What If Real Shortage Is Political Will

Oil doesn’t move on headlines, it moves on incentives, constraints, and timelines. We walk through the latest US-Iran-Israel-Gulf dynamics and translate the geopolitics into practical investing questions: what does Strait of Hormuz risk really mean for crude prices, inflation, and energy stocks, and what should a long-term investor do with all this volatility? 

We dig into the idea that Iran benefits by stretching negotiations and distributing the pain across the developed world that relies on Gulf energy flows. We also talk about how public goals can quietly shrink from sweeping military outcomes to a narrower focus on keeping shipping lanes functional, and why that shift matters for market pricing. Along the way, we challenge the “open or closed” framing of the strait, looking at alternative corridors, the months-long demining process, and the possibility of fees and restrictions that keep friction in the system even after a “deal.” 

On the investing side, we get specific about oil price scenarios, why volatility can favor traders over buy-and-hold portfolios, and how Strategic Petroleum Reserve levels and logistics constraints can tighten the range of policy options. Clem also shares current positioning in energy stocks like Exxon and ConocoPhillips within a cash-heavy portfolio, and we debate what could trigger a final spike in oil and what that would mean for recession risk alongside higher interest rates. 

If you want a clearer framework for energy investing during Middle East tensions, listen now, then subscribe, share the show with a friend, and leave a review. What’s your base case for oil prices over the next few months?

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Transcript

Why The Gulf Still Moves Oil

Clem Miller 0:26

Hello, everybody, and welcome to Skeptic's Guide to Investing. I'm here with Steve Davenport. And today I'm Clem Miller. And today what we're going to do is we are going to talk about energy stocks and the Middle East, give an update on the US, Iran, Israel, Gulf states situation. Uh, but you know, ultimately, you know, what it comes down to from an investing standpoint is you know, since we're not investing in the Strait of Hormuz per se, right? What does this mean for Gulf for our energy stocks? You know, should we be investing in energy stocks? Should we be avoiding energy stocks? Uh so Steve, what you know, just give us give me the lay of the land, give us all the lay of the land as to where this stands. What do you think?

Steve Davenport 1:19

Um, I really look at this climb as Iran is playing a smarter game because they know that time is Trump's enemy. And so every time they delay, every time they say we're not going to meet because of this violence or that violence, I think they're doing it in a very calculated way, and they know that this is going

Iran Plays For Time

Steve Davenport 1:43

to be a long-term, you know, negative for Tr p. And so if they can make it a long-term negative for Trump and Netanyahu, meaning that they're they're just being presented with more and more bad decisions. When I look at Iran today, only a month ago we were talking about the mission is to make Iran's nuclear capability go to zero. And today, we just want the strait of Hormuz open. So we've dropped by the wayside of government change in Iran, we've dropped by the wayside eliminating nuclear capabilities and nuclear control, we've dropped by the wayside the idea that we're gonna Kharg Island or we're gonna invade on the ground. All of these ideas that were talked up and made to feel like that was the reality, that Tr p was gonna go in, finish the job, make it completely unassailable that Iran could be have any influence in the region. And everybody kind of looked at it and said, Well, if they could get rid of that problem for us, I guess we can turn the head and look the other way. But now I think that Iran was smart to include Oman in the discussions of the strait. I think it's smart to say, well, we don't have the resources now because we've been bombed so much. So you remove the mines. You want their minds out, you take them out. And Europe is saying, well, if we have to take the minds out, we have to take the mind. You know, Europe has has tried to distance themselves from this for a long time, and reality is they can't. Everyone has a price to pay or an involvement in the region, therefore, I think that Iran has done a good job of spreading this trouble around, so it's not just Trump who has trouble, it's a lot of the developed world that depends on the energy coming from the Gulf. And so if I looked at a winner right now, even though I think economically they've been hurt severely, I think I'd have to say that Iran is winning. And if I was an investor, I am an investor, looking at

From Nuclear Goals To Shipping Lanes

Steve Davenport 4:12

the oil and energy stocks in the US and China, understand it's a yo-yo, right? We keep going up and down as to whether there is a deal, there isn't a deal. And I think that that volatility ultimately makes the hedge funds and the traders more money, but not necessarily the long-term investor. I believe that we will see a peak in oil somewhere around 130 to 150. And when we see that peak, that's when I'd say that some of the holdings in energy we should look at lightning out. I don't think once it hits that peak, I think the pain on the individual countries in Europe and the US and around the world, even to China, I think the pain will be severe. Um, I think that we know we're getting dangerously low in our strategic reserves. Yesterday, I think they hit 300 million barrels. It's about 50% below where it should be. I think that when you look at our oil production, somewhere around 100 million is needed to keep the US going. And I think if you say, okay, 100 million barrels a day, , and and then we look at that and say, okay, how does that how much can we produce ourselves? I think we've always been close to 80 or 90 percent of that. But tape that and say, let's say there was a requirement that we use up our strategic reserves because we're not getting oil through many of let's say something happens in the Taiwan Strait and you know it causes oil and other assets to be frozen. I think that 300 million attends, it's about 30 days. I don't think that's the strategic period that we could resolve whatever conflict in based on how we've resolved conflicts here. So I think we're gonna have to start to have this discussion before the midterms about what do we do about our strategic reserves? Do we stop shipping oil outside of the US and take it all and put it into the strategic

Oil Peaks Volatility And Strategic Reserves

Steve Davenport 6:29

reserves? I don't know if our energy companies are gonna want to do that. US energy companies are at the heart of this effort, and I think that Exxon and Chevron are both gonna make a lot of money in the next six weeks. Um, I ultimately believe we will have a resolution by Labor Day or a little bit afterwards, because that's when the campaign for the midterms really heats up. And so I don't think Tr p can make this let this go well into September and October, because I think he will just be sealing the Republicans' fate as losers at the midterm in both the House and the Senate. I saw a recent account that said 53-47 in the Senate, and I think the House is probably similarly three to five seats in the favor of the Democrats. I don't think that it's unwinnable. I think if Trump were to turn this around and somehow get a deal done, I think he would see more focus on the other things in the Republican Party that they've been trying to do. And I think there would be a much closer midterm. In my mind, I think that Iran wants to push this a little bit further, but I don't know if Trump will get wiser in how he responds, or I don't know if he will. I mean, I'd say he's 90% against putting troops on the ground. I'd say he's 90% against having ships in the Gulf long term, but I think if he leaves one of them, he's gonna probably leave the ships because I don't think the the opening of the Hormuz Strait is gonna happen. It's not gonna happen short term. I think it's gonna take months to get those mines out of there. So I think it's not gonna happen by the time the midterm election happens. A deal could be in place, but it's gonna take time. What do you think?

Clem Miller 9:04

Well, you got a lot there, Steve. So I'm not gonna address every point, but I'm going to just sort of give give my impression of what's going on and what I think will happen, and also tell you which stocks I'm invested in. Well, let me tell you that first on the energy stocks. Um, right now I'm invested in Exxon and in Coneco Phillips. Uh they both fit within my my construct of an attractively low short interest. Uh and so those are the two stocks that in the energy sector that I'm invested in right now. That's two out of about 30 stocks, 30 of my stocks. Uh so my portfolio is getting. Are you equal weighted? About three percent each? Yeah, about about yeah, about three percent each at this. Well,

Midterms Set The Timeline

Clem Miller 9:56

within the within the stock part of my portfolio, I still have about half my portfolio in cash still. So , so there's that. Um so so right now, you know, you mentioned the idea of time constraints, and I think that's a a very important thing. Obviously, the big time constraint, one you mentioned, was the the issue of the midterm elections. So I think that's a a very big time constraint. But that's not that's not the only time constraint. Another one is that our ships have been out there for a very long time, and they're starting to get stinky, so to speak. Uh, and the food situation is not great, the water situation is not great, and , and we really only have so many ships that we can use to cycle in and out. And so I don't think we can make our ships out there a permanent platform and just sort of rotate them in and out. It's just not gonna work. So at some point, I think the pressure's gonna be on, whether it's from the military families or or maybe somebody

Portfolio Positions And Cash Stance

Clem Miller 11:16

else, right? To to try to bring back those ships or or scale down our presence in the Gulf area. So that's another constraint. That's a second constraint that we have. I think a third constraint that's pretty obvious, I think, , is that the Gulf states are terrified that the war is going to continue and that there is going to be a lot of additional violence directed at them by Iran in retaliation for U.S. attacks or anything the U.S. might do. And and you know, that was one of the surprise things, kind of surprising things that came out of the initial U.S. Israeli attack was that you had these attacks on the Gulf in retaliation. So now I think the Gulf states are rather peeved at that. And I think that the negotiations that have happened between Oman and Iran, you know, because both of them are on either side of the strait, so they're negotiating the mechanics of the strait. Uh I think those were blessed by Saudi Arabia and the other Gulf states. Because after all, Oman, Saudi, Kuwait, UAE, Qatar, Bahrain, they're all members of this so-called Gulf Cooperation Council. And they they actually work together on things. And so I think this Oman-Iran deal has been implicitly blessed by Saudi Arabia and and the others. So what that means to me is that is that in order to get the Gulf open, Saudi Arabia actually favors this Oman-Iran deal. And they're going to put pressure on the United States to you know not try to disrupt that deal, you know, maybe not come out and bless it, but you know, not you know, not try to disrupt it. The other thing that we need to be concerned about, or not concerned about, but another thing that sort of puts a makes it more likely that Tr p is is

Ships Logistics And Other Constraints

Clem Miller 13:34

standing down from this is the fact that Netanyahu has turned down has rejected Tr p's Gaza plan. Uh and and so I think when Netanyahu did that, Tr p had to have been upset, maybe not terribly surprised, , but certainly upset. And I can see Tr p just sort of throwing up his hands and saying, you know, forget about it, I'm leaving. You know, you guys all figure out your own problems, right? Israel, Saudi, Iran, so on. And then the last thing I would say, the last thing I would say, back to Saudi Arabia, , is that you recently had a very interesting meeting where you had Turkey, Saudi Arabia, , and Pakistan agree to a mutual security alliance. And you know, this is one where they would each come to each other's defense. So again, Turkey, Iran, no, Turkey, Saudi Arabia, and Pakistan, all three of them Sunni Islamic states, but it's not really an Islamic alliance, it's a it's a alliance against Iran, so to speak. Uh and and Egypt was in attendance but is not formally part of the of the alliance. So and I think Egypt did that because Egypt's got a peace treaty with Israel, and it didn't want to it didn't

Oman Iran Deal And Gulf Pressure

Clem Miller 15:17

want to create any unnecessary complications by by signing on to that alliance, especially because Israel has its doubts about Turkey these days.

Steve Davenport 15:29

So But ultimately their presence shows you that they're probably gonna be a supportive threat.

Clem Miller 15:35

Yes, exactly. So I think all of these things make it much more difficult for for Tr p to continue this war in a physical way and pushes him toward withdrawal of troops and tacit acceptance. That would be a good way to put it, tacit acceptance that the that the war is over. Um I think the Iranians are gonna do what they can to avoid actually signing any kind of formal agreement that then Tr p can wave around and say, hey, I won the war. Um I think they're gonna try to avoid that at all costs.

Steve Davenport 16:22

Um yeah, the one the one thing I kind of add to your comments is is that I think that what we're seeing is the US getting ahead of itself with its missiles because I believe that not only is the you know the ships in the Gulf probably going on f es because they haven't really been to port for a long period of time and they haven't gotten you know restaffed and reshuffled. But I also think they've probably been you know running low on missiles. I think they've used a lot of missiles, and I think that the inventory, you know, I I I think the fact that we keep getting the runaround when we talk to HegSeth about there is or there isn't a problem with our inventory, and we keep hearing how the companies are being asked to do more production, more production, faster production. Well, what do you need more production for if you've got plenty of missiles? Um, you know, I I think it's it's it's one of those secondary signals that we should watch because I think it is gonna mean that we're probably gonna be subject to a deal that ultimately will be an embarrassment. And that embarrassment will make Tr p and his his approach through the Defense Department and Hegeseth. I I can't see how Heggseth survives this. I think that just like we've seen people leave, like No, you know, Nomi and other other people in the administration, I think he's gonna have to leave. And I think that what that does is it rationalizes probably our defense department a little bit and probably makes the likelihood of something else in this time period, , I think pretty unlikely. I thought immediately we were gonna go from we're done with Iran and we're gonna go to Panama and Cuba. But as somebody pointed out to me, Cuba was supposedly on the brink of destruction, and yet they've been sanctioned and and and more blockades, and they're still moving along. They don't have a source of energy, but somehow they have energy. Yeah.

Clem Miller 18:42

So I think Cuba has lived since the 1960s under U.S. embargo. So I don't know what I don't know what more we can expect in terms of the effectiveness of an embargo. And bes and by the way, you know, Tr p talks about

Gaza Plan Fallout And New Alliances

Clem Miller 19:00

letting economic sanctions do their business in Iran. Iran's been under economic sanctions for a long time, so I don't know. They know how to live with it too.

Steve Davenport 19:09

So obviously these countries are figuring out ways to I mean I think someone made a point that there's thousands of miles of of border that Iran has that they could use to move oil in and out, yeah. And that it's not necessarily the quickest as moving a carrier out of the strait, but you get paid for the oil the same way. So I I think that I I really believe that Israel doesn't want peace, and I really believe that they would like to, you know, do more. But I think that again, this the Iranians have proven more resilient and more difficult than anybody expected. And I think it probably, you know, we were wrong to probably think that power and might of the United States is going to immediately deliver a result that we think is fair and right. We're our our opinions of the on the world are not necessarily their opinions, and I think it's a case of the USA hubris, hubris just kind of overtaking this whole issue. And if I were individuals, I'd say, I think we got one more peak in oil coming. Um, and I would be a salary to that peak because I think ultimately the inflation, the difficulties in affordability, I think that we're gonna see a recession, and it's gonna be a recession that has a lot of variables and tails to it, with AI as a part of it, with oil as a part of it, and with generally interest rates as a part of it. Because I look at interest rates and I think we're gonna have to see rates go up once or twice this year, and that's likely to push us into a recession. You know, anything else on energy?

Clem Miller 21:03

Yeah, I was just gonna say that what did you say before? $130 to $140?

Steve Davenport 21:09

130 to 150, yeah.

Clem Miller 21:11

150. I don't necessarily buy that. Um, I mean, I can see it maybe going up to 100 like it did before, 100, 105. Um, but even that I think may be a little bit too high.

Steve Davenport 21:26

So I think if the Houthis get more active in the Red Sea, I think that you know there's things that

Missiles Inventory Signals And Sanctions Reality

Steve Davenport 21:33

can happen as this thing blows to a crescendo that will cause worry.

Clem Miller 21:40

Uh I don't know. I we may be past that kind of military or getting close to being past that military crescendo. Um I think if if if the Gulf if if Iran and Oman formally come to this deal, and if the Gulf formally blesses the deal, and the US tacitly accepts, tacitly, I think I think the conflict is basically over, right?

Steve Davenport 22:14

Good. I mean, I I still think you have to mine.

Clem Miller 22:17

Over on Iran's terms. Oh, on Iran's terms. Yeah, you do have to de- mine, but the problem, I mean, the thing to remember about the demining is that is that only the traditional route through the Gulf was mine, through the strait was mined. The Iranian side, the Iran, the the you know, the route that the Iranians developed, as well as another route that the Omanis developed, have not been mined. So you can get ships through there, through those corridors. They're going to have to demine the the regular corridors, ass ing that that Oman and Iran are agreeing to to open those again.

Steve Davenport 23:03

Yeah, I think that my my only point is that they could come to a deal today, yeah, and 100% of the strait is not open. Yeah, oh yeah, only only the 20%, 10 on each side. And so my point is if you're gonna have it open, it it's gonna have to be demined, and that's a two or three month process.

Clem Miller 23:22

Right. And remember, opening, let's define opening here. Under this, under what Iran wants, they're willing to open it, you know, to the extent they can with with the mining, but they're willing to open it, but not to US ships, not to Israeli ships, , and and charging some kind of some kind of fee, , whether you call it an environmental fee or whatever, a demining fee, maybe, right? Um there'll be some kind of fee.

Steve Davenport 23:59

Okay. Well, everybody charges something in club. This is the nature of a business. We've got somebody's gotta make money.

Clem Miller 24:08

Yeah. And they can they they and the omanis control each side of the each side of the of the strait. And the fact that the Iranians are willing to work with the Omanis on this suggests that you know they at least see some cover from the fact that both geographic sides

Oil Price Debate Demining Fees Closing

Clem Miller 24:30

of the strait have to work together.

Steve Davenport 24:32

Yeah. All right, folks, thanks for listening. We appreciate what you do in terms of supporting us, and we also want you to continue to send us messages and let us know when you have questions or things that you want us to cover. So thanks, and , we look forward to talking to you again soon.