God bless the Taoiseach, Micheál Martin’s script writers for his St Patrick Day’s trip to Generalissimo Trump’s Oval Office. The Taoiseach might succeed in avoiding eye contact with Secretary of State, Marco Rubio’s over-sized shiny shoes chosen by the Boss (no seriously), but the usual exchange of pleasantries laced with some colloquial Irish banter could scupper the whole event. As the non-strategic ‘genius’ of trapping 20% of the planet’s oil supplies in the Strait of Hormuz begins to hurt the entire global economy, it would probably be best to avoid slipping “That’s gas!” into the chat, or “Now we’re suckin’ diesel!” or even “What’s the craic?”. Zero craic for the Taoiseach’s advisors anyway. But, on a broader level, the Trump regime bluster is beginning to crack. Current commentariat thinking is that Trump will avoid an Iran quagmire by declaring ‘victory’ soon and flooding the media with the usual deflections and outright lies. Bizarrely, this time I wish that messaging strategy would work. However, there’s a tiny flaw in this plan. Or, as Captain Blackadder used to say to Private Baldrick, “It’s bollocks”.
The opening of the Strait of Hormuz is in the gift of the new hardline regime in Tehran, not Washington. Yep, that regime change thing isn’t going so well. Unless the US puts boots on the ground, there won’t be much need to crack hydrocarbons in the Persian Gulf for the foreseeable future. Oil production volumes in the region are already being wound down but the bottom line is that the global economy is ‘missing’ circa 8 million barrels of oil per day (out of approx. 100m global demand). This doesn’t sound like an earth-shattering proportion of overall demand but …..welcome to the world of commodities. Any supply/demand imbalance can lead to outsized price movements as the marginal price (most expensive barrel) sets the price for the entire market. The International Energy Agency is already describing the situation as “the largest supply disruption in history” and has released 400 million barrels from reserves. However, despite this announcement (delivery times vary) the price of oil continued to rise to over $100. That doesn’t feel like price control. And, Trumpolini can go on Fox News every night and bluster but the gas prices at the pump are the only truth for voters. It’s not the only crack in the victory messaging….
There are other critical products which travel through the Strait of Hormuz. Seaborne diesel disruption could cause global supply to fall by up to 12%. To be clear, diesel is the most macro-sensitive oil derivative product in the global economy. Think freight, agriculture, mining and industrial activity. Then think of all those ‘always winning’ MAGA voters employed in those sectors. Also, keep an eye on headlines from India and Indonesia who are both frantically seeking new supplies of urea, ammonia and other fertilizer feedstocks. Bangladesh has already closed its universities to save fuel and now we’re talking about the guts of 2 billion people impacted by the basics of food production, education and power. However, if you thought this was just a developing world problem, let’s take a look at the very highest echelon of the financial food chain.
I’ve always been conscious that financial fragilities and leverage can exist in the global economy for extended periods of time but ultimately something cracks. And, that crack can be far removed from the specific vulnerable market. We frequently write about the perils of depending on “other people’s money”. We have also written about the massive growth in a market known as ‘private credit’. In other words, private loans to private companies which do not come from banks. This market has grown five-fold since 2010 to $2.5 trillion globally. Remember these are loans from institutions (not banks) like Blackstone, Apollo, Ares, HPOS, Carlyle, Blue Owl etc. Of course, the explosion of AI investment spend on infrastructure has accelerated the growth of this asset class (private credit) but, as always with fast-growth lending, due diligence standards slip, risk management gets sloppy, and bang….. there’s a problem. Well, this multi-trillion dollar asset class already had two problems:
- In October 2025, two companies in the US in quick succession suddenly collapsed. Private credit instruments backing auto-parts supplier First Brands and car dealership Tricolour suffered catastrophic losses. Suddenly, risk entered the private credit equation.
- In January “SaaS-pocalypse” became a market driver as investors began to fear for the growth and security of once-robust software (SaaS) business models under threat from AI. This, in turn, affected perceptions of the security of loans extended to software companies. Companies like SAP and Oracle saw their share prices fall up to 50% from their highs.
In recent months we have been reading smallish headlines about private credit funds experiencing “difficulties”. Guess what? Depending on “other people’s money” can be tricky when headlines cause anxiety. Yep, people who invested in these private credit funds and vehicles (SPVs) wanted to get their money back. Blue Owl was the first high profile name to suspend redemptions. Then it was Blackstone limiting investor withdrawals, followed by the Big Daddy of them all, Blackrock/HPS. Now, Morgan Stanley and Cliffwater are doing the same this week. So, that’s 6 ‘financial gates’ closing as fast as the Strait of Hormuz. You don’t need to guess what other investors in other funds are thinking. Now consider the impact of a disrupted global economy and how the traditional providers of capital to the global economy are reacting. Clearly, deal conversations with Tokyo banks, UAE sovereign wealth funds and European family offices are going to be of a very different tone to those held just a few short weeks ago.
Listen carefully…that sucking sound is not Kash Patel, JD Vance (how quiet is he!) or Howard Lutnick simpering to the Dearest Leader’s latest delusions. Nope, that’s the sound of the global financial system experiencing geopolitical and leverage cracks simultaneously, and the beginnings of capital flows going into ‘flight to safety’ mode. Hopefully, stability will return to the Middle-East soon. We have stared down the barrel of threatened global chaos before. In fact, for 47 years senior US strategic security personnel gamed out the theory that the Iranians would never shut down the 2-mile wide Strait of Hormuz knowing that the US and their allies’ response would be too damaging. That theory is now dead because the White House moved first and apparently (based on this week’s Truth Social outbursts) had no coherent plan for after…..
Now, that would be gas if it wasn’t so serious.
