The ongoing military crisis in the Middle East has caused energy supply and logistics disruptions that negatively impact the global economy.

“You've got a Japanese bank, one of the big Japanese banks has done a report today saying this is the biggest energy supply and logistics crisis that we have seen in modern history.”

The market is pricing in a high probability that hostilities in Iran will lead to damage or disruption to oil infrastructure that will keep supply offline through the end of the year.

“But I think what the market is pricing in is still a much higher probability that there could be damage to oil producing facilities, maybe infrastructure damage that hasn't been repaired by then, or at least some other types of disruptions that's going to keep all of that oil production offline thro”

The strategic destruction of Iranian oil depots by Israel has exacerbated global concerns regarding spiking oil prices.

“They want to take out that ability to do so. And they warned the Americans that they were going to do this and the Americans were okay with that. What they didn't know was Israel was going to blow up 30 of these things and create this horrific image of black billowing smoke and oil depots blowing up”

Oil prices are likely to rise as the market increasingly views the war in the Middle East as a long-term conflict.

“I think this week it'll be very crucial because we will go into a market thinking that this is going to be a longer war and as a result prices could be spiking a bit more than we witnessed before.”

Tony Zhang asserts that the ongoing conflict in the Middle East is driving oil prices higher, which in turn contributes to inflation and economic strain.

“And you add on top of the fact that currently you have the Middle East conflict that is continuing to drive oil prices higher, this is just continuing to strain that concern around inflation and what that means for interest rates at the moment.”

The United States is no longer vulnerable to oil shocks because it relies primarily on domestic and Canadian oil production.

“Unlike during past oil shocks in the 1970s and the first Gulf War, the United States does not depend on the Middle East for oil. The vast majority of the oil Americans consume is now produced in the United States and Canada.”

The US economy is better equipped to handle higher oil prices than in the past because energy costs constitute a smaller share of consumer spending.

“But the economy is better equipped to handle higher oil prices and so are companies.”

The current oil shock is smaller than the 1970s shocks in terms of price magnitude and the global economy is somewhat less oil-dependent now.

“we are not yet at the magnitude of the shock that we were in the 1970s. The obvious point is our economy as a whole for the US and for the world is a little less oil dependent, but I wouldn't push that too far.”

Current oil supply disruptions are not fully reflected in the market yet, and higher prices may be necessary to curb demand.

“At some point, prices have to go higher to curb demand. And that's sort of maybe probably possibly the environment we're entering in the next one or two weeks.”

Oil prices will need to continue rising to drive demand destruction until the market rebalances due to the closure of the Strait of Hormuz.

“we will need to forcibly kind of adjust the market to that level of demand but without a pandemic just via price signals that's why 200 plus is at least I mean the longer this goes on the higher we go”