A rally built on this? With inflation about to accelerate and the RBA still hiking? That’s a window to lighten your positions.

The instinct will be to chase. Every bull market headline will tell you the worst is over.

Consider the opposite.

We may look back on this period as the moment oil reshaped the Australian economy in directions nobody expected. The EV transition accelerating by years. Inflation digging in deeper than anyone wanted. Interest rates staying higher for longer than the models predicted.

We wrote about a molecule-fuel future as an alternative path for the sectors that can’t electrify. That transition just got far more urgent.

These knock-on effects are already in motion. The question is whether you position for them now, or react to them later.

We’ll be looking at the specific sectors and stocks that stand to benefit most from this structural shift. Energy. Defence. Critical minerals. The companies that thrive when the world changes underneath everyone else’s feet.