Correction: an earlier version listed Brazil among the oil-importing emerging markets. Brazil is a net oil exporter and has been removed. Thanks to the readers who caught it - the argument is unchanged.
Exactly my thinking, but written down so much better than I can get it across to anybody.
In fact I already basically figured most of this out on my own, over 25 years ago, and started to look for an escape hatch. At that time I did not have any money or good social skills, but I set to work. About 10 years later I had a great nest egg. 5 years after that I found an "emerging market" big country with a diverse economy that EXPORTS oil and is not at war with anybody. Changing ones country when one is already old is a prodigeous, challenging task but I am simply determined to survive, regardless of people I left behind. At this point I have a network of friends, a weak but serviceable command of the language, a life partner, and resources I can survive on in catastrophic failure.
And nobody at all. back in the USA is listening to me. I have never seen one american here, ever.
The USA has bee withdrawing an average of 9 million barrels a week from the SPR in order to spread oil on the waters and maintain calm. They do produce almost as much energy as they use, but oil is not exactly fungible, crude oils are so different that a chemist can sample a barrel for impurities and thereby identify where it came from like a fingerprint. And different refineries have been built to process different grades of crude oil and produce different percentages of refined products. The journalistic and political arguments about why the USA imports so much or exports so much comes from pure ignorance, its just a matter of logistics and balance by the participants, its just chemistry, not politics or foreign influence.
In three months they have used another 50 million barrels. That`s a whole lot less than Biden gave away for the sole purpose of trying to get reelected. There is something like 3 to 9 months supply left before everybody starts panicking (panic is a funny thing, you can see it coming clear as day, but you can never predict when it will hit.) Its quite possible that there will com a shortage of something other than crude oil that trips the failure wire before oil does, people have talked about sulphur, about butadienne, about some other things that are not quite so widely understood but have equal critical importance to our post-industrial economies.
I would still be more than glad to help anybody else who wants to try out the idea of moving here, while you still can.
Every place has a downside, whether not allowing firearm self-defense to sketchy healthcare for anything really serious. No one makes it out of this world alive.
The margin from now to panic is not 3 to 9 months, because the US Strategic Petroleum Reserve cannot be drained for more than a month or two before the salt dome that contains the oil collapses. Water is pumped into the salt dome to maintain pressure to support the salt dome as oil is pumped out. But water deteriorates the salt. There is a limit where the salt dome collapses. But our understanding of the limit is only approximate. The best estimate of the experts is that we will reach that limit by the end of July.
I have some serious difficulties with security, as you might imagine. In particular with some folks with the IRS. But if you take a good look at my own substack, some of my articles locate me pretty well. Or, you can find out a good deal more on flickr.com, user "Inubia" I travel a lot but the pictures of my sitio and my dreamhouse are real .....Best way to invite contact is to share your contact info with me.....
Turkey is the strongest evidence in this piece and it quietly undermines the conclusion. The essay ends on gold and physical assets as the things that survive because they can't be printed. But Turkey had gold. $130 billion of it. And when the crisis got severe enough, Turkey sold the gold to get the very paper currency the essay says to avoid, because you can't fill a diesel tank with gold bars and you can't pay a fuel invoice in tonnes.
Gold is a store of value right up until the moment you need it most. At that point it becomes one more asset to liquidate for dollars. Turkey's central bank didn't hoard its gold through the crisis. It swapped 58 tonnes of it in two weeks. The thing that was supposed to survive the paper system got fed into it the moment the pressure became real. So the picture is actually worse than the cascade model suggests: not only does the paper system come under stress, but the hedge against it gets sold to keep the paper system alive a few months longer.
Appreciate this - but sort of missing the forest for the trees here.
Gold is an option on liquidity: savings you can convert into dollars or fuel the moment you need them, without being inflated away while you wait. Turkey selling gold for dollars isn't gold failing - it's gold doing exactly what it's for. The country that held gold had something real to sell, at a price that had risen. The country that held only lira watched its savings evaporate. That's the short-term story.
And history settles the long-term story: gold has outlasted every paper currency ever printed. Turkey's gold wasn't "fed into the paper system" - it was cashed in at record value while the paper around it lost its own. It was the last thing Turkey had that still worked.
Supply & Demand: Previous buyers of gold as an alternative investment to US Treasuries are now selling gold to buy oil. Less demand for and increased supply of gold will result in lower gold prices.
Very Very True, It is pretty easy to see one more big sell off for Gold and Silver.
And Jay is right too, As the US based over inflated system starts to fail, the Worlds Investment Money looks at bargain basement gold and silver and starts to pile in.
Context is important. Turkish CPI sits in the 30%–33% range, with the central bank projecting an interim target around 24% as short-term effects from geopolitical disruptions (like the energy-price impacts from conflicts in the Middle East) wane and the fiat currency has not been supported by a gold standard for years leading to the problems the country faces.
A return to a gold standard doesn't immediately bail out a country's economy but stabilizes the economy and its currency so that fiscal government remedies can be introduced.
All countries have pumped out so much fiat, that there will never be a country with a gold standard which will allow redemptions of currency, which is the only proof of actually backing. That would never happen in Turkey, which has been an economic basket case for decades.
Getting rid of dollars is the same thing as getting rid of credit that the dollar represents. Flooding the global markets with dollars simply diminishes further the purchasing power of the currency. The global fiat currency system awash with a failing currency/
One more cushion to add to the list - US dollar swap lines.
If a country comes under pressure the US will extend a swap line, like they did for UAE. This sometimes comes with conditions, perhaps Turkey did not tale this option.
Your thesis still stands, its just the US dollar swap line adds another cushion and therefore kicks the can just a little bit further down the road.
Opening the straight is just the beginning. The ships take two to three months to sail to their destinations. They have been growing barnacles in warm water for three months. War has damaged the oil fields. Will production increase to normal in 6 months, or a year or two or ever?
It does seem that country's needs to refill oil supplies will put a floor under the oil price somewhere, perhaps at pre-war levels in the $65 range; despite that, as Rick Rule has pointed out, the Gas/Oil industry has been underinvesting in R&D to the tune of $1 Billion / DAY for a few years now: this will show up in depletion and worn out equipment in the next couple of years, regardless of any other factors, and that portends higher oil prices down the road, no matter what. One other point Rule pointed out is that while 20% of oil production goes through Hormuz, 50% of the world's EXPORTED oil goes through Hormuz; that is why the US is draining it's oil reserves. Definitely a day of reckoning is on the horizon.
Yes gold will definitely drop first, as the fire sale will take as many liquid assets as it needs to for the oil to flow, but at some point it should skyrocket past current values as the fiat currencies get debased. Should anyone think of buying (NOT investment advice!) buying in small tranches with a few weeks between would help average the position. Thanks for the great post!
Through QE administered to bail the country out of economic crisis eg 2008 of recent, the fiat dollar's purchasing power in terms of gold is 4 to 6 cents compared to what it was in 1971 when Nixon took the country off a gold standard. Since then profligate government spending without a monetary guardrail has eroded the fiat dollar.
Now central banks see the writing on the wall and are bumping their gold reserves either through purchase or recalling stored reserves in the US. Meanwhile estimates of Chinese gold reserves are around 40-50K tonnes not counting the gold that the public owns which is estimated to be another 20K tonnes which the PBOC has allowed through gold accounts.
Unaudited US reserves suggest 8K tonnes. Will it be enough to weather the financial cataclysm that's about to happen to global fiat currency?
Time for a gold standard in the US but given the track record of politicians of the past, that will be the last thing that they will do, eg post WWI Germany circa 1921-22.
US gold is not even in international standards. It is melted down US gold coins, so would technically need to be refined to get a quick sale for the best price. If the US resorts to selling what little gold it has, it is all over but the crying.
by the way, the Brazilian Central Bank just announced that they are selling a quantity of US $ swaps.... it is a way for Brazilian investors to take a short position on the US doll.ar without actually selling Treasury Notes......
Pretty Boy Warsh has his work cut out for him! He espouses gentle Quantitative Tightening by running out the balance sheet. But Fed purchases have picked up again since Trump kicked the hornets’ nest.
Now, he will need to diddle the way inflation is measured to keep the markets from panicking. Oh, let’s call it something clever—“trimmed mean”—which nobody really has a clue what that will do!
And quietly buy up treasurys as fast as they are printed!
Thanks Jay! Excellent job explaining the dynamics of this to some of us novices in the world of global economics and financial matters. It is frightening to think about it but maybe we will recover from it, albeit slowly.
Turkey looks more like defensive play rather than in real trouble. Its like "climate change or global warming". While de-dollarization is happening, it will take decades and now is still very much the global with no real alternatives.
On oil prices going from $90 to $150, while there will be impact on economic growth in many countries, it will not really impact especially the poorest countries that easily. These poor countries are very price sensitive and would already find alterative to use less oil & gas to survive. Already their governments asking people to conserve fuel use, less working hours.
So yes, will see much suffering and complaints, but think will not really move the needles.
Think the bigger impact may come from China with current 2026 Lujiazui Forum where some new “significant” changes like New Interest Rate Mechanisms (PBOC) - PBOC is "westernizing" its monetary framework, strong signal to global capital that China is serious about playing by the same transparent, rules-based financial rules as the US and Europe.
Accelerate the "Petroyuan" (RMB commodity trade) by launching deep, liquid LNG futures contracts in Shanghai & new Offshore RMB Repo Facility for global RMB liquidity.
So now seems many of the chess pieces are in place, there will be some small placements and will wait for next catalyst for major change.
The US had to know the Straits would be closed. So one has to ask, what was the real reason to attack Iran? The US also had to know they couldn't possible win. Maybe the plan is to bring the world to it's knees so a new system could be brought forward. As the saying goes "If you stand out in the cold rain long enough, you will get into the a car with anyone."
Through the years when theories of clever but complex schemes have been floated AND I have had some real knowledge about events it has always come down to this: the drivers have been accidental, stupidity, or a much simpler version spilling over into a complex situation. In this case, observing how experienced people at the top were ousted shortly before the war, I lean towards a combination. Israel feels its influence in the US is waning (young people and hispanic people are not particularly interested in Israel) and Trump is stupid. So Israel wanted to move, and Trump was convinced he could win.
Trump ignored all the US intelligence agencies which has said for many years Iran was not making a bomb, so what makes anyone think Trump would believe the Strait would be closed? This is what happens to egomaniacs. They know it all until they get in trouble.
i reckon he falls into the useful idiot category... Otherwise hed be thrown under the bus via a msm witchhunt, leaking of the epstein file bits about him and be in jail otherwise.
Sure hes making his dubious mates even richer but hes also waiving thru and signing into place a lot of legislation that he wouldnt understand.
Yes, natural gas is pretty expensive in Brazil because they don't produce enough for their own consumption. You can benefit from this by owning shares of ALVOF which produces natural gas in Brazil and benefits from the high price. I own it for the dividend and swing trade it if it gets too cheap or too expensive. The company is domiciled in Canada.
Correction: an earlier version listed Brazil among the oil-importing emerging markets. Brazil is a net oil exporter and has been removed. Thanks to the readers who caught it - the argument is unchanged.
Exactly my thinking, but written down so much better than I can get it across to anybody.
In fact I already basically figured most of this out on my own, over 25 years ago, and started to look for an escape hatch. At that time I did not have any money or good social skills, but I set to work. About 10 years later I had a great nest egg. 5 years after that I found an "emerging market" big country with a diverse economy that EXPORTS oil and is not at war with anybody. Changing ones country when one is already old is a prodigeous, challenging task but I am simply determined to survive, regardless of people I left behind. At this point I have a network of friends, a weak but serviceable command of the language, a life partner, and resources I can survive on in catastrophic failure.
And nobody at all. back in the USA is listening to me. I have never seen one american here, ever.
The USA has bee withdrawing an average of 9 million barrels a week from the SPR in order to spread oil on the waters and maintain calm. They do produce almost as much energy as they use, but oil is not exactly fungible, crude oils are so different that a chemist can sample a barrel for impurities and thereby identify where it came from like a fingerprint. And different refineries have been built to process different grades of crude oil and produce different percentages of refined products. The journalistic and political arguments about why the USA imports so much or exports so much comes from pure ignorance, its just a matter of logistics and balance by the participants, its just chemistry, not politics or foreign influence.
In three months they have used another 50 million barrels. That`s a whole lot less than Biden gave away for the sole purpose of trying to get reelected. There is something like 3 to 9 months supply left before everybody starts panicking (panic is a funny thing, you can see it coming clear as day, but you can never predict when it will hit.) Its quite possible that there will com a shortage of something other than crude oil that trips the failure wire before oil does, people have talked about sulphur, about butadienne, about some other things that are not quite so widely understood but have equal critical importance to our post-industrial economies.
I would still be more than glad to help anybody else who wants to try out the idea of moving here, while you still can.
Every place has a downside, whether not allowing firearm self-defense to sketchy healthcare for anything really serious. No one makes it out of this world alive.
Where are you?
The margin from now to panic is not 3 to 9 months, because the US Strategic Petroleum Reserve cannot be drained for more than a month or two before the salt dome that contains the oil collapses. Water is pumped into the salt dome to maintain pressure to support the salt dome as oil is pumped out. But water deteriorates the salt. There is a limit where the salt dome collapses. But our understanding of the limit is only approximate. The best estimate of the experts is that we will reach that limit by the end of July.
The spr held 650,000 barrels when Biden took office. It was down to 360,000 when trump took office. It's at 340,000 now. What is your source?
I'm interested, but not sure how to connect.
Malaysia?
Where are you?
Brazil
I have some serious difficulties with security, as you might imagine. In particular with some folks with the IRS. But if you take a good look at my own substack, some of my articles locate me pretty well. Or, you can find out a good deal more on flickr.com, user "Inubia" I travel a lot but the pictures of my sitio and my dreamhouse are real .....Best way to invite contact is to share your contact info with me.....
Turkey is the strongest evidence in this piece and it quietly undermines the conclusion. The essay ends on gold and physical assets as the things that survive because they can't be printed. But Turkey had gold. $130 billion of it. And when the crisis got severe enough, Turkey sold the gold to get the very paper currency the essay says to avoid, because you can't fill a diesel tank with gold bars and you can't pay a fuel invoice in tonnes.
Gold is a store of value right up until the moment you need it most. At that point it becomes one more asset to liquidate for dollars. Turkey's central bank didn't hoard its gold through the crisis. It swapped 58 tonnes of it in two weeks. The thing that was supposed to survive the paper system got fed into it the moment the pressure became real. So the picture is actually worse than the cascade model suggests: not only does the paper system come under stress, but the hedge against it gets sold to keep the paper system alive a few months longer.
Appreciate this - but sort of missing the forest for the trees here.
Gold is an option on liquidity: savings you can convert into dollars or fuel the moment you need them, without being inflated away while you wait. Turkey selling gold for dollars isn't gold failing - it's gold doing exactly what it's for. The country that held gold had something real to sell, at a price that had risen. The country that held only lira watched its savings evaporate. That's the short-term story.
And history settles the long-term story: gold has outlasted every paper currency ever printed. Turkey's gold wasn't "fed into the paper system" - it was cashed in at record value while the paper around it lost its own. It was the last thing Turkey had that still worked.
Supply & Demand: Previous buyers of gold as an alternative investment to US Treasuries are now selling gold to buy oil. Less demand for and increased supply of gold will result in lower gold prices.
Very Very True, It is pretty easy to see one more big sell off for Gold and Silver.
And Jay is right too, As the US based over inflated system starts to fail, the Worlds Investment Money looks at bargain basement gold and silver and starts to pile in.
Context is important. Turkish CPI sits in the 30%–33% range, with the central bank projecting an interim target around 24% as short-term effects from geopolitical disruptions (like the energy-price impacts from conflicts in the Middle East) wane and the fiat currency has not been supported by a gold standard for years leading to the problems the country faces.
A return to a gold standard doesn't immediately bail out a country's economy but stabilizes the economy and its currency so that fiscal government remedies can be introduced.
All countries have pumped out so much fiat, that there will never be a country with a gold standard which will allow redemptions of currency, which is the only proof of actually backing. That would never happen in Turkey, which has been an economic basket case for decades.
Getting rid of dollars is the same thing as getting rid of credit that the dollar represents. Flooding the global markets with dollars simply diminishes further the purchasing power of the currency. The global fiat currency system awash with a failing currency/
One more cushion to add to the list - US dollar swap lines.
If a country comes under pressure the US will extend a swap line, like they did for UAE. This sometimes comes with conditions, perhaps Turkey did not tale this option.
Your thesis still stands, its just the US dollar swap line adds another cushion and therefore kicks the can just a little bit further down the road.
100%
I think the swap line for UAE was also concerning other geopolitical alliances and strategies
And keeps excess petrodollars from coming home to explode inflation.
Opening the straight is just the beginning. The ships take two to three months to sail to their destinations. They have been growing barnacles in warm water for three months. War has damaged the oil fields. Will production increase to normal in 6 months, or a year or two or ever?
It does seem that country's needs to refill oil supplies will put a floor under the oil price somewhere, perhaps at pre-war levels in the $65 range; despite that, as Rick Rule has pointed out, the Gas/Oil industry has been underinvesting in R&D to the tune of $1 Billion / DAY for a few years now: this will show up in depletion and worn out equipment in the next couple of years, regardless of any other factors, and that portends higher oil prices down the road, no matter what. One other point Rule pointed out is that while 20% of oil production goes through Hormuz, 50% of the world's EXPORTED oil goes through Hormuz; that is why the US is draining it's oil reserves. Definitely a day of reckoning is on the horizon.
Love your work Jay, Thank You
Thank you!
Yes gold will definitely drop first, as the fire sale will take as many liquid assets as it needs to for the oil to flow, but at some point it should skyrocket past current values as the fiat currencies get debased. Should anyone think of buying (NOT investment advice!) buying in small tranches with a few weeks between would help average the position. Thanks for the great post!
Agreed
Through QE administered to bail the country out of economic crisis eg 2008 of recent, the fiat dollar's purchasing power in terms of gold is 4 to 6 cents compared to what it was in 1971 when Nixon took the country off a gold standard. Since then profligate government spending without a monetary guardrail has eroded the fiat dollar.
Now central banks see the writing on the wall and are bumping their gold reserves either through purchase or recalling stored reserves in the US. Meanwhile estimates of Chinese gold reserves are around 40-50K tonnes not counting the gold that the public owns which is estimated to be another 20K tonnes which the PBOC has allowed through gold accounts.
Unaudited US reserves suggest 8K tonnes. Will it be enough to weather the financial cataclysm that's about to happen to global fiat currency?
Time for a gold standard in the US but given the track record of politicians of the past, that will be the last thing that they will do, eg post WWI Germany circa 1921-22.
US gold is not even in international standards. It is melted down US gold coins, so would technically need to be refined to get a quick sale for the best price. If the US resorts to selling what little gold it has, it is all over but the crying.
by the way, the Brazilian Central Bank just announced that they are selling a quantity of US $ swaps.... it is a way for Brazilian investors to take a short position on the US doll.ar without actually selling Treasury Notes......
Let’s grow together by supporting one another if you’re also new on Substack, feel free to subscribe and I’ll gladly do the same.
Pretty Boy Warsh has his work cut out for him! He espouses gentle Quantitative Tightening by running out the balance sheet. But Fed purchases have picked up again since Trump kicked the hornets’ nest.
Now, he will need to diddle the way inflation is measured to keep the markets from panicking. Oh, let’s call it something clever—“trimmed mean”—which nobody really has a clue what that will do!
And quietly buy up treasurys as fast as they are printed!
Thanks Jay! Excellent job explaining the dynamics of this to some of us novices in the world of global economics and financial matters. It is frightening to think about it but maybe we will recover from it, albeit slowly.
Turkey looks more like defensive play rather than in real trouble. Its like "climate change or global warming". While de-dollarization is happening, it will take decades and now is still very much the global with no real alternatives.
On oil prices going from $90 to $150, while there will be impact on economic growth in many countries, it will not really impact especially the poorest countries that easily. These poor countries are very price sensitive and would already find alterative to use less oil & gas to survive. Already their governments asking people to conserve fuel use, less working hours.
So yes, will see much suffering and complaints, but think will not really move the needles.
Think the bigger impact may come from China with current 2026 Lujiazui Forum where some new “significant” changes like New Interest Rate Mechanisms (PBOC) - PBOC is "westernizing" its monetary framework, strong signal to global capital that China is serious about playing by the same transparent, rules-based financial rules as the US and Europe.
Accelerate the "Petroyuan" (RMB commodity trade) by launching deep, liquid LNG futures contracts in Shanghai & new Offshore RMB Repo Facility for global RMB liquidity.
So now seems many of the chess pieces are in place, there will be some small placements and will wait for next catalyst for major change.
The US had to know the Straits would be closed. So one has to ask, what was the real reason to attack Iran? The US also had to know they couldn't possible win. Maybe the plan is to bring the world to it's knees so a new system could be brought forward. As the saying goes "If you stand out in the cold rain long enough, you will get into the a car with anyone."
Through the years when theories of clever but complex schemes have been floated AND I have had some real knowledge about events it has always come down to this: the drivers have been accidental, stupidity, or a much simpler version spilling over into a complex situation. In this case, observing how experienced people at the top were ousted shortly before the war, I lean towards a combination. Israel feels its influence in the US is waning (young people and hispanic people are not particularly interested in Israel) and Trump is stupid. So Israel wanted to move, and Trump was convinced he could win.
Trump ignored all the US intelligence agencies which has said for many years Iran was not making a bomb, so what makes anyone think Trump would believe the Strait would be closed? This is what happens to egomaniacs. They know it all until they get in trouble.
i reckon he falls into the useful idiot category... Otherwise hed be thrown under the bus via a msm witchhunt, leaking of the epstein file bits about him and be in jail otherwise.
Sure hes making his dubious mates even richer but hes also waiving thru and signing into place a lot of legislation that he wouldnt understand.
Someone else’s quote. Gold rises on the drums of war. Gold falls when the cannon balls fly
I'll remember that quote, thanks!
Guess it hasn't yet
Brazil is an oil importer???
A very small one. They produce 94% of what they consume.
From ChatGPT: "Brazil is a net exporter of crude oil and petroleum products, not a net importer overall."
I stand corrected. Grok agrees. But Brazil does import a small amount of natural gas and refined diesel.
Yes, natural gas is pretty expensive in Brazil because they don't produce enough for their own consumption. You can benefit from this by owning shares of ALVOF which produces natural gas in Brazil and benefits from the high price. I own it for the dividend and swing trade it if it gets too cheap or too expensive. The company is domiciled in Canada.