Why An Economic Collapse Instead Of Just Higher Oil Prices?

Added: 2026-06-02

[00:00:01]Okay, time for class. Let's try this.

[00:00:02]Uh, honest question, Mr. Global. If 20% of the world's oil goes through the straight of Hormuz, why are we facing economic collapse instead of just a 20% increase in price? So, first of all, there's no guarantee of some economic collapse. There is just an everinccreasing risk of that occurring.

[00:00:22]There's never a guarantee for anything.

[00:00:24]Let's use an example of lumber. Let's say the price of lumber in the United States doubled. What would that do to the housing market? Would it cause a housing recession?

[00:00:34]Not necessarily. But that's because lumber is one of only a thousand things that goes into building a home. But when it comes to oil, it's one of the main inputs or raw materials that goes into over 6,000 items that the world uses every day. So when you double the price or even potentially triple the price, that's what we would be looking at when we would be potentially facing an economic collapse. When you triple the price of the main raw material or input that goes into the vast majority of products sold around the world and you then cause massive global infla inflation. For instance, in Pakistan inflation just jumped to 12%.

[00:01:19]Um that can trigger economic collapse.

[00:01:22]But as far as your 20% increase in prices, one simple way to put it is that oil prices are based on the last barrel of oil that would be needed to balance the market. If you have a 20% deficit in oil production or oil supply versus oil demand, that's for one day. What happens the next day? You have a 20% shortage again. So that grows and then it grows the next day and the next day and the next day eventually like the situation we're in now. We have somewhere between a 1.3 billion and 1.5 billion barrel deficit of oil. And that's because a commodity like oil is not like a fixed asset that stays that it's not something you use every day the same one of. It's something you use up every day. So every day you don't have enough, you're deeper and deeper and deeper into debt, like credit card debt that must be paid back.

[00:02:26]And what that means is that last barrel of oil to balance the market that I was telling you about is now one and a half billion barrels away.

[00:02:36]It's not 20 million barrels away because that's what we were short on any given day.

[00:02:42]It's now one and a half billion barrels away. So, another way to think of the global economy, think of it as like the human body itself. And with the oil shortages we're going to experience, there's parts of the global economy in different countries around the world that are going to suffer a lot. Imagine having several parts of your body sort of shutting down. What would that do to the entire thing? It's the same thing with the economy. The fact of the matter is our economy is dependent on all of the other economies around the world and vice versa. So once you trigger a recession say in Asia which produces 40% of the world's GDP and is the manufacturing hub of the entire planet you get a recession going on there you get a recession going on in Europe suddenly major parts of your body are shutting down and your whole body is getting very sick. That is what's going to happen to the global economy in the worst case scenario.

[00:03:44]Hope that helps.