War, Oil and the Cost of Stupidity

Good Sunday to you,

You’ve no doubt seen the videos of Iran’s largest oil facilities burning.

How much destruction does war cause? To the environment, to wealth, to people’s lives.

And governments lecture us about the environment.

15% of China’s oil comes from Iran. Not any more. I bet they’re delighted.

No surprise, oil futures have spiked again. WTIC has gone to $94 in weekend markets, Brent to $97.

I’m glad we own oil and I’m glad we own gold.

Iran meanwhile has started targeting desalination plants across the Middle East - how most neighbouring Arab nations get their water - and the probability of an early end to this conflict, despite Donald Trump already claiming the win, seems to be receding by the day.

According to Polymarket, the probability of a US-Iran ceasefire by March 31 is just 24%. Even by the end of April it is just 48%. The odds are 67% that the Iranian regime will still be in power by June 30.

Meanwhile, in the UK, the strategic stupidity of being dependent on overseas sources for oil, gas and coal when we have perfectly abundant supplies of our own is about to hit home in the form of yet higher energy costs. The government will no doubt blame everyone and everything but itself.

UK borrowing costs are now rising faster and higher than any other European nation, which spells trouble for the housing market, business and the economy, and government finances. Ten year gilt yields are now above 4.5% and it costs more for the UK government to borrow than it does any other G7 nation, and indeed any PIIGS nation, which became such laughing stocks after the GFC.

Happy days.

If you live in a third world country such as the UK, I urge you to own gold or silver. The pound will be further devalued, as will the euro and dollar. The bullion dealer I recommend is The Pure Gold Company. They deliver to the UK, the US, Canada and Europe. More here.

Here’s a five-year chart of gold priced in pounds, in case you were wondering what a trend looks like. There’s only one way this is going.

You can look at a 10- or 20-year chart. It’s the same story.

Here also for your reference is a long-term chart (since 1983) of the gold-oil ratio.

You can see how cheap, historically, oil is.

And that’s even after the rally of the last fortnight.

What if it goes back to the top of that range?

I’m glad we bought oil when we did, before this all kicked off. As always when a market moves in your direction, I now wish we’d bought more.

Here is this week’s commentary, in case you missed it. Lots of forecasts for the year ahead. Take a look if you haven’t already seen it.

Thank you for being a subscriber to the Flying Frisby.

Until next time,

Dominic

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.theflyingfrisby.com/subscribe