🥛 The most important chart in the world: oil 🛢️

GM. This is Milk Road Macro, the newsletter that keeps you ahead of oil spikes, inflation scares, and rate-cut dreams getting tossed in the shredder.

Here’s what we’ve got for you today:

✍️ Everything you need to know about the oil price spike and what it means.
🎙️ The Milk Road Macro Show: The Global Commodity War Has Started... Gold’s Biggest Bull Market in 50 Years w/ Nicky Shiels.
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Prices as of 10:40 a.m. ET.

EVERYTHING YOU NEED TO KNOW ABOUT THE OIL PRICE SPIKE AND WHAT IT MEANS

We have big problems with the oil price.

As the war in Iran continues, the oil price has surged higher.

And, if sustained, this could mean inflation surging, economic growth deteriorating, and hopes of central bank easing dashed.

The oil chart is the single most important chart to watch.

Currently, the market dynamic is essentially:

Oil up - everything else down, oil down - everything else up.

So, what’s the problem?

Where will oil go next?

And what do elevated oil prices mean?

Let’s take a look…

The Strait of Hormuz is the problem

The Strait of Hormuz - a tiny sea passageway measuring just 21 miles wide at its narrowest point - is known as one of the biggest chokepoints in global trade.

In “normal times”, roughly 20M barrels of oil pass through the Strait every day - 20% of global demand.

Source: Mapbox

But since early last week, after the war began, traffic through the waterway has slowed to a trickle after Iran attacked several vessels in the Strait.

Reports indicate that some vessels have been passing through the Strait in recent days by turning their transponders off to avoid detection.

Even if this is true, traffic through the Strait has still been vastly curtailed.

Source: Goldman Sachs

To put things into perspective, this is the biggest oil supply shock in history.

17 times larger than the peak April 2022 hit to Russia’s oil production at the onset of the Russia-Ukraine war.

Source: Goldman Sachs

It also tops the 1978 Iranian Revolution (roughly 9% of global demand affected) and the Yom Kippur War in 1973 (roughly 8% of global demand affected).

The global oil market is priced on the margin - so while 20% doesn’t sound like a big percentage, it can have a massive impact on the price.

The U.S. has pledged to provide military escorts for vessels through the Strait and help to guarantee insurance for tankers.

But, so far, this has done little to get traffic moving, and industry officials are skeptical about whether these measures would work in practice.

While traffic in the Strait has been choked off, there’s a much bigger problem looming.

Gulf states that use the Strait to transport energy around the world are running out of storage capacity for oil and gas.

This means they are now forced to cut production of energy, and will eventually have to shut down production entirely, likely within days.

Once production has been shut down, it can take weeks to turn it back on again.

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EVERYTHING YOU NEED TO KNOW ABOUT THE OIL PRICE SPIKE AND WHAT IT MEANS (P2)

So, where will oil go next?

This is anybody’s guess.

Really - nobody knows the answer to this question.

This is the current picture with WTI crude oil.

Source: TradingView

It ripped higher through Sunday evening and Monday morning, hitting $120, before quickly dropping below $100 again later on Monday.

These are historic levels of volatility.

The year-to-date surge in oil prices is the strongest since oil futures began trading.

Source: Augur Infinity

A big reason for the large drop on Monday was a report indicating that G7 nations are actively considering draining stockpiles of oil from strategic reserves.

300-400M barrels could be released.

G7 countries’ crude demand is about 30-35M barrels per day, so this measure equates to roughly two weeks of G7 demand.

This suggested measure buys time, but it’s only a buffer.

Oil prices were then pushed further lower on Monday evening when President Trump predicted the war with Iran would resolve “very soon” (but he also vowed not to stop “until the enemy is totally and decisively defeated”).

In response, Iran’s Revolutionary Guards said that they would be the ones who “determine the end of the war”.

Trump also announced “temporary waivers” on some oil-related sanctions, largely relating to Russian oil sanctions.

But fundamentally, the core problem has not been solved.

The Strait of Hormuz is still effectively closed.

So, while Monday’s oil price drop is encouraging, it might not be the end of the story (until the Strait issue is resolved).

Unfortunately, a throwaway comment from the President doesn’t change the fact that a large percentage of the world’s oil has stopped flowing.

And oil production shutdowns are still looming.

Oil could very well rip higher again in the coming days.

According to Jordan Rochester, analyst at Mizuho:

"This may be a war, but it's also perhaps the biggest energy supply/logistics crisis we've ever seen in modern history. Oil has seen a $100 handle, with a greater likelihood of $130-150 scenarios as time goes on.”

According to Goldman Sachs analysts:

“We think that oil prices would likely exceed the 2008 and 2022 peaks [above $150] if Strait of Hormuz flows were to remain depressed throughout March.”

What do elevated oil prices mean?

Extremely elevated oil is a big inflationary impulse, a consumer spending headwind, and a Fed rate cut killer - all at once.

In terms of inflation, oil above $100 for any sustained period of time will see inflation levels surging across the world.

Inflation in the U.S. would likely rise to well above 3% in the near-future if oil lingers above $100.

Source: TradingView

Then, there are also economic growth concerns on top of that.

An extreme, rapid, and sustained oil price spike could drive "demand destruction” across the world - as consumers and businesses cut back on spending elsewhere.

So, in the worst-case scenario - what’s the “doom level”?

There are various estimates of the “potentially global recession-inducing” oil price, with experts pegging it at anywhere between $120 and $150 for a sustained period of time.

If the oil price remains above $120, this would likely spark serious concerns for economic growth in the U.S. and elsewhere.

Finally, higher oil prices and higher inflation levels kill hopes of central bank interest rate cuts.

Already, interest rate traders have moved to price in a higher probability of a 2026 interest rate hike in some areas - like the EU and the UK.

Expectations of Federal Reserve interest rate cuts in 2026 have also been slashed from more than two to between one and two.

By the way, it’s not just the oil supply that is affected by the choking of the Strait of Hormuz…

It’s also natural gas (which has also surged higher) and fertilizer (30% of the world’s fertilizer travels through the Strait), among other vital resources.

Wrapping up

The oil price surged higher on Monday.

But then it was rapidly crushed lower again due to a combination of G7 countries mulling a strategic reserve release, and Trump predicting the war would resolve “very soon”.

But this may not be the end of the story.

The Strait of Hormuz is still effectively closed - and energy production shutdowns are still looming for Gulf nations.

The fundamental problem still remains.

There’s really no way of knowing what will happen next.

By the end of this week, it’s possible things have been mostly resolved - but it’s also possible things have deteriorated further.

If the Strait is not conclusively reopened, massive upward pressure on the oil price will likely continue.

And oil lingering above $100 for any sustained period of time is a big global problem.

These are historic times.

The oil chart is the single most important chart to watch.

GLOBAL COMMODITY WAR, GOLD’S BIG RUN 🛢️

In today’s episode, we sat down with Nicky Shiels to talk about the oil shock after a Strait of Hormuz escalation and what it means for gold, other metals, and broader markets.

Here's what you'll hear:

How oil spiking above $120 and easing toward ~$95 forced a fast repricing across inflation, yields, and risk assets.
Why Nikki frames gold as a monetary debasement trade, mid cycle and under owned, with $4,500 as a bear case floor.
Why gold has not exploded higher yet, from pre positioning to oil taking hedge flows, plus USD strength and higher yields.
Silver’s sharper swings, platinum’s deficit setup, and the signals and tactics she watches, including scaling in and using stops.

Hit play and see for yourself 👇️