The fragile truce reached last night is already dead.

The first big strike after the ceasefire hit Iran’s Lavan Island oil refinery, which was damaged this morning.

Lavan Oil Refinery in Iran – Source: X

The U.S. has denied being involved in the strike. Two military officials told Newsmax’s Carla Babb the following:

“We have not conducted strikes against Iran since the ceasefire agreement started. If anyone is striking Iran now, it isn’t our military.”

It’s possible that Israel carried out the strike. However, the island is about 1,250 miles from Israel. There are rumors that it was carried out by the United Arab Emirates (UAE). This would mark another escalation, as the Gulf countries haven’t yet used their own weapons against Iran (so far they have only hosted U.S. forces and used air defenses).

Regardless, Iran proceeded to strike a pumping station along the critical Saudi East-West oil pipeline. This pipeline is currently Saudi Arabia’s lifeline for petroleum exports with the Strait of Hormuz closed.

The East-West pipeline allows Saudi Arabia to ship up to 7 million barrels per day from their oil fields to the Red Sea.

Source: ABC News

Without this critical pipeline, another 7 million barrels of oil will be taken off the market.

Iran also struck the UAE’s Fujairah oil export terminal, which handles about 3.2 million barrels per day (also visible on the map above, just below and outside the Strait of Hormuz).

These two strikes alone could potentially take another 10.2 million barrels per day (bpd) off the market. Combine that with the approximately 15 million bpd already removed, and you get an ugly situation. That’s up to 25% of global oil production offline or undeliverable.

Now, we don’t know how bad the damage to these facilities is yet. But Iran is certainly capable of taking both offline for an extended period of time.

Iran also struck targets in Israel.

Israel Keeps Going

Israel has made it clear they will continue to hit Lebanon, home of Hezbollah, an Iranian proxy force. Hezbollah has been launching large volumes of rockets, and even some crude missiles, at Israel during the conflict.

Source: X

Over the past month Israel has hit Lebanon extremely hard, and said it will expand its borders into parts of the neighboring country.

In a press conference today, Israel’s Prime Minister Netanyahu stated, “The temporary ceasefire with Iran will not include Hezbollah – and we will continue to strike them with all of our might.”

The original agreement appears to have included Lebanon, at least according to the White House’s chosen mediator, Pakistan’s Prime Minister. He posted on X that the ceasefire covered, “everywhere including Lebanon”.

Source: X

Lebanon is apparently off the ceasefire table now. The White House confirmed today that it is not part of the ceasefire.

Iran will almost certainly not agree to a truce while their allies in Lebanon are under attack.

But in reality, even Lebanon is a moot point.

The war rages on across Iran, Israel, Saudi Arabia, the UAE, and Iraq. Iranian ally Yemen may soon close the Bab al-Mandeb Strait, cutting off a key Red Sea chokepoint. Yemen’s Houthi forces are armed with anti-ship missiles via tech transfer Iran.

Iran allowed 2 oil tankers through the Strait of Hormuz before the ceasefire was broken, and Iranian officials say it is now closed again.

President Trump and Iran are on different planets in terms of their expectations. Israel is off on its own island, with its own objectives, steadily escalating the conflict.

That’s a very long way of saying this war isn’t over, and neither is the energy crisis.

The ceasefire was stillborn. Dead on arrival.

Markets Yawn (Again)

Despite the fact that the ceasefire crumbles, markets are giddy with optimism. As I write, the Nasdaq is up 3% and the S&P 500 up 2.5%.

Oil is down 13% to 18%, depending on type and location.

There is still some hope that the meeting between Iranian and U.S. negotiators takes place this Friday, April 10, in Pakistan.  Trump has said talks will happen “soon”.

J.D. Vance was originally scheduled to attend the meeting, but the administration has since said he may not be able to attend due to security concerns.

It is clear we need direct, preferably in-person negotiations. This game of pass-the-message is not working.

Unfortunately, it’s unlikely that in-person talks will succeed either.

As it stands, the path of least resistance is for the war to continue. Probably even escalate.

An Opportunity to Raise Cash

This crisis isn’t over. But markets are acting like it is.

This massive rebound in stock markets is an opportunity to take some profits and raise cash if you haven’t yet.

I believe downside risk is far higher than upside here. How much higher can stocks go in such an uncertain environment?

Meanwhile, if we do see 25% of global oil production disappear, that’d be a nightmare scenario. If that happens for a month oil could hit $200/barrel. If it happens for longer… a widespread financial crisis becomes increasingly probable.

Iran and the U.S. remain miles apart on expectations. Both have firm requirements the other will never accept.

Let’s hope that somehow a deal can be reached anyway. But as I’ve stated repeatedly, the situation may have to get worse before a lasting agreement is made.

For now, any ceasefire or truce will be temporary. So in my opinion, oil is going higher and stocks lower.

The post A Stillborn Ceasefire appeared first on Daily Reckoning.

President Trump’s deadline for Iran to make a deal ends tonight at 8:00 pm ET.

It’s the most tense geopolitical environment of my life. More so than the beginning of the War on Terror, even.

To find anything similar, we need to go back to the Cold War.

Specifically October 27, 1962. The height of the Cuban Missile Crisis.

Off the coast of Havana, Soviet submarine B-59 was in a rough spot. It was submerged and surrounded by a group of 14 U.S. Navy ships.

The temperature in the sub was well over a hundred degrees. Batteries were low, and the air conditioning was busted. They had no way to communicate with Moscow without surfacing.

Fuel and chemical fumes clogged the air, and some of the crew were passing out from heat stroke.

American destroyers were dropping depth charges on the sub. I’ll explain why shortly.

What the Americans didn’t know is the sub was equipped with a single nuclear torpedo.

Yes, the USSR made nuclear torpedoes even back then. The weapon was roughly as powerful as the bomb dropped on Hiroshima, 15 kilotons.

The Soviet Captain, Valentin Grigoryevich Savitsky, furiously told his men, “Maybe the war has already started … We’re going to blast them now. We will die, but we will sink them all. We will not disgrace our navy.”

Fortunately firing the nuclear torpedo required approval from the 3 highest ranking officers. The captain and one other agreed to fire, but Chief of Staff Vasily Arkhipov vetoed the decision.

Vasily Aleksandrovich Arkhipov

Arkhipov convinced the captain to surface. It was their only choice. Other than launching the nuclear torpedo, that is.

The Soviet captain exchanged tense words with a U.S. destroyer, got in touch with Moscow, and retreated home.

The world barely escaped nuclear war that day. If that nuclear torpedo had hit the group of U.S. Navy vessels, the situation would almost certainly have spiraled out of control.

Communication via Depth Charge

How did we get so close to total war with the USSR?

Well, the Soviets placement of nuclear missiles in Cuba obviously played a key role. But then again, we had nuclear missiles in Turkey, pointed at them.

And there’s much more to the story. Reckless actions were taken by both sides to get so close to nuclear war.

In the National Security Archives there is a transcript of President Kennedy’s briefing with his National Security Council on October 24, 1962.

JFK’s top military people had discovered the Soviet submarines and were determined to confront them.

But the subs were deep underwater, so we had no way to communicate with them.

Secretary of Defense McNamara and his team devised a unique method to communicate with the subs.

They would drop small “practice” depth charges directly on the vessels to encourage it to surface. These weapons have relatively small charges, but the Soviets had no idea they weren’t full depth charges.

Here is an excerpt from the transcript, via the National Security Archives:

McNamara: This is a new procedure I asked them to set up yesterday, Alex.

Alexis Johnson: It is a new procedure.

McNamara: We have depth charges that have such a small charge that they can be dropped and they actually hit the submarine without damaging the submarine.

JFK was shocked by this development. His brother RFK jotted down the President’s reaction. From the National Security Archives:

It was after McNamara made this point in the discussion, Robert Kennedy jotted down later that day, that he thought “these few minutes were the time of greatest worry by the President. His hand went up to his face & covered his mouth and he closed his fist. His eyes were tense, a/mast gray, and we just stared at each other across the table.”

McNamara’s team had apparently sent word of this new communication method to Moscow, but the submarines had been out of contact, and the captains off Cuba never got word of this new “signaling arrangement”.

Here’s a longer piece of the transcript, and you can review the entire thing here. It’s simultaneously fascinating and disturbing.

Countdown to …?

64 years after the Cuban Missile Crisis, we find ourselves in another tense geopolitical environment.

President Trump’s deadline for Iran to re-open the Strait of Hormuz ends at 8:00pm ET tonight.

You’ve all seen Trump’s latest post on the matter, but here it is just in case:

Meanwhile Iran’s Revolutionary Guard (IRGC) stated the following:

“Until today we exercised GREAT restraint in selecting retaliatory targets, but now all these considerations are REMOVED.

US & allies will be deprived of region’s oil and gas FOR YEARS”

Are both sides capable of carrying out their threats? Absolutely. With a few hundred cruise missiles, the U.S. and Israel could cripple Iran’s economy for decades. Power plants, oil facilities, natural gas plants, and bridges. Millions would likely die of hunger.

Is Iran equally capable of carrying out its threats? Yes. They could absolutely cripple Saudi Arabian and other Gulf countries’ oil production and refining. It would almost certainly cause a global financial crisis, possibly a depression. Widespread famine in 3rd world countries. An epic stock market crash.

And remember, Iran can likely keep the Strait of Hormuz closed for more than a year with their stockpiles of drones and anti-ship missiles.

Iran has also stated their Houthi allies in Yemen will close the other critical chokepoint, the Strait of Bab el-Mandeb. That would cut off another key transportation route, which is also Saudi Arabia’s last oil export path.

Both sides are capable of devastating economic and humanitarian destruction.

We’re on the brink of absolute chaos, as we were in 1962.

Mutually Assured Depression

During the Cold War, mutually-assured destruction (MAD) ruled the day.

Eventually JFK and Khrushchev both made concessions, compromised, and made a deal. We pulled our nukes out of Turkey, and the USSR pulled theirs from Cuba.

Something similar needs to happen today. But will either side bend? Doubtful, for now.

Things may need to get closer to a severe global crisis before that happens.

We’re not even speaking directly with Iranian leaders. Messages are being passed through intermediaries like Pakistan. The negotiations are not yet serious.

I still hope that a deal comes before Trump’s deadline tonight. An extension, ceasefire, anything would do.

Because if this war keeps accelerating, we are on track for an unprecedented economic disaster.

Never before has society been so dependent on oil, gas, and petrochemicals. Not to mention all the other goods which flow through these Straits.

Finding a resolution to this war will require humility from both sides. Neither appears to have much. For now, we are miles apart from the Iranians on expectations.

If we get a deal tonight, and it looks like it can hold, I’ll be surprised but thrilled.

But for now, I remain hedged with a hefty cash position. I hold puts on a number of U.S. and European stocks and indexes, and a few short ETFs. With that said, my shorts/hedges are still small compared to my long holdings.

I still love gold and silver here, and am still holding the majority of my miners. Petrobras remains a core holding, as do other Brazilian stocks. South American stocks are still a nice place to hide out from this chaos.

But if we get to the total war stage, everything will take a hit.

Tomorrow we’ll delve into whatever happens tonight, and continue to help readers navigate these chaotic times.

The post The Day the World Nearly Ended appeared first on Daily Reckoning.

I hope you had a good Easter weekend. It’s back to business now, and oil and refined fuel prices are up-up-up. There’s much to discuss because we want to stay ahead of the game.

First, though, it’s worth noting that out of eight billion people on our world, a mere four (4) spent the past few days headed to the Moon. Nice work, if you can get it.

North Africa, Europe, Eurasia and Persian Gulf (green box), plus Moon. Courtesy NASA.

I mention the Moonshot because, as you can see, we have an awesome photo of Earth and Moon together. To me at least, this image helps frame some of the issues.

Moonshots While the World Keeps Spinning

In the center of that photo above is the brown Sahara of North Africa, with the Red Sea and Arabian Plate just to the east. To the north is the Mediterranean Sea, and then Europe framed by lights that shine against a dark background. And of course, Eurasia is further east and northeast. Plus, there’s that (editorially added) green box around the Persian Gulf; aka “Arabian Gulf,” depending on who you talk to.

In the big view of things – looking down from 250,000 miles away – while we all went about our life on earth this past weekend, and even for the four souls out in space, the world kept spinning.

Certainly, the Iran war continued, complete with white-knuckle excitement over the rescue of American personnel from behind the lines (another discussion for another time). While closer to home I noticed that the price of diesel fuel rose by about 60-cents at the end of last week.

Both of these things – Iran and diesel – are connected, and that’s today’s theme. In other words, the war has driven up oil prices, which means that diesel and refined fuels are getting expensive, and absolutely it means we’ll have inflation ahead. “Dieselflation,” so to speak.

So, let’s dig into what’s going on…

Well-Traveled Barrels of Oil

There’s a lot of oil in the world; it’s all over the place. But much of that oil is in the Middle East, as you can see from this graph that ranks various nations and their estimated oil reserves (in billions of barrels).

Estimated oil reserves by nation (and Alberta). Courtesy @RazorOil.

Obviously, we see familiar Middle East names here: Saudi Arabia, Iran, Iraq, Kuwait and Abu Dhabi. All export oil, and the graph doesn’t include Qatar which is a major natural gas player.

Whether oil, liquefied natural gas (LNG) or refined products, hydrocarbons travel by tankers that require about 30 to 60 (and for some routes, even 90) days to get from the Gulf to destinations that range across the globe; that is, to Europe, Africa, South Asia, East Asia and the U.S.

Notional – very cursory – chart of global tanker routes.

Along those last lines, and contrary to myth, the U.S. actually does (well, it “did”) import oil from the Middle East. In fact, last year about 8% of U.S. imports came from the Gulf region, just shy of half a million barrels per day. Here’s a breakdown:

U.S. oil imports, especially from Gulf nations., Courtesy Dept. of Energy/EIA.

Note that much of the imported oil from the Middle East is “medium sour,” which means it contains elevated sulfur, because many American refineries are geared to process that blend. And hold that thought as we get into other details about America’s imported oil barrels.

America’s Many Imported Barrels

First, as you look at that graph above of where America’s oil comes from, you can see that most imported U.S. oil – about four million barrels per day – comes come from a distant land known as Canada, namely the province of Alberta (see Alberta oil reserves in graph above).

Now, here’s a map that shows one of America’s most important pipeline systems, namely the Enbridge Mainline out of Alberta, which moves about three million barrels per day of Canadian crude down into the U.S. Midwest. (And the overall system would be larger if President Biden had not – stupidly! – cancelled the Keystone XL line, back in 2021.)

Enbridge Mainline, moves Alberta crude oil to U.S. Courtesy @RazorOil.

Those three million Enbridge barrels per day are unmatched by any other pipeline in North America, even the Alaska Pipeline. In this sense, Canada is a critical part of making America “great,” if not an energy superpower: America’s Midwest and even Gulf coast refineries heavily rely on Canadian oil.

It’s worth pointing out that Alberta and its oil exports far outclass, say, Venezuela’s oil and that nations’ output of under one million barrels per day. If nothing else, Venezuela’s heavy, tarry, gunky oil must first be moved to the Caribbean coast and then loaded onto tankers for another sea voyage to Houston. So, on this point of logistics alone, Canadian oil is a blessing compared with other oil imports, even from relatively nearby venues like Venezuela.

Also, from that EIA graph above, note that not quite half of U.S. Middle East oil imports have been going to Gulf coast refineries, and not quite half to the West Coast, namely SoCal.

Those Gulf coast imports were mostly Saudi oil, headed to a Saudi-owned refinery near Houston. But the California oil imports? Again, much was Saudi but not all. And this highlights a serious problem in the U.S. West, namely the lack of local or even regional oil supply for California and its six remaining refineries (yes, only six left standing; it used to be over 40), as we see here:

Oil supply to California refineries. Courtesy California Energy Commission.

Okay… What’s wrong with this picture? Well, until the early 2000s California produced most of its own oil, supplemented by output from Alaska. But not anymore. And that’s what’s wrong!

Over the past quarter century, California has taxed, litigated and regulated primary oil exploration and production down to bare bones, despite significant hydrocarbon potential in the state (long story). And the same goes for California refineries, many of which have closed over the past quarter century.

In other words, California has grown in population (well… until the past couple of years, as people left due to toxic politics). And as anyone who has recently been there can tell you – just ask me! – there are way more cars, trucks, trains, airplanes and everything else out there and burning fuel, despite the state’s so-called “green” efforts.

But as noted, California has way fewer refineries that are processing less and less oil supply from local or regional sources. And as you may know, California fuel prices are the highest in the nation; over $8 per gallon for diesel, I just saw in a news article.

The takeaway here is that much of the U.S. is (sort of) okay when it comes to physical supply of barrels. That is, most mid-continent and Gulf coast U.S. refineries have access to domestic, offshore and Canadian imported oil.

But out West is a very different story for California, and by extension for Nevada and Arizona, which obtain most of their refined products from California refineries or other imports.

West Coast Will Soon Have BIG Problems

So far, we’ve covered a lot of ground in terms of oil and where it comes from, and how it gets refined.

One big takeaway is that California has an oil and refinery problem. Most oil that flows through California refineries is imported. And now, global events have disrupted that trade. But also, and because California has so few refineries, the state also imports significant amounts of refined products. From where? Oh, man…

Until recently, much of California’s diesel fuel was imported from South Korea (yes, seriously). That is, oil would go from, say, Saudi to Korea, get refined, and then move across the Pacific Ocean to California. But considering the Iran war, that’s all coming to a halt.

Another source of refined products for California is the U.S. Gulf coast, although it’s a circuitous route via Bahamas (due to the Jones Act – long story) and then a transit through the Panama Canal.

Recent refined product shipment from Houston to Bahamas to California. Courtesy Bloomberg News.

Look at it this way: California is a geographically isolated market. What makes it worse is that much of the refined products in Arizona and Nevada also originate from California. So, looking ahead, the West coast and adjacent states can expect much higher prices for gasoline and diesel fuel.

Of course, right now everybody pays more for fuel; I mentioned earlier that we had a 30-cent per gallon increase for diesel just last week, here in Pennsylvania. Clearly, diesel fuel prices are rising nationwide, but those fuel prices are way higher in California, and it’s all about to get worse.

Go back to those above-mentioned 90-day tanker runs for crude oil from the Middle East. Well, all those oil tankers that didn’t sail in early March, because of the war and blockage of Persian Gulf, are now NOT arriving at unloading piers across the world, from Pakistan to New Zealand to… yes… not to the unloading piers of California.

And without crude oil, refineries across the world lack feedstock to run through the cracking towers. Thus, in 15, 30, 45 days or so – end of April, early May – refined products will run short across many parts of the world, and likely in the U.S. West.

Already, Asia is slowing down:

• The Philippines has declared a national emergency, with fuel reserves under 5 days.
• Pakistan has declared a four-day work week; situation is desperate.
• Bangladesh has imposed curfews to stop fuel-burning activities past 6:00 pm.
• Thailand has shut down much of its fishing fleet for lack of diesel fuel.
• Even China has lines at filling stations, and has banned fuel exports, including to Australia and New Zealand which are at the far end of every sort of oil and refined product supply chain.

Is this doom and gloom? Yes; sorry. But the fact is that energy will drive inflation, or as noted above, “dieselflation.”

And there’s a lesson here for nations everywhere: don’t have dumb, kneejerk, bumper sticker energy policy; drill your own freaking oil, build your own freaking refineries, and always be nice to Alberta.

Meanwhile, looking ahead, “What’s the real price of oil going to be?” people ask…

Well, there are paper barrels that trade on the exchanges. And then there’s real crude, like what’s currently not moving in large volumes out of the Persian Gulf. Which means that across the globe – see that nice photo topside – oil refineries that want crude must pay up for petroleum.

Brent-contract barrels (one key international standard) are going for as much as $160, per data I saw the other day. And I’ve heard tales of tankers on Asian routes making three and four course changes to different destinations, as refineries bid for barrels. It’s wild out there.

Meanwhile, if you are in the U.S., be glad! At least we have barrels and fuel here. Compare with Australia, with just two refineries and not nearly enough domestic oil to keep the planes, trains and autos running. And definitely be glad you’re not in New Zealand, with zero refineries, and which must import every drop of refined fuel and lubricant.

And for investing? Keep it simple: oil companies with minimal exposure to the Middle East, like Petrobras (PBR), and U.S. domestics. Plus, oil services like Schlumberger/SLB (SLB), Halliburton (HAL), or the OIH fund. (Of course, these are not official reccos; we don’t have a Reckoning portfolio.)

That’s all for now. Thank you for subscribing and reading.

The post Dieselflation Sparks Energy Emergencies appeared first on Daily Reckoning.

Last summer my 16-year old worked at a local pool.

Here in Howard County, Maryland, the minimum wage is $15/hr. Not bad for a teenager.

Over 3 months he earned about $2,800 after taxes.

He wanted to invest the money. So we started a custodial Roth IRA. The most he can contribute is the total he earned, and we agreed to match 50%.

I explained the benefits to him, and he was sold. A Roth IRA is an incredible tax shelter. When that money is withdrawn (in 50 years or so), it will be completely tax-free.

He won’t need to worry about capital gains taxes at all. This allows the money to compound far more efficiently.

At 10% annual returns, each $1,000 invested over 50 years will turn into $117,000.

The Roth IRA is one of the few no-brainers for investors. And by starting his as a minor, we’re giving him a major leg-up on retirement.

Investing for 5 Decades Out

The hard part was deciding what to invest in.

As you all know by now, I believe U.S. stocks are broadly overvalued.

Historically, when the S&P 500 is trading at current valuations (21x forward P/E), returns over the next decade have been zero. Here’s a chart, via Apollo:

We saw this play out in 2000. After the dotcom bubble popped, it took 7.5 years for the S&P 500 to reclaim its previous high. And then the bubble popped again in 2008.

For investors who bought the S&P 500 near the dotcom peak, it took about 15 years to get back to even (accounting for both inflation and dividends).

As the chart shows, when the S&P 500 is trading at a P/E of 12, forward returns average around 15% a year. But today it’s far from those cheap levels.

So we excluded U.S. stocks from the running.

Emerging Markets and Natural Resources

You already knew where this is going.

Yep, we set him up with a diversified EM and hard assets portfolio.

Here are the assets we chose:

• VWO – broad emerging markets ETF with a tiny .07% expense ratio
• FLLA – Latin America ETF with very low expenses and nice yield (mostly Brazilian stocks)
• PBR.A – Petrobras, my favorite oil stock for the long-term
• VALE – the Brazilian industrial metal miner we featured previously
• GDX – the largest gold miner ETF

Before some of you ask, why not silver?! Our kids don’t know it yet, but they’re already well allocated there.

My goal was to select assets which are essentially set and forget for the next 5-10 years. Let the dividends be reinvested and watch the returns compound (hopefully).

The portfolio is doing pretty well so far. But we’ll make adjustments as necessary based on what’s happening in markets. With this energy crisis, we may end up selling some assets for cash for a bit to weather out the storm. But for the most part, we’ll be holding onto stocks for the long haul. Trying to time the market over a 50-year time frame is tricky.

By setting this account up for him early, we’re giving this money 5 decades to compound, tax-free. And that’s a very powerful thing. Even starting with a relatively small amount.

This summer, Sharp Jr. will work at the pool again before starting his electrician apprenticeship in the fall. Earnings will go straight into his Roth IRA.

He is NOT taller than me. It’s just a bad angle…

My 13-year old daughter, meanwhile, has been working for 3 years at the barn where she rides horses. But since she was under 13, she worked in exchange for additional lessons.

This summer, she’ll finally be able to collect a real paycheck, and guess where that money’s going? Yep, directly into a tax-sheltered custodial retirement account.

If you have kids or grandkids, I strongly recommend setting up a custodial Roth IRA as soon as they get a job. You can even employ them. Just be sure you make them do real work, document everything, and talk to a tax pro if you’re unsure about anything.

The post Setting Kids Up for Success appeared first on Daily Reckoning.

A few months back, we remodeled our bathroom. My wife and I held off for the first 12 years in this house, so the master bath was in its original 1987 state for 38 years.

All our friends and neighbors had long since upgraded their bathrooms.

But it was hard to justify a remodel because everything worked fine, even if it looked dated. But over the past year, the tile started to chip and the tub looked dingy. It was finally time.

On the flip side, I’ve seen a friend with zero retirement savings spend $60,000 on a kitchen remodel. The appliances were maybe 8 years old and worked fine. The counters and cabinets were simple, but also completely fine.

I blame HGTV (Home and Garden TV). His wife watches religiously. That noxious cable network has done more for Home Depot stock than every hurricane combined.

My wife used to watch those home renovation shows. The hosts would come into a perfectly serviceable kitchen, wrinkle their noses, and with a nasally tone say, “Yuck. Everything needs to go”.

Keeping Up With the Joneses

HGTV is a sort of mind virus. It infects viewers with the idea that their house is shabby and in need of glorious upgrades.

The way these shows present perfectly good houses as hideous and dated is annoying. There’s nothing wrong with having older appliances, cabinets, flooring, and fixtures.

To be clear, if you have the funds to do renovations, and it brings you happiness, have at it. What worries me is how people will take out a home equity loan, or even borrow from their retirement accounts to fund needless renovations.

Savings and investment should come first. Optional home improvements later.

This speaks to a broader problem in America. We spend well beyond our means.

An Unhealthy Fixation

It’s not just remodels and renovations. It’s our entire consumption-based society.

When my kids were younger, going to all the birthday parties was fun, but also bothersome in a way.

Watching a kid open 20 brand new presents, almost all imported from China, of which they might end up playing with 1 or 2, always felt off. The vast majority would wind up at Goodwill or in the trash.

As a result, we usually told parents to skip the gifts at our kids’ parties.

It’s not healthy for a society to be so focused on consumerism.

When Will Consumerism Peak?

The American economy is famously driven by consumer spending. They say it accounts for about 70% of GDP. A crazy number.

So… What will happen when Americans are inevitably forced to slash spending?

Stocks will fall, leading to even lower consumer spending, leading to lower stock prices, and on and on… It will be a difficult but necessary part of the coming transition to a more sustainable economy.

Of course, we must also factor in the Federal Reserve and government’s inevitable response. The government will send out stimulus checks, much of which will rapidly be deposited into brokerage accounts and sports books. But some will go to pay off debt and buy groceries.

The Fed will cut rates and restart QE, attempting to keep the status quo intact for a while longer.

These measures may slow the shift, but they won’t stop it. Eventually we simply need to quit spending so much money on frivolous things.

Perhaps this energy crisis will be the catalyst that begins the shift.

Then again, the change in consumer habits may still be a few years off. But it is inevitable.

Until we reach the tipping point, American overspending and under-saving will continue.

All we can do is watch the slow-motion train wreck play out. And prepare our portfolios for what lies ahead…

More on that soon.

The post The HGTV Mind Virus appeared first on Daily Reckoning.

The most common crop grown in the U.S. is also the single biggest consumer of nitrogen fertilizer. And, thanks to the Farm Lobby, it gets added to everything from gasoline to animal feed to candy.

Here’s the thing, 94% of ethanol comes from this crop. And as it gets more expensive, so will gasoline.

If you guessed corn, you are right.

And higher corn prices mean inflation for us. Besides ethanol, corn goes into the cost of raising animals, particularly beef. It becomes high-fructose corn syrup, which is the ubiquitous sweetener in everything.

The problem is that the price of nitrogen exploded, as you can see from the chart below:

Corn is the most nitrogen-intensive crop in the United States, and it isn’t close. Corn consumes about 78% of the nitrogen applied to grain crops like wheat, soy, etc. And the cost of that fertilizer is up over 30% from last year.

Corn needs about 150 pounds of nitrogen fertilizer per acre. In 2025, that was around $59 per acre. Today, according to the U.S. Department of Agriculture, that jumped to $78 per acre. by a wide margin, accounting for about 78% of all nitrogen fertilizer applied to major field crops (corn, soy, wheat, etc.).

The reason that nitrogen fertilizer costs so much today is the war in Iran. Natural gas is critical to making ammonia, which is the feedstock for nitrogen fertilizer. You can see the process in the diagram below:

But if you can’t get natural gas, you can’t make fertilizer. And that’s where we are today. The war in Iran and the closure of the Strait of Hormuz crippled nitrogen fertilizer supplies to the world, including the U.S.

Nitrogen fertilizer made up to 25% of the cost of corn prices. However, as we can see from the chart below, corn prices are at multi-year lows. If past is prologue, we can expect to see corn prices rip higher like they did in 2022:

Back in 2022, Russia invaded Ukraine. That cut off Russian natural gas to the world. It spiked the price of nitrogen fertilizer and sent the price of corn to multi-year high prices. The Teucrium Corn Fund (NYSE: CORN) is a great way to play rising corn prices. As you can see, the price is up about 4% YTD.

If the past can tell us the future, then it’s going much higher. If we’re going to pay extra on everything due to higher prices, we might as well hedge that cost by making some money on this trade.

The post This Grain’s Price Is About To Pop appeared first on Daily Reckoning.

One of my favorite things about driving through the Italian Alps is seeing all the medieval castles on the cliffs. Their ornate, haunting beauty lurks menacingly above the smooth new EU-sponsored highways that run along the valleys.

Why were they built there? For centuries, the main source of revenue for the Lombards, the Savoy family, or the Italian state (at different times for different passes) was tolls for crossing the Alps. Take Reifenstein Castle. It guarded the Brenner Pass route. Knights slept eight to a bed. They watched for traders. No pay, no pass.

Think Trump’s tariffs, Old Europe style.

Now picture this. You’re sailing a merchant ship down the Rhine. Suddenly, a castle looms on the cliff above you. Armed knights block the river. Pay up, or your cargo goes to the bottom of the river.

That’s how the European river network ran for centuries.

Fast forward to today. You’re an oil tanker captain. You need to get through the Strait of Hormuz. Iranian Revolutionary Guard boats pull alongside. Pay $2 million in Chinese yuan. Or turn back.

Same racket. Different century.

Welcome to 2026, the Year of the Returning Toll Booth.

Hugo Grotius Had a Dream

In 1609, a Dutch lawyer named Hugo Grotius published a slim but explosive book. He called it Mare Liberum (“The Free Sea”).

His argument was simple. The ocean belongs to no one. It’s like air. Every nation has the right to sail it. Trade freely. Go anywhere.

Why did he write it? Because Portugal was sinking Dutch ships. Portugal claimed a monopoly on the route to India. Their attitude: our ocean, our rules.

Grotius said that was nonsense. His idea spread. It changed the world.

But Grotius had a client. He wrote Mare Liberum for the Dutch East India Company. Profit drove principle. Free seas meant Dutch profits. Keep that in mind.

Castles on the Rhine

Grotius dreamed of open seas. But rivers told a different story.

As I alluded to before, the Rhine was medieval Europe’s main highway. It linked Switzerland to Germany and the Netherlands. It moved grain, wine, silver, and spice. Commerce flowed along it every day.

So did extortion.

By 1254, some 79 castles lined the Rhine. Each one was a toll booth with a garrison. Lords built them on high cliffs for a reason. Catch the merchant traffic below. Demand payment. Enforce with arrows if needed.

Pay gold, or your ship sinks.

Merchants grumbled. But they paid. Because the goods still needed to move. The lords understood leverage perfectly.

The Holy Roman Empire ran largely on Rhine toll revenue. It was robbery, institutionalized. Just like income taxes these days.

The Barbary Pirates Ran the Same Scheme

It wasn’t just rivers. The Mediterranean had its own toll collectors.

From the North African coast, the Barbary pirates ran a protection racket for centuries. They raided ships. They took cargo. They enslaved sailors. And they accepted tribute in the form of annual payments from European nations, in exchange for being left alone.

England paid. France paid. Even the young United States paid, until Thomas Jefferson said enough.

Jefferson sent the Navy. The First Barbary War, 1803 to 1805, broke the back of the tribute system. The message was clear: America doesn’t pay tolls.

Free seas required muscle.

Pax Britannica: 100 Years of Open Water

In the 19th century, Britain provided the muscle.

Though it’s barely more than a few rubber ducks now, back then, the Royal Navy was the most powerful force on Earth. It crushed piracy worldwide. It destroyed the slave trade. It signed treaties with Arab coastal rulers. The deal was to stop attacking ships or face British guns. Most chose to stop.

The result was Pax Britannica. British Peace. A century of open seas.

Trade exploded. Goods moved freely from Liverpool to Cape Town, then to Mumbai, Singapore, and Hong Kong, and back again. Any nation could ship anything, anywhere, with reasonable safety.

Britain got rich, of course. Free seas tend to benefit whoever controls the most ships and ports. But the freedom was real. The tolls were gone.

After World War II, America took over. The U.S. Navy enforced freedom of navigation across every ocean. The UN codified it in 1982 with UNCLOS (more memorably and sarcastically known as LOST, for reasons we’re witnessing right now) — the Law of the Sea Treaty. No tolls. No castles. Open water for all.

That arrangement lasted 80 years.

Iran Builds Its Castle

The Strait of Hormuz is 21 miles wide at its narrowest point. 14 million barrels, or 21% of the world’s oil, pass through it every day. There is no practical alternative route for most of that cargo.

Iran sits on one side. Iran knows exactly what it has.

Last month, Tehran turned the strait into a toll waterway. Not a full blockade. Smarter than that. A selective one.

China pays in yuan. Ships pass. India and South Korea negotiate terms. They pay something. “Friendly” nations get escorted through by IRGC Navy boats. Others get turned back, or worse.

The toll runs about $2 million per ship.

Oil markets responded immediately. Brent crude hit $113 a barrel, up 74% at one point, from February’s open. American gas prices jumped $1.25 a gallon. The IEA warned it would get worse this month.

For your reference, during the 1973 Arab oil embargo, gas prices rose from $0.33-$0.38 to $0.55-$0.84, depending on where you were in America. Right now, the national average is $3.84. If the war lasts until June, that average may rise to $7.

The castle is working exactly as intended.

Trump Calls the Bluff

President Trump didn’t mince words. On March 16, he told allies: “Countries must help secure the strait. It’s their oil.”

He’s not wrong. China depends on the Strait of Hormuz for 90% of its oil imports. Europe isn’t far behind. America, now an oil exporter, needs the Strait far less than it once did.

Trump warned NATO: send ships, or face “very bad” consequences. The UK and France balked.

History is not encouraging. Medieval traders paid the Rhine lords. European nations paid tribute to the Barbary rulers for centuries before Jefferson stopped it. Right now, China is paying Iran in yuan. The precedent is resetting itself.

Wrap Up

Hugo Grotius was right about the theory. The seas belong to no one. Trade should be free.

But like the law and our borders, the theory needs enforcement.

The Dutch Navy backed Grotius. The Royal Navy backed Pax Britannica. The U.S. Navy backed 80 years of free postwar trade. Remove the navy, and the castle wins every time.

Iran understands this. They didn’t close the Strait. They monetized it. That’s actually more sophisticated than a blockade. A blockade invites a military response. A toll booth invites negotiation, payment, and, eventually, acceptance.

The Rhine lords ran their castles for 200 years before anyone stopped them.

America spent 80 years providing global maritime security. Now the bill has come due… and it’s denominated in yuan. But the thing is, the rest of the world doesn’t mind paying… or negotiating.

The question isn’t whether Iran can run a toll booth. They’re already running it.

The question is, who builds the castle on the other cliff?

The post The Toll Booth Returns appeared first on Daily Reckoning.

“We negotiate with bombs.” – Pete Hegseth

Words are a lot less expensive than bombs. And you don’t have the costs of cleaning up. Which is why thinking, and expressing your thoughts in words — even single syllable words — rather than bombs, is almost always the cheaper and more effective way forward.

But far be it from us to offer advice to Pete Hegseth. He has a role to play — the ‘comic book tough guy’ contributing to the empire’s decline. And he plays it well. He says his forces will “destroy the enemy as viciously as possible from moment one.”

Maybe so. But the gods of war do not favor oafish amateurs. Which is the whole point; his historical role is to turn the gods against us. Kristi Noem is already out of Donald Trump’s inner circle. If the war goes badly, as it seems to be, Hegseth may soon be sent packing too.

In the meantime, Hegseth should be an inspiration to young men everywhere. He’s the kind of jockish guy who normally peaks out in the 11th grade, as captain of the football team. And here he is at the head of the biggest, most wealth-destroying enterprise in the world.

An empire is essentially a protection business…sometimes providing good service…but often, just a racket. People like Hegseth provide the muscle. But in order for the empire to survive, someone should probably do some thinking too. Somehow, the empire must enforce its monopoly on the use of violence so that people within the empire are able to go about their business with tolerable security. And it must have a reliable economic system, too, whereby people can trade, earn money, and save their wealth. Typically, both goals are served by protecting trading routes.

The Mongol Empire created a huge trading area that stretched from the Pacific coast of China all the way to the Bosporus. The Mongols set up way stations to make travel and transport easier. They made the Silk Road much safer, too. If goods were stolen by bandits along the way, the local community was held responsible for making up the losses.

In the 14th century, as the Mongol Empire broke apart, the trading routes became less safe and the empire itself ebbed into a backwater.

The British Empire, too, went out of business when it lost control of vital trade routes. After the decline of the Mongol Empire, the Ottomans took over Anatolia and much of the Levant. This left them in position to strangle traffic coming through the Bosporus Strait. When the Turks closed it to English shipping in WWI, prices in England rose…and the value of the pound fell. The UK tried to unblock the strait with an invasion of Gallipoli, but as we’ve seen, the invasion was a military disaster and the strait remained in Ottoman hands.

The next important pinch point to slip away was the Suez Canal. Built by a French company in the 1860s, the canal became a vital trade passage, connecting Europe to India and the East. It was by this canal that the British Empire was to fully exploit its crown jewel — India. So important was it that the English developed a word for how best to make the trip. POSH, port out, starboard home…and avoid the hot Egyptian sun.

But as we saw yesterday, the pound sank into the mud of the Somme and never recovered. By the end of WWI, Britain was deeply in debt. It had to give up India in 1947. And then, in 1956, it was unable to control the Suez Canal. That was when the sun set on the British Empire.

Could it be that the Strait of Hormuz marks a similar twilight for the US empire?

Today, the world’s economies run on oil. The US controlled the oil flow, first by pricing it in dollars….and second, by providing ‘security’ to the oil producers.

As to the first condition, Iran has been off the reservation for the last 20 years. It sold oil for euros. Now, it is asking for yuan.

As to the second, all was fine until the US and Israel began ‘negotiating’ with Iran by bombing it. The Iranians then did the obvious thing. They blocked the strait of Hormuz to ‘enemy’ transit. The US may or may not be able to re-open it. Der Speigel:

Trump’s options against Iran have run out. The US president entered the field with the promise of a quick and powerful agreement, but now finds himself in the midst of a war that he can neither win nor find a dignified way out of. Iran has put Trump in a trap by targeting the world’s energy arteries, with no escape route, and he has no clear idea how to end this strategic suicide.

Meanwhile, the dollar seems to be taking too many sleeping pills too. AsiaTimes:

Iran is not simply disrupting oil supply — it is quietly challenging the currency structure underpinning global energy trade. Under sanctions, Tehran has developed alternative channels, exporting oil through barter arrangements, informal networks and increasingly through settlements in Chinese yuan. This shift is not merely tactical; it reflects a broader strategic alignment with efforts toward de-dollarization.

If Iran succeeds in institutionalizing yuan-based oil trade, the implications could extend well beyond sanctions evasion. Energy markets have long anchored dollar dominance. Even partial diversification in pricing and settlement mechanisms could begin to weaken that foundation.

Iran is still resisting.

Send more bombers to negotiate!

Editor’s note: Sign up and read Bill’s free newsletter at Bonner Private Research.

The post Shock and Aww Shucks appeared first on Daily Reckoning.

Imagine a single country at the center of the world’s monetary system.

An empire overflowing with unprecedented wealth.

Sounds pretty nice. But underneath the shiny surface, all isn’t well.

These vast riches have discouraged industry at home. The country imports most of its goods.

Its elites are living a life of luxury. Building palaces and importing the finest foreign wares.

But inflation becomes a persistent problem due to all the money sloshing around. Working people struggle to get by.

Wars and nation-building are a continual drain on its finances. So despite all the wealth, debt piles up.

We’re talking, of course, about the Spanish Empire in the 16th century.

Drowning in Money

In one of the best investments in history, Spain’s King Ferdinand and Queen Isabella financed Columbus’ voyage to the New World in 1492. The Crown spent only $5-10 million in today’s money on the venture, generating an ROI for the record books.

Columbus and Spain were in search of a better route to Asia, but what they found was a New World with incredible amounts of gold and silver.

And back then gold and silver were money. Silver was the true backbone of the economy. The gold:silver ratio stayed around 12, so each ounce of gold was worth just 12 of silver. And they found a LOT of silver in the Americas.

From 1500 to 1650 Spain shipped hundreds of tons of gold and tens of thousands of tons of silver back home.

For a while, it had incredible effects. Wealth was overflowing. New cathedrals and palaces sprang up. Art and culture flourished.

But eventually, all this new money started causing problems. From 1500 to 1600, prices quadrupled. And this was after centuries of price stability.

The introduction of so much money disrupted the entire economy. Savers saw their wealth evaporate.

Wages didn’t keep up with the price of food and goods.

The monarchy spent too much on wars defending their empire, and debt became a major problem.

Local industries died off as the nation increasingly relied on imported goods.

In 1569, Tomás de Mercado, a friar and proto-economist, wrote: “The Indies bring us silver, but we turn it into smoke and the wind carries it away.”

When silver imports from the Americas slowed in the late 1500s, the monarchy was forced to mint copper coins. Classic monetary debasement.

Despite the unprecedented riches, within a century it had mostly been squandered.

This was the beginning of a period of decline for Spain, and it would be a while before their star rose again.

Similarities and Lessons

Writer Aldous Huxley famously wrote, “That men do not learn very much from the lessons of history is the most important of all the lessons of history.”

The story of 16th century Spain isn’t a perfect parallel to modern America. But we can attempt to learn important lessons from it.

Like Spain in the 1500s, America has been the center of the monetary universe for many decades.

The U.S. dollar being the world’s reserve currency is both a blessing and a curse. Our fiat currency has been far stronger than anybody else’s.

This makes our imports cheap, but has weakened our export market. As a result, our manufacturing sector is in terminal decline. The dollar is simply too strong, which makes our goods uncompetitive in the global market.

Our primary export today is dollars, just as Spain’s was silver.

The American economy has become over-financialized. A huge chunk of our economy is essentially shuffling money around in increasingly creative ways.

We also spend unsustainably on our military. A classic mistake of empires in decline. Once the military becomes such a large part of the economy and foreign policy, it is difficult to change. The current war in Iran is only the latest example. It will accelerate our debt crisis significantly.

Now, some will argue that it is worth the cost, and that’s fine. But we must acknowledge the simple truth of the matter.

No Easy Solutions

The U.S. today stands at a crossroads. We’ve reached the point where it is apparent to everyone that something needs to change.

What’s concerning is that we might change in all the wrong ways.

Young people are struggling to make ends meet. They can’t afford houses, and aren’t having enough kids. Many are turning to socialism and/or communism as a last resort.

Mayor Mamdani’s in NYC is a disturbing sign of what could lie ahead. Hopefully this experiment fails as miserably as we expect, and the country learns a lesson from it (be sure to read Sean Ring’s recent letter on this if you haven’t yet!)

It seems our political system is irreparably broken. It’s going to take a real crisis to provide the necessary wakeup call. Today we appear to be accelerating towards one.

No matter what, the U.S. has a date with a reckoning. This pile of debt isn’t going to deal with itself. We will see incredible amounts of money printed in the decade ahead. The global financial crisis and COVID were just warm-ups.

So unlike in 16th century Spain, where a flood of gold and silver were the problem, today they are part of the solution.

I believe strongly that everyone should have at least a 5-10% allocation to gold and silver. I’m comfortable with as high as 20%.

The current pullback is an excellent opportunity for those looking to begin or add to a position. However, I do recommend “dollar-cost-averaging”, or buying over time. That way if we go lower, your price will average out.

Our economic future is more uncertain than ever. We’ll continue to help readers navigate these crazy times.

The post Empires Past and Present appeared first on Daily Reckoning.

Warren Buffett once quipped: “When the tide goes out, you can see who is swimming naked.”

It’s all fun & games, until… Courtesy HitManJohnny

Buffet was referring to banks, companies and even investors that appear solid on the surface, but behind the scenes are unprepared for when things go south: entities with poorly thought-out business models, too much debt, not enough cash, weak internal controls and the like. In many cases, they don’t even realize it themselves until the moment that stress arrives.

With that in mind, consider where we stand today. We’re four weeks into the Iran war, and Buffett’s observation applies to an unsettling number of players — including, in important ways, the United States.

The Decision That Set It All in Motion

First, a very basic question: Why did President Trump authorize the use of American military power against Iran?

No doubt, there’s a substantial classified record behind that decision, and much of it will remain out of view for years. But at least one public thread offers insight: statements by Steve Witkoff, Trump’s Iran nuclear negotiator, who described his discussions with Iranian representatives and what he conveyed back to the President.

According to Witkoff, by late February, Iran was just weeks away from possessing enough highly enriched uranium to assemble roughly eleven nuclear weapons. This is what the Iranians themselves conveyed. They also presented data indicating that, within a relatively short period, they could construct dozens more — potentially as many as 75 additional devices.

From Trump’s perspective, the choice was straightforward: act promptly to degrade Iran’s nuclear capability, or risk being “that guy,” meaning the president on whose watch Iran went nuclear. Perhaps unsurprisingly – at least, in keeping with what we know about Trump – it was bombs away.

Since then, the media, pundit class and numerous retired military voices have been quick to criticize the decision. “No plan.” “No strategy.” “Historic blunder.” Indeed, all of a sudden, everybody is Carl von Clausewitz — the 19th-century Prussian theorist of war — or at least playing one on television.

Typically, these instant experts have little to offer beyond self-serving hindsight and academic jargon. Particularly, they fault Trump for somehow “not anticipating” that Iran would restrict transit of ships through the Strait of Hormuz.

Strait of Hormuz. Courtesy LogisticsInsider.in.

What tends to be overlooked in all of this is something quite basic. Namely, that security of maritime transit through the Strait of Hormuz has been a core element of U.S. war planning since the 1940s, when the Navy first began operations in the region. In fact, during World War II, Hormuz was a key maritime corridor for U.S. ships that carried Lend-Lease materials to Iran, destined for shipment north to the Soviet Union.

In other words, for the past 80-plus years, and in any Gulf conflict scenario, the security of Hormuz is not a secondary consideration; no, it has been ItemNumberOne.

In every planning scenario, the security of Hormuz is always assessed, always briefed and always accounted for. There are no exceptions.

To me, at least, it’s inconceivable that Trump somehow “failed to plan” for Hormuz. Far more likely, he was fully briefed, understood the risks and chose to proceed anyway and, in effect, manage developments as they unfolded.

Which brings us to Iran.

Thirty Seconds That Changed the War

Since the 1990s, Iran has invested enormous resources — hundreds of billions of dollars — into building a layered military system.

Iran built extensive underground missile complexes, hardened bunkers, tunnel networks, proxy forces across the region and a nuclear program that achieved near-weapons-grade enrichment. None of this occurred by accident. It was the result of sustained effort, planning and coordination across decades, with support from counterparts including Russia, China and even North Korea.

And then the tide went out.

Iran’s air defense system appears to have failed in roughly the first 30 seconds of the conflict, degraded by U.S. cyber and space-based operations before it could respond in a meaningful way. Within hours, the airspace above Iran was effectively open.

Since that point, U.S. and Israeli forces have conducted sustained aerial operations across the country, delivering more than 18,000 air strikes, according to the Wall Street Journal. Every day of the conflict, aircraft ranging from legacy platforms to advanced fighters, along with drones and long-range missile systems, have struck a vast array of Iranian targets.

Iranian naval and air capabilities have been severely degraded. The country has lost its navy and air force, while land-based systems have absorbed extensive damage. Key industrial facilities have been hit. Personnel losses at senior levels have been significant.

Everything the regime constructed over multiple generations has been stress-tested in real time. And much of it has failed, although the Iranian regime remains “in power,” in a manner of speaking. For now, the rulers of Iran possess enough residual capacity to fire their remaining stockpiles of missiles and drones at U.S., Israeli and Gulf state targets. But they’re up against a relentless clock that delivers over 600 air strikes per day.

How long can they endure? We’ll have to wait and see…

Precision and Power, but Also Structural Limits

We could go on about Iran, but it’s also worth turning the Buffett test inward.

The United States has spent decades building military capability based on a power projection model that emphasizes technological superiority, precision targeting over distance, and high-performance systems. This is, in many respects, an “American way of war” — one that favors quality over quantity and seeks to deliver decisive effects through advanced capabilities.

This approach has advantages, particularly in the opening stages of a conflict; but it also carries structural limitations.

Top-shelf systems like, say, the B-2 bomber or F-22 fighter, are expensive, complex and maintenance-intensive. They’re not designed for prolonged, high-intensity campaigns that require sustained output over extended periods. And increasingly, that constraint is becoming visible.

Meanwhile, ammunition stockpiles are not as deep as they should be, not for this war and not considering other regions where conflict could break out. America’s warehouses are not full because past procurement decisions prioritized performance over volume, leaving gaps across multiple categories: cruise missiles, interceptors, air-to-air systems, guidance kits and more.

And replenishment is not a simple matter…

The Materials Bottleneck Nobody Can Ignore

Modern weapons systems depend on long lead-time inputs: rocket motors, warheads, internal electronics and a range of specialized materials. These inputs are not easily or quickly sourced. And the materials issue, in particular, runs deep.

Primary raw materials used in a notional guided missile. Courtesy AWST.com.

The image above highlights numerous elements and materials inside a “notional” guided missile. Meaning not any particular make or variant. But in general, this is what’s there. We see 27 distinct items, and these are not all! Meanwhile, lack of any single one of these materials could become a choke point in the production cycle.

For example, antimony is essential for explosives and solid rocket motors, but is largely sourced from China which, since the end of 2024, has restricted exports. Tungsten presents similar story of scarcity and Chinese control.

Add gallium and germanium to the list, both critical for radar systems, electronics and guidance technologies. China controls those supply chains, all the way down to the ore in the ground.

Then there’s the issue of rare earth elements, used throughout modern defense manufacturing in magnets, electronics and other components, again with major dependency on China, a strong geopolitical competitor.

At larger scale, constraints on U.S. military power become more visible. Right now, the U.S. lacks sufficient shipyard capacity to expand naval production rapidly, and the same goes for aircraft. Workforce limitations affect the ability to build ships and aircraft, engines, electronics and other critical systems. Production bottlenecks are not theoretical; they are practical constraints.

Energy adds another dimension, certainly on the West Coast where refinery capacity has declined significantly over the past several decades; California had 42 refineries in the early 1980s, and today has but six, entirely due to the state’s regulatory and economic pressures.

Follow that chain of primary materials, production facilities and energy, and the pattern extends far beyond the United States.

A World of Exposed Supply Chains

Let’s take the Buffett bathing suit test overseas, where NATO allies love to virtue signal, but when Trump asked for help with Iran the answer was a collective “Umm… no.”

With characteristic snark, numerous nations characterized their unwillingness to assist in terms of general objections to the Iran conflict. But the truth is more foundational; namely, many NATO nations simply lack the ability to contribute meaningfully to sustained operations. Overall, NATO offers limited naval capabilities, airlift, and/or deep logistical support.

Let’s single out the United Kingdom, Canada, Australia and New Zealand for collective military weakness. Together, they have zero ships ready to sail to the Middle East, and even Britain could only release one destroyer, after several weeks of preparation, to go to Cyprus in the relatively friendly and protected Mediterranean area.

On the other side of the world, vulnerabilities are similarly structural. Right now, Australia faces extreme shortages of motor and aviation fuel as global shipping routes shift, while domestic capacity is constrained. In fact, Oz has but two oil refineries in the entire, continent-sized nation, and imports significant refined products from China (well, not for long because China is shutting them off).

Meanwhile, New Zealand maintains no refining capability and must import essentially all of its fuels and lubricants. And truly, New Zealand is at the far end of everyone’s logistical tail. (Good luck, guys!)

Further north, both Taiwan and South Korea depend heavily on imported oil and natural gas, particularly from Qatar and Saudi, as well as helium inputs necessary for their respective semiconductor fabrication businesses. Hmm… What were they thinking?

Again, we could go on with examples, but these illustrations don’t demonstrate isolated weaknesses. No, they highlight embedded dependencies, now starkly revealed under stress.

The Tide Is Revealing

Looking ahead, where do things go? Trump claims that his reps are negotiating with the Iranians. Officially, the Iranians deny that, and declare that they will never deal with the Great Satan. Okay, we’ll see.

But sooner or later the Iran war will end, whether through negotiation, escalation or exhaustion, and the underlying vulnerabilities will remain. Supply chains, industrial capacity, energy infrastructure and material dependencies are not short-term issues. They are structural realities built over decades.

And of course, there will be opportunities in the rebuilding process. But first, it requires clear thinking — and a realistic assessment of what this moment has exposed.

Thank you for subscribing and reading.

The post Late Edition: The Tide Goes Out on Wartime Planning appeared first on Daily Reckoning.