Today’s briefing:
— How we dodged the oil-pocalypse
— China’s two-speed economy
— Canada’s official fixer upper
Your Insider’s briefing:
— How we dodged the oil-pocalypse
— China’s two-speed economy
— Canada’s official fixer upper
Good morning {{first_name | Intriguer}}. If Hollywood has taught us anything, it’s that international crises are often resolved by rugged intelligence assets hanging from the wings of moving aircraft.
But not today.
To the contrary, as we explore below, our world might’ve just raw-dogged a 110-day Hormuz squeeze while dodging a $200 oil doomsday thanks to a gloriously unsexy cocktail of math, bureaucracy, and prudence, all served lukewarm over flaming hot luck.
Shall we take a sip? Mmmkay.
 | Managing Editor Jeremy Dicker |
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🍸 Heads-up we’ll take a quick break this Friday!
Number of the day
21+
That’s how many countries have now sent help for Venezuela’s search and recovery efforts after the country’s devastating twin earthquakes last Wednesday. The death toll is now over 1,400, with tens of thousands still believed to be missing.
Crude awakening?
With the US and Iran again trading fire over the weekend then hitting pause before markets re-open, this could be the world's first war to follow Roxbury opening hours.
But while these talks limp on and oil stabilises closer to its ~$70 pre-war levels, it's worth reflecting on how our world has (to date?) avoided a $200 per barrel doomsday.
Brief recap, but oil math is mercifully simple: global output runs around 100 million barrels per day (mbd), with 20mbd (20%) via Hormuz. And for something price-inelastic like oil (we need it, cheap or not), there’s a rule-of-thumb that each 1% in lost supply drives a ~6% spike in prices. So a 20% hit to supply should've spiked prices 120% past $150 or more.
Our own warnings weren't quite so dire — we flagged back on March 11 that a longer war could mean "oil prices staying higher ($100+) for longer (at least into Q3)." And in the end, prices peaked twice around $125, but otherwise bounced between $80 and $110.
So what's going on? It turns out four main supply and demand offsets blunted the headline 20mbd threat, starting with...
Hormuz supply resilience — ~6mbd
Yes, a bunch of that Hormuz oil found a way around the chokepoint: the Saudis rammed an extra 2mbd through their pipeline over to the Red Sea, while the Emiratis diverted an extra 0.5mbd through their pipeline out near Oman.
Other Hormuz oil just leaked through the cracks: the Iranians themselves used shadow fleets, ship-to-ship transfers, and steep discounts to export more oil during the war than before — that's an extra 1mbd or so pre-blockade.
Plus the US itself approved, orchestrated, or tolerated leakages, particularly along the safer Omani coast, with those volumes averaging maybe another 2mbd.
So that's ~6mbd that, one way or another, just kept flowing. But it all still left a gap, so...
IEA supply buffer — ~2.5mbd
Responding to history’s biggest supply shock, the Paris-based International Energy Agency (IEA) coordinated its largest-ever emergency reserve release, with its 32 members pouring another 400 million barrels out into markets.
That’s translated into another ~2.5mbd averaged across the phased drawdown, even as it dragged US strategic reserves to their lowest levels since the big 80s-era fill-up.
And yet while supply proved surprisingly resilient, we also got surprises via...
China’s demand drawdown — ~5mbd
Remarkably, China's crude imports almost halved from nearly 12mbd in February to almost ~6mbd in May. What caused that historic drop?
We don't officially know — China effectively treats its oil as a state secret, partly to avoid rivals mapping and manipulating any vulnerabilities. But via satellite imagery, import-export discrepancies, refinery throughput, and insider leaks, you can safely conclude China was sitting on a billion+ barrels — that's enough to cover imports for 90 days.
So via a mix of both halting its stockpiling and allowing its refiners to tap those stockpiles, the world's largest oil importer abruptly stepped back from global markets, sharply reducing bidding pressure on everyone else.
But as big as China's pullback was, it wasn't alone...
Broader demand destruction — ~2.5mbd
Remember all those wild headlines we charted over the months? Bangkok bureaucrats wearing short-sleeves to cut A/C costs; Bengaluru tech workers bringing lunch from home amid a cafeteria energy crunch; Manila's mandarins working from home to reduce commute costs; airlines slashing their lower-margin routes; Asia's refineries winding back.
These scattered shifts collectively trimmed maybe another 2-3mbd at the margins.
So when you tally up that 6mbd in supply resilience, 2.5mbd in IEA buffer, 5mbd in China’s pullback, and 2.5mbd in broader demand destruction, that’s maybe 16mbd out of the feared 20mbd shortfall already offset.
Throw in the way the White House's relentless jaw-boning ("the war is over… again!") dissuaded speculators from piling in, and that smaller ~4mbd net imbalance explains why we “only” saw prices spike from ~$70 pre-war to a ~$105 wartime average.
So plenty of time and cash left to hit the Roxbury again next weekend.
Intrigue’s Take
If that’s how we avoided a $200 doomsday, it’s clearly worth understanding the big limits around those shock-absorbers for next time.
And the most obvious limit is just…
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Intrigue’s Take
If that’s how we avoided a $200 doomsday, it’s clearly worth understanding the big limits around those shock-absorbers for next time.
And the most obvious limit is just time: history’s biggest IEA release and the world’s biggest reserves (China) still really just bought us months, not years. Even the world’s biggest energy exporter (USA) is now back to a few weeks of reserves (net import replacement), something the White House has cited in justifying its war-pause.
The other big limit is really China: why build such a massive stockpile, and what are the criteria for tapping it? We’ve explored this before, and place plenty of weight on the usual explanations around China curbing its vulnerability to chokepoints like Hormuz, Malacca, and even its own coast — six of China’s eight immediate sea lanes pass through or near the waters of Japan, a US ally. So, accruing a massive stockpile makes strategic sense.
But we would round out that chokepoint-busting theory with a historic one documented by Isabella Weber — China’s rulers have for centuries used stockpiles to smooth prices for all kinds of commodities, like salt, grain, and iron. That kind of approach really sees price stability as a tool to ensure social order, which in turn helps protect an administration’s hold on power. We’d argue China’s massive modern oil stockpile partly reflects that same domestic driver, in addition to any strategic chokepoint paranoia above.
Still, it all leaves us with an uneasy feeling the math might not be so forgiving next time.
Sound even smarter:
Several governments (like India) are now actively hustling to expand their strategic reserves for next time.
The Hormuz crunch accelerated consumer interest in EVs, but EVs themselves still make up only ~5% of the global car fleet. Even in (say) Norway, it’s ~28%.
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Meanwhile, elsewhere…
🇨🇳 CHINA — 2-track economy.
Several respected Beijing advisers have used the weekend’s annual China Macroeconomy Forum to sound the alarm over China’s fractured growth, with a tech boom failing to lift consumer demand from its deflationary spiral. (Bloomberg $)
Comment: They’re describing a classic K-shaped recovery (where sectors diverge drastically) — the Party might see it all as a risk to financial, social, and even political stability. But airing it at a senior level via a major state-backed forum is pretty unusual, and potentially timed ahead of next month’s key Politburo meeting in hopes of pushing for more household-focused stimulus.
🇦🇺 AUSTRALIA — Deal, at last.
After some false-starts, Vanuatu has finally signed a strategic pact with Australia, reaffirming Canberra (rather than Beijing) as the island nation’s top partner. (ABC)
Comment: What changed for Vanuatu to accept this deal, but not last year’s draft? The Aussies seem to have dropped their demand for a veto over China-funded infrastructure, though Vanuatu is still committing to consult on any third-party role in strategic projects, while explicitly barring any foreign military bases. It leaves enough wiggle room for Vanuatu to keep negotiating a separate pact with China, insisting it’s economic-only.
🇺🇸 UNITED STATES — Mythos back?
After a two-week standoff between Anthropic and DC, the Trump administration has now allowed the US AI pioneer to release its Mythos 5 cybersecurity model to a select group of 100 US corporations and federal agencies. Fable 5 is still restricted. (CNBC)
Comment: This new ‘trusted user’ tiered approach looks like an attempt to balance the Valley’s innovation against DC’s national security concerns, but China’s Zhipu AI is claiming it’s already closed the Mythos cybersecurity gap anyway (it lags on other fronts). So while the US debates how best to manage its advantage, that advantage itself might be shrinking, while the resulting policy confusion just angers NatSec and Valley types alike. Meanwhile, the Basel-based BIS (reserve bank for reserve banks) just dropped its annual report, which includes spicy references to the risks any AI bubble (and associated circular financing) could pose to the financial system.
🇷🇸 SERBIA — President resigns.
President Vucic has announced he’ll resign within weeks in a bid to “resolve political instability”, after a deadly railway station collapse in 2024 triggered rolling anti-government protests. (Politico)
Comment: With his nationalist SNS party still Serbia’s strongest political force, it looks to us like a calculated political manoeuvre to defuse the protests and split the opposition, while a loyalist emerges as president — at 56, Vucic is still young enough to do another stint as PM then run for the presidency again once the dust settles.
🇨🇳 CHINA — Plane hits skyscraper.
Days after Friday’s strange incident of a light aircraft crashing into Beijing’s tallest building (the 108-story CITIC tower), there’s still no confirmation around the pilot’s identity or possible motives. The only official statement has been a brief city-level note that the pilot is dead and another 13 are injured. (AP)
Comment: After initial state media reports of a vague “aviation incident”, China’s censors are now scrubbing any mention at all. There’ve been all manner of rumours it could be linked to (say) a workplace grievance, but we know it happened on a clear day, far from any airport, and just five miles from Beijing’s ruling compound, so one way or another, it’s a heck of a security breach.
🇧🇴 BOLIVIA — Peg your pardon.
With Bolivia’s historic protests and blockades now easing after President Paz agreed to withdraw proposed land reforms, his government has announced it’ll remove its USD peg, switching instead to a flexible exchange. It’s part of negotiations for $2.5B in IMF financing to help course-correct amid a deep economic crisis. (Reuters)
🇺🇬 UGANDA — Press the press.
The president’s son and head of Uganda’s military, Muhoozi Kainerugaba, has ordered the shuttering of the country’s two biggest media companies. (Al Jazeera)
Comment: Autocrats ordinarily hide behind the thinnest of veils to excuse these crackdowns, so shout-out to all-round loose unit Kainerugaba, who’s straight out confessed: “I do not believe in a free press!”
Extra Intrigue
🤣 Your weekly round-up of the world’s lighter news
Bright blue pigeons dyed for a gender reveal party in Arizona have sparked calls to wildlife welfare authorities.
A City of Ottawa initiative has left locals confused after a translation error meant posters proudly boasted of ‘pubic’ (not ‘public’) spaces.
That missing Texan giraffe has reappeared “fat and happy” after two weeks on the run.
Soccer stadium authorities have denied entry to Merlín the Duck, Mexico’s unofficial FIFA World Cup mascot who recently met (and bit) Mexico’s president.
And bumbling thieves in Tobago have ended up as memes after getting caught on CCTV flailing and falling for 10 minutes while trying to steal an ATM.
Official residence of the day
Credits: National Capital Commission
Who lives at 24 Sussex Drive, aka Rideau Hall, the official residence of Canadian prime ministers?
Mark Carney, right? Wrong! Right now it’s actually a colony of rats, and lots of mould.
Now don’t worry, Mr Carney hasn’t been left to fend for himself out on the mean Canadian streets — he lives just down the street at Rideau Cottage, and is worth a cool $400M from his Goldman and Brookfield banking days.
But that grand mansion overlooking Ottawa has sat in disrepair for over a decade as successive governments keep baulking at the renovation bill. It’s a delicate line for any leader to splash cash on the pad while voters fret about grocery bills — so Carney is trying a new national design competition to reimagine and restore 24 Sussex, arguing Canadians have a responsibility to “ensure it once again reflects our ambition, excellence, and national pride.”
As architecture and design fans, we’re genuinely curious how this plays out, and will shortly be submitting our idea for a giant hockey puck.
Today’s poll
With US-Iran talks (and attacks) continuing, do you think oil prices will end the year higher or lower than they are now?
Thursday’s poll: Do you use AI chatbots for your news?
💻 Yes, it's convenient (7%)
⛔ No, it's unreliable (92%)
✍️ Other (write in!) (2%)
Your two cents:
⛔ C.S.W: “I had ChatGPT tell me that Mark Carney was not the prime minister of Canada.”
💻 P.P: “As someone in the 18-24 demographic, yes, I use it. It provides a clear and accessible overview of major global developments. Ofc, it shouldn't be treated as definitive - but realistically, no single news outlet should be.”
✍️ P.C: “If I'm squeezed for time, I'm learning how to use AI to summarize the contents of the 4 daily news emails I receive. Works pretty well, and I'm not asking AI to use its own judgement on what is or isn't newsworthy.”
And thanks for the love 🥰…
✍️ M.L.S: “Nah. Y'all keep me squared up ❤️”
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