Every day that the Strait of Hormuz remains closed, the balance sheet of global oil supply/demand deteriorates a little further. It has now passed the point of concern to where it is becoming a major crisis. Twenty percent of the world’s oil/gas moved through the Strait, but there are some alternatives such as pipelines that were underutilized, latent production capacity elsewhere from the Mideast that could be brought online as well as reserve stocks that could fill a temporary shortage of supply that gets users by for a while before the real crunch hits. The alternative transportation routes and reserve supplies initially reduce the shortage to near 9%, but that grows as strategic reserves are exhausted and the flow of commodities from the Gulf is not restored.

There was an initial assumption based primarily on President Donald Trump’s assertions that the supply shortfall would be a relatively brief disruption that is now morphing into the reality that he was wrong and it is protracting. The replacement cost of barrels of oil will rise further. The supply shortfall is not evenly distributed between countries. China got 80% of its oil through the strait, Japan 93% and South Korea 70% plus 20% of its nitrogen. The global oil supply chain, which was working quite well, is unraveling. The UAE exited OPEC. They have plans to pump more oil than under the current agreement. As long as the Strait remains closed, the actual global supply shortage is going to get worse before it gets better. The U.S. stock market could be trading fool’s gold as new highs scored diverge with reality.

Every day that the Strait remains closed, immeasurable wealth is being destroyed. Over 60 petroleum processing plants have sustained significant damage there. These plants produced petroleum products that directly powered the economies that bought them. These are sophisticated complicated facilities that will take a shockingly lengthy amount of time to fix. If they go back to fighting, more of this infrastructure plus desalination plants will be the targets. The water plants support life in this desert, and without them a refugee crisis is created. They could damage this region and important economy so that it is irreparable for many years. It has gotten so bad that the Saudis have postponed their New Orleans LIV golf tournament. The reason Trump started the war was due to Tehran’s nuclear ambition. In separating nuclear talks from those ending the war … who wins? I think you know.

I typically refer to the U.S. as being oil/gas independent, but to get there I include supply from both Canada and Mexico. North America is energy independent and adding Venezuela deepens the hemispheric self-sustainability. Both Canada and Mexico are looking to diversify trade elsewhere from the U.S., as absolutely no one trusts the U.S. on trade anymore, wishing to avoid being dependent on our market for anything. Prime Minister Carney has called the change in U.S. relations “a rupture.” Renegotiation of the USMCA is likely to become an ugly mess. Canada sent its heavy oil south to U.S. refineries, but has now committed $4 billion to expand its pipeline to the Pacific and also plans on building another to gain more freedom from our market. Asian buyers are likewise looking to diversify their dependence on Gulf energy. Mexico is doing similarily but lacks the leverage to divorce from our supply chain and is more likely to seek accommodation.

Europe in particular is disgruntled. They moved away from Russian energy dependency to reliance on the Mideast, and now they are losing that supply because of a war started by the U.S. They are now buying from us, diverting U.S. supply, competing with U.S. consumers for our oil, nitrogen and fertilizer. We think nitrogen fertilizer is priced nuts, but others are buying supply away from us paying more. I always embraced the “all of the above” energy strategy of diversifying our energy sources. That is the policy that China employs — now owning 70% of the world’s global solar, wind, battery, and electric vehicle supply chains. All are sources of energy that Trump condemns today as we become totally reliant on fossil fuels. He hates wind turbines in particular with a passion, with the administration agreeing to pay a French firm $1 billion not to build two wind farms that had been approved off the east coast. Not even ethanol makes the cut. Many were elated that the House Ag Committee included E-15 in its farm bill. Including year-around nationwide E-15 in the farm bill could lead the oil lobby to kill the bill. Not only would we not get E-15 but no farm bill either. Maybe if the House Ag Committee endorses the White House Ballroom it would help pass a farm bill. Speaker Mike Johnson reportedly gets to decide if E-15 is included in the farm bill. Never got past him before. Has anything changed?

Jet fuel shortages are expanding worldwide. Jet fuel in South Korea is so short he should be worried about getting home. Sustainable aviation fuel (SAF) demand was being touted as a tremendous source of new demand for low-carbon ethanol feedstock to meet jet fuel needs. That takes CO2 sequestration to reduce the carbon score for Midwest ethanol to qualify for SAF feedstock. Iowa’s economic leaders are boneheads that will cause the state to miss out on yet another economic opportunity again over opposition to CO2 pipelines that could have generated a material ethanol expansion driving corn demand. SAF production could have completed a supply chain sourcing low-carbon Iowa ethanol.

The majority of Iowans do not understand economic opportunity when it bites them on the butt. Eminent domain has become the breaking point issue being used to stop CO2 pipeline progress. As a Century farm owner who has sold an easement, I am intimately acquainted with this issue. Gubernatorial candidates of both parties are running on economic ignorance and doing well in the polls because of it. Iowa doesn’t have that many really good economic opportunities and is learning that it takes more than being a low-tax state to drive an economic engine. Our legislature is slow to learn and seems to be a one-trick pony. The state’s financial reserves are fast draining, and I have heard of no plan to stabilize them. Companies view Iowa as inward looking with a deficiency in critical resources, so data centers and the military industrial complex avoid the state. You have to have businesses and industry of scale that benefits from AI for the state to benefit from AI. There is nothing going on in Iowa that I am aware of, and when they try to get something going, they throw a wet blanket over it trying to smother it. Brazil is once again grasping the economic opportunity pursuing low carbon ethanol and an E-32 fuel standard. We have seen them pass us again and again in sector after sector of ag production and you cannot convince folks here to do anything different. Insanity.