As I will explain, the outcome that looks like losing may actually be the best path forward for the world’s remaining economies.
The fighting today is with respect to which parts of the world will get which energy resources, and at what prices. Even before the current conflict, there was a shortage of jet fuel and diesel. The only reasonable outcome I can think of is that the US will only be able to tap its own energy resources, plus those of its nearby neighbors (Figure 1). Consequently, the economy will gradually reorganize in ways that use fuels more sparingly.
The outcome outlined in Figure 1 implies that Donald Trump and the US-Israel coalition will lose the war against Iran. It appears that the physics of the situation (or perhaps the Higher Power behind the physics of the situation) has chosen the flawed personality of Donald Trump to accomplish the required result. This is a situation where what seems to be the US losing in its conflict against Iran is actually winning for the overall world economy. If oil can be used more sparingly in the future by servicing people closer to where end products are made, the available energy resources will provide greater benefit to society as a whole.
In the remainder of this article, I will try to explain the situation more fully.
[1] Background
In physics terms, an economy is a dissipative structure. In order to stay away from a dead state (collapse), it needs to “dissipate” energy of the right kinds. A human is also a dissipative structure. We dissipate food to stay away from a dead state.
From a physics point of view, fossil fuels are as essential to economies as food is to humans. Without fossil fuels, economies tend to collapse and die. With an adequate supply of easily extractable and transportable fossil fuels, economies are able to grow. However, when these fuels become less available due to the exhaustion of nearby resources, or for other reasons, economies are forced to shrink. Rising population can also be a factor because every person in the world needs food and at least minimal transportation. The war is about future standards of living in countries around the world.
An underlying problem is that the world now has too many people for the available resources, such as fresh water. One chart showing data through the end of 2023 indicates that the Middle East is home to 4,863 desalination plants, or about 42% of the world’s total. This region is acutely stressed for fresh water. The Middle East cannot grow much of its own food; it must depend on imports, which are grown and transported using oil.
Previous analyses (here and here) have shown that diesel and jet fuel supplies have been in increasingly short supply since long before the Iran War.
Critical minerals, used in electrification, are also in very short supply. In a finite world, the easy-to-extract minerals are extracted first, leaving the high-cost-to extract minerals for the future.
In today’s fossil fuel economy, oil is the largest component. Oil is usually the highest-priced of the fossil fuels because it is energy-dense and easy to transport and store. If oil supply fails, an economy is likely to collapse. Coal and natural gas are the other fossil fuels. Liquefied natural gas (LNG) is natural gas that is super-chilled and shipped long-distance by boat. Similarly to oil, its price is under pressure today.
[2] The world’s fossil fuel economy already seems to be at a turning point in its economic cycle.
It is well known that economies exhibit cyclical behavior. Researchers Peter Turchin and Sergey Nefedov analyzed eight economies that collapsed and published their findings in their book Secular Cycles. They found that populations that discovered new resources were able to grow for a period of time until they came close to the carrying capacity of the resources available. After approaching the carrying capacity, economies reached a period of stagflation, characterized by slower growth, inflation, and spiking prices as shown on Figure 3.
At this point, the fossil fuel system has been growing for over 200 years. It has undergone stagflation since the early 1970s. It is now ready to begin the downswing of the Crisis Years.
Now, the Iran War seems to mark the beginning of a fairly long Crisis Period. The Stagflation Period was expected to last 50 to 60 years. The year 2026 is 56 years after the time US crude oil production stopped growing, so the timing is roughly in line with expectations. However, we don’t know whether the Crisis Period will really last between 20 and 50 years, since the situation is now quite different compared to cycles before fossil fuels were added to the economy. But it does look like the world economy is headed for reorganization based on the limited fuel supply.
[3] In order for an economy to “work,” oil prices need to be both low enough for consumers, buying end products such as food made possible by the use of oil, and high enough for oil producers.
This issue is not one most people think much about. There are really two different oil price levels that are important:
(a) The price level affordable by consumers. If consumers cannot afford food or basic transportation, this quickly becomes a problem that leads to unhappiness with elected officials. This is the reason why elected officials often try to hold down oil prices.
(b) The price that oil producers require in order to make an adequate profit and allow investment in new wells to offset depletion in existing wells. In the case of oil exporters, oil prices may need to be very high to permit high taxes on oil exports to support food subsidies and other government programs.
I believe that a major problem we have reached today is that countries that are primarily oil exporters, such as Russia and countries in the Middle East, need far higher oil prices than consumers are able to pay. Even if the wars in Ukraine and Iran stopped tomorrow, the world would still have this underlying issue.
[4] Since 2014, oil prices have been too low for countries that use taxes on oil exports as a major source of tax revenue.
Figure 4. Oil prices in 2025 US$, with ovals marking three different oil price periods. Oil prices are based on oil data from the 2025 Statistical Review of World Energy, published by the Energy Institute, adjusted by the US CPI Urban increase to 2025 levels. The 2025 average Brent oil price is from EIA data.
Figure 4 shows average world oil prices on an inflation-adjusted basis, to 2025 price levels. As such, prices for earlier dates appear much higher on the graph than past observers would have seen them.
The low oil prices from 1948 until early 1973 were good for economies around the world, including the US. In the early days of oil extraction, oil was easy to extract and close to where it was to be used. The cost of extraction and transport was low. Consumers started seeing many more products become available. Many families in the US could afford a car for the first time. Also, the US was able to support the recovery of European economies from the impact of World War II at a cost that was not excessive.
In recent years, costs have risen. This is especially the case for the price needed by oil exporters. Part of the problem is that the size of the population requiring subsidy keeps growing, while oil production has been close to flat.
A second part of the problem is that economies of oil exporters often have few other sources of taxable revenue. Oil exporters are trying to change this by adding downstream manufacturing that uses the oil and gas they produce. A third part of the problem is that, as population grows, the higher population tends to use more of the available oil supply, leaving less for export.
Figure 6 shows that, in the 2011-2013 period, oil prices seemed to be high enough for most OPEC members (except Iran). Fiscal break-even prices indicate how high oil prices need to be, including the amount of tax revenue needed to balance budgets.
The notation in yellow on Figure 6 shows that the expected fiscal breakeven break-even for the period under analysis for all OPEC members combined was $105. EIA data shows that the average Brent oil prices during this period were $111 in the year 2011, $112 in the year 2012, and $109 in 2013. Thus, prices were high enough for most producers. Iran was an outlier on the high side, with a range for the 2013-2014 period of $110 to $172. (A more recent forecast for Iran shows a 2025 fiscal breakeven price of $124, which remains far above the pre-Iran war oil price.)
Figure 4 shows that oil prices began to fall in 2014. At these lower levels, it became increasingly difficult for oil exporters to obtain enough tax revenue to significantly help their local populations. They started needing to use more debt to fund their local economies. As a result, they gradually became increasingly unhappy. Figure 4 shows that the average price 2025 for Brent oil was only $65.
To make matters worse for oil exporting countries requiring high prices, oil price forecasts by the EIA and IEA for the year 2026 were even lower because of an expected oversupply of oil. Countries with growing oil production included Argentina, Brazil, China, and Guyana. In addition, some counties on the coast of Africa are hoping to add oil production. Unless world demand is growing rapidly, more oil supply tends to lead to lower prices and a worse situation for oil exporters trying to balance their budgets with taxes on exported oil.
[5] Without the war, LNG prices would also have been too low for LNG exporters.
LNG is a “modern” way of shipping natural gas. Only about 13% of natural gas is transported as LNG. It tends to be an expensive method of transport. Recent reports indicate that a huge amount of future LNG supply is planned for the next few years.
Adding a huge amount of LNG would probably cause prices to drop significantly. This would be great from the point of view of consumers, but it would likely leave prices too low for producers. As I see the situation, Middle Eastern producers are likely to need prices in the $15 to $20 range per million metric tons of LNG, while India is not willing to pay more than $10 per unit, and those wanting to replace coal are unwilling to pay more than $5 per unit. Thus, without the war, LNG would have had a similar problem to that of oil, with prices far too low for exporters.
[6] From Iran’s point of view, I see the war as similar to a suicide, when a farmer can no longer support his family.
With Iran’s fiscal breakeven price at $124 per barrel and the pre-war Brent price at only $65, Iran was already in an impossible position. In fact, Iran could see that all of the Middle East infrastructure would be close to worthless, at expected 2026 oil and LNG prices. So why not take it down as well?
If nothing else, a war might help raise prices, at least a bit. Notice that on Figure 4, oil prices bounced up a little from their very low level in 2022, the year when the Ukraine conflict started.
[7] Losing any significant share of energy supply is likely to significantly reduce world GDP.
If the energy supply were to be lost, the world would be dealing with the losing something equivalent to its food supply. If the world economy loses even 10% of its oil and LNG, it is not difficult to imagine world GDP falling by 10%. At this point, we don’t know precisely how much energy supply, of which kind, will be lost, or for how long. The amount lost could be far higher than 10%. Also, the outage could last for years.
There are many issues involved. Supply lines are breaking down forcing businesses to find closer sources for both energy products and products made using cheap local energy products, such as fertilizer and aluminum. The war, as it is taking place today, is leading to major damage to energy-related structures in the Middle East. Destroyed LNG structures are estimated to take at least five years to replace. Damage elsewhere is also immense. Rebuilding the oil infrastructure will also likely take at least five years.
[8] The US understands the importance of Middle Eastern oil and gas. It uses its strong relationship with Israel to further its military presence in the Middle East.
Israel is a very high-level ally. In fact, a 2025 US Department of State Fact Sheet says that the US is committed to helping Israel in the case of an attack:
Steadfast support for Israel’s security has been a cornerstone of American foreign policy for every U.S. Administration since the presidency of Harry S. Truman. . . Israel is the leading global recipient of Title 22 U.S. security assistance under the Foreign Military Financing (FMF) program. . .Israel has been designated as a U.S. Major Non-NATO Ally under U.S. law. This status provides foreign partners with certain benefits in the areas of defense trade and security cooperation and is a powerful symbol of their close relationship with the United States. Consistent with statutory requirements, it is the policy of the United States to help Israel preserve its QME, or its ability to counter and defeat any credible conventional military threat from any individual state or possible coalition of states or from non-state actors, while sustaining minimal damages and casualties.
However, if we look to see where US military bases are located, they are not in Israel. Instead, a map shows that the “persistent” US military bases are all located around the Persian Gulf (Figure 8).
These bases were clearly intended to protect oil transiting through the Persian Gulf. At this point, all of the persistent bases have been severely damaged by missiles from Iran.
The major interest of the US has been the availability of oil and natural gas from the Middle East. No one ever considered the idea that low prices might be the force that would bring down Middle Eastern oil and natural gas exports.
Friendship with Israel provides the US a convenient close by ally. It also pleases both Jewish Americans who support Israel and those evangelical Christians who hold a religious view that Israel is needed for the second coming of Christ. Some of the latter may even believe that a war in the Middle East could perhaps hasten this event.
[9] Trump realizes that winning the war against Iran is absolutely essential if the US is to retain global hegemony.
The US has been the holder of the world’s reserve currency since immediately after World War II. It was chosen for this role because it was the most trusted and dominant country in the world. International trade took place almost exclusively in US dollars, creating a high demand for US government debt. This allowed the US to import more goods and services than it exported, year after year. This advantage tended to raise the standard of living of US residents.
At one time, Saudi Arabia insisted that all oil purchases be made in US dollars. This requirement has recently expired, but, as a practical matter, the majority of purchases have continued to be through trades in US dollars.
One of the main ways that the US has maintained its hegemony is by building military bases around the world. With these bases, the US can claim to protect countries against aggressors. However, recent events have shown that Iran is able to take down the radar systems at these bases. Without radar, the bases are virtually useless. If the US is to maintain the illusion that it is truly at the top of the pecking order with its sophisticated weaponry, it must show that, together with Israel, it can prevail against Iran.
A disadvantage of the role of being the chief hegemon is ever-rising US government debt and the need to pay interest on that debt. This growing debt and the interest on the debt has become an increasing burden.
If the US should lose its hegemony role, the advantage the US has had over other countries in trade is likely to disappear. Repaying debt with interest is likely to become an even worse problem. If this should happen, Trump will no longer be able to think about making America great again.
[10] Conclusion
The world is now facing a problem that most people never considered possible: Oil and LNG prices can fall so low that production becomes unprofitable for major oil and LNG exporters. Until now, the trend among world leaders, including President Trump, has been to try to hold prices down for consumers, so that food and fuel for vehicles would remain affordable. However, this has created a problem in that prices have become too low for countries whose primary industry is being an oil exporter.
At this point, the world economy needs to make a major transition in order to deal with the inadequate level of fuels available for long-distance transportation. These same fuels are heavily used for farming and for many for commercial endeavors, such as building homes and roads. It is therefore necessary to find ways to use these fuels more sparingly. One way to achieve this is by reducing the length of most supply lines, as shown on Figure 1. Shorter supply lines will also be needed elsewhere in the world.
It is ironic that the world economy cannot make a change such as this without a war to focus our attention in this direction. Other changes will also be needed. Governments will probably have to become smaller and provide fewer services. Vacation travel will become the exception rather than the rule. “Working from home” will become the norm, whenever possible. I expect that the world’s population will need to fall, albeit in a fairly subtle way. I expect this will mostly be the result of shorter life expectancies.
We are fortunate that economies are self-organizing. If resources are available, even after a major schism such as the loss of the war against Iran, the self-organizing nature of the economic system will try to knit together pieces that can productively provide goods and services. This cannot happen instantly, but this feature means that there are likely to be some jobs and some goods and services available. Past cycles of the type illustrated in Figure 3 have eventually led to new beginnings.
If the US and Israel lose the current war against Iran, I expect President Trump to be blamed for this loss. However, I believe that this outcome would be best for the world as a whole.
Strait is open!
While people who are students of energy have realized Hormuz is the equivalent of nuclear power of destruction most people did not. With this kind of power comes great risk. We consider this a deterent. It is called mutually assured destruction. It is a cornerstone of policies and military doctrine.
The first part of Irans deterent is their ballistic missile capability. When theiy demonstrated it’s capability in June things changed. It meant all countries in the region were in the same situation as the rest of the world. All nations are under the fire control of other nations. Only mutually assured destruction prevents our obliteration.
From that point forward the plan to eliminate Irans ballistic missile capability began. Iran has put a lot of effort to prevent this. Missile cities immune to pretty much anything.
Irans ability to project a mutually assured destruction deterrent depends on those missiles. If their energy extraction infrastructure is destroyed they destroy all the infrastructure in the region. The monarchs don’t like Iran and visa versa. If the missile svere removed Iran would still have capabilities to close the strait. This makes attempting to remove Irans mutually assured destruction deterrent a challenge to say the least.
There are some 59,000 USA troops in the region now. My guess was a attempt on the missile cities was to be made soon. New war technology previously not deployed would have to be used. Both Trump and Vance have more or less stated that is not only a option but likely.
The missile cities have been taken off line many times now. Conventional weapons bury the launch capability with soil. Iran has heavy equipment ready. They dig out and launch.
One option is thermonuclear weapons. They could bury the cities so deep digging out might not be possible . If the ventilation system is buried it could end the capability more or less permanently. I don’t think that is on the table. Many have said mili6aould refuse first nuclear weapon use.
I think a gateway weapon is planned. Something like the oreshnik missile the Russians have been using in Ukraine. Not like it in capabilities but like it strategically. Not a nuclear weapon but much more powerful. I consider these gateway weapons. Most probably use of such weapons would occur prior to a thermonuclear exchange.
The Iranians understand mutually assured destruction. They understand they are finished if all Gulf region infrastructure is destroyed. Of course so is industrial civilization. That’s the point. The Iranians know a attack is coming. Perhaps as soon as this weekend. This is Irans last ditch effort to avoid the situation where they must implement their deterent.
Unfortunately nothing has changed. The nations of the region are not willing to live under the mutually assured destruction ruction philosophy we do. Apparently their influence on the deployment of USA military is substantial.
The attack on the missile cities will certainly be difficult but not impossible. First they will get buried so they can’t launch. Then all personnel on the surface would be eliminated with new weapons technology. Then ground troops would be deployed to finish the job. Then the task of removing lessor threats to shipping through the strait would begin. This would also require new weapons technology.
By opening the strait Iran has said none of that is necessary for oil to transit. It does not address the issue that nations in the region are unwilling to live under the mutually assured destruction philosophy we do.
The open strait allows continuation of industrial civilization although even now the consequences would be enormous. Unfortunately I don’t think that is the primary issue to those that are making the decision whether to try and remove the missile cities or not. When that is attempted Iran will try to excercise use what ever deterent they have that is functional. The degree to which they are able to destroy the Gulf infrastructure is unknown. One issue is the vast quantity of low tech shahed buzz bomb drones Iran has. These are in shipping containers. Since you can’t destroy all shipping containers these will launch. The Gulf is pretty much wide open. Air defense is depleted. If the targeting system they use is functional they are relatively accurate. This ensures some of Irans deterent remains intact regardless of the fate of the missile cities. Perhaps some of these will not be deployed to provide long term strait closure. Probably not. The focus will be destruction of Gulf energy infrastructure to end industrial civilization. That is the nature of mutually assured destruction.
Assuming the new technology weapons are effective and there is a great deal of luck the strait will still be closed for a unknown period of time. There will be damage to the Gulf infrastructure IMO. The consequences both short and long term are unknown but I think we can safely assume they will be of a scale not previously witnessed. Additionally the possibility of new technology weapons being used in other conflicts will increase greatly. As mentioned these could be gateway weapons to thermonuclear or biological weapon deployment.
The only sane action would be to abandon mutually assured destruction philosophy. It’s is a enormously flawed philosophy guaranteeing the use of weapons of mass destruction when the infinite nature of time is considered. It should be decided by all nations that these devices should be disassembled and their components destroyed. I am not fond of the concept of evil but i consider these devices evil and beyond the power that is appropriate for any individual nation or civilization to wield. The elimination of these weapons is a fairy tale and with their continuence the fate of humanity is sealed regardless of whether we escape this crisis or not. The task of ensuring some nations are allowed to wield weapons of mass destruction and others do not is not only futile it is fundamentally contrary to justice. Only one outcome is possible if the philosophy of mutually assured destruction and the devices that allow it continue to exist. Using the remaining resources of the planet in a attempt to create faux permanence is perhaps the most insane action ever demonstrated.
https://m.youtube.com/watch?v=lh51upOLhv0&pp=0gcJCdMKAYcqIYzv
The media both MSM and social is engaged in — the SOH is open — the SOH is closed . The real question should be — did any additional barrels enter the pipeline ? The answer is none — so ” what difference does it make ? ” Billary Clinton .
Good news from “Slovakia” (use Google Translate etc):
https://defence-ua.com/news/slovachchina_otrimala_pershij_barak_mx_z_izrajilju_i_odrazu_natjaknula_de_bude_stojati_zrk_scho_mozhe_zbivati_rosijski_iskanderi-22621.html
Keeping the Great Slovak Motherland safe from the evil x-Soviet Empire.
Glad to see SLOVAKIA is choosing the winning side this time around
What do oil shortages lead to?
North Korea
“The collapse of the Soviet Union (USSR) in 1991 caused a catastrophic loss of oil, energy, and subsidies for North Korea. Losing “friendship prices”—where the USSR supplied oil at ~25% of market value—crippled North Korea’s economy and led to severe energy shortages. This forced reliance on costlier imports and spurred modern illegal oil transfers from Russia.”
Google
https://www.google.com/search?q=north+korea+losing+oil+from+USSR&num=10&newwindow=1&sca_esv=27fdc1d65c2ac978&sxsrf=ANbL-n7GURi6LNq9oo_3UbC617YXDaHBFQ%3A1776437584653&source=hp&ei=UEniaaGSJdrn0PEPmOygmQY&iflsig=AFdpzrgAAAAAaeJXYHyuM5hFUM8Bz6NeTLbq4bUfsfHC&ved=0ahUKEwih-sjZkfWTAxXaMzQIHRg2KGMQ4dUDCCE&uact=5&oq=north+korea+losing+oil+from+USSR&gs_lp=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&sclient=gws-wiz
A country with not enough energy supplies tends to have one dictatorial leader, as North Korea does. They will get energy supplies from anyone who will sell it to them. They will work on new kinds of bombs, to retaliate. They will work on hacking other countries software. They will do anything, legal or not, to get what is essential for the economy. AI doesn’t figure this out.
https://www.zerohedge.com/political/trump-says-admin-investigating-deaths-disappearances-us-scientists#comment-stream
Rocket- and soon nukular “scientists” are being mysteriously (but peacefully) disappeared as we speak, is that the Phase 2 of your DA, reante?
(Since, when we don’t have rocket- and nukular scientists anymore, we cannot operate those serious devices safely any longer, and, therefore, we need to shut them (those serious devices, that is) all down immediately… Right?)
Nuclear energy has not been a go-to major for students for a long time. An article published a few years ago says,
https://orise.orau.gov/stem/workforce-studies/nuclear-engineering-enrollments.html
Between 2012 and 2022, the number of students graduating with bachelor’s degrees in nuclear engineering in the U.S. fell by 25%, according to the Oak Ridge Institute for Science and Education, with the class of 2022 seeing only 454 students graduate with a degree in the field. At the same time, the nuclear industry is facing a maturing workforce, with 17% of workers in the industry over the age of 55 and 60% aged between 30 and 54, according to the 2024 U.S. Energy and Employment report. The report also highlighted that 23% of workers were aged under 30, compared with 29% for other energy workers.
Most of today’s graduates will not have seen the actual building of a nuclear power plant. The material from most nuclear bombs from years ago has been “downblended,” to give fuel for our power plants. China has a dynamic nuclear power industry; the US does not. Good luck in finding and keeping scientists in the field.
The Hand knows how to trim excess capacity. In its wisdom, it eliminates unneeded expertise as well as large future pensions. But IMHO the field of nuclear engineering in the USA was already devoid of innovation 25 years ago and in fact actively suppressing innovation. And one of the disappeared is a general? you do not become a general in the USA by writing landmark papers.
Yes, they have some molten salt things going now, probably because someone in Washington stepped in that this has going on too long and too far. It is also possible that the new reactor research is simply a subsidy program for existing national labs, which the DOE always eagerly promotes. It is not research in other words.
zerohedge as well as the italian press report the full reopening of Hormuz. marinetraffic map very busy as usual with few ships in strait. paper oil to 90. it is a week end of course.
A “happily ever after” end to the story, according to most media, I expect.