This Oil Shock Is Worse Than 1973 (What Comes Next)

Hinzugefügt: 2026-05-09

[00:00:00]There's an oil shock unfolding right now that's about to repric every asset on Earth. The kind of event that only happens once in a generation. And the last time that it did in 1973, it took stocks 16 years to recover in real terms. But what if I told you that most people are thinking about this all wrong? They're watching the headline oil price and they're looking at inflation and looking at the Fed. They're treating this like a 2022 style inflation scare that the central bank can fix by raising interest rates. But it's not. It's a growth shock, a real physical supply shock, hitting an economy that's already running on fumes. And the cascade underneath it has already started. The S&P 500 is at a record high. Gas just hit $4.50 a gallon nationwide, up 50% since this war started. And the Chevron CEO just told analysts that physical oil shortages are about to start appearing inside the United States. And while all of this is happening, Bitcoin just reclaimed its bull market support band for the first time in 6 months and is sitting above $81,000 as I record this.

[00:01:01]Wall Street is calling it a temporary aberration. But they're wrong. And the consensus is about to find out the hard way. So by the end of this video, I'm going to show you the cascade chain that's already in motion underneath the headline oil price. I'm going to show you exactly where we sit on a five-phase framework that ends with oil at $200 a barrel. I'm going to show you why the same setup that crushed equities in 1973 is forming again right now. Why it ends with a force policy response of money printing and why Bitcoin is the cleanest expression of what comes afterward.

[00:01:30]Let's get into it. So, here's the framework that I want you to hold in your head for the entire video. The straight of Hormuz being closed isn't an oil shock. It is a reset of the input layer for the entire global economy. The oil price is the loudest signal, but it's not the most important. The real damage is in the cascade that runs after it spikes. Oil moves first in days and then diesel and jet fuels start rising next, fertilizer in the weeks and months that follow, and then food months later, and capital goods, manufacturing, and consumer goods quarters later, and finally, sovereign wealth flows over the coming years. So, this doesn't hit the economy as a single shock. It hits as a cascade of waves, each one with its own time and signature, and each one feeding into the next. Right now, the market is pricing in the first wave. Crude oil is up 84% year-to date. The national average for gasoline is at $4.50 a gallon, up nearly $1.50 from where it sat in late February. Diesel is averaging $543 a gallon nationally with parts of California seeing $7.40.

[00:02:32]People are filling up their trucks for $185 at a single pump. And farmers are spending over $300 a tank to run equipment that they can't even break even on. That is wave 1. And that's the wave that nobody can argue with because they see it every time they swipe their credit card. But here's where it gets interesting. The Treasury Secretary went on television last week and called all of this a temporary aberration. And he said it ends in a matter of weeks. Take a listen.

[00:02:56]>> Again, uh we we are cognizant that the that this short-term blip up in prices uh is affecting the American people, but I am also confident on the other side of this prices are going to come down very quickly. you know the conflict will end.

[00:03:12]If we look at the stock market, what what does the stock market see right now? The stock market is looking through this. Corporate earnings are good, employment is good. Uh and this gasoline, this temporary aberration will be over in a matter of weeks or a month.

[00:03:28]>> That's the official line from the United States Treasury. This is temporary and it's nothing to worry about. But watch what the Chevron CEO said on his earnings call last Thursday. Take a listen. 20% of the world's energy supply flows through the straight of Hormuz.

[00:03:42]That's oil, that's liqufied natural gas, it's refined products, uh goes to Europe and Asia primarily. And both of those regions are seeing the impact of having that much cut off. The US can't make up all of that supply.

[00:03:55]>> Uh inventories in the system are being drawn down and uh and the the supply situation is tightening and that's that's a concern. The Treasury Secretary says it'll be over in weeks. But the CEO of one of the largest oil companies on Earth, the company that literally operates in Venezuela, the Gulf of Mexico, Kazakhstan, says that shortages are starting to crack the system right now. One of these people is correct. The market is pricing in the Treasury's version, but I'm telling you, the Chevron version is the one that matters.

[00:04:24]Now, here's the wave that the market hasn't priced. Goldman Sachs put out a note this weekend that I want everyone watching this to understand. They estimate that 14 1.5 million barrels per day of production was lost in April.

[00:04:37]Global stockpiles are now draining at a record 11 to 12 million barrels per day.

[00:04:41]And JP Morgan is calling for a quote cliffedge drop in oil supplies by the end of May. The world has roughly 800 million barrels of usable onshore oil.

[00:04:51]And we've already burned through 280 million barrels of it. That is a 35% draw down in the entire global emergency oil reserve in 2 months. We're not running low. We are weeks away from running out. The head of research at one of the largest oil traders on Earth told the Financial Times last week, and I'm quoting him directly, we do not have months. He said the tipping point is in June. And he said that it goes beyond gasoline at the pump. It goes to industries shutting down and then it goes to recession. That is the second order effect, and that's where the script that the market is following starts to fall apart. So, let me show you where we sit on this road map. There is a five-phase framework being modeled by analysts who are watching what oil is doing right now, where it's headed, and the impact that it will have. Phase one was the geopolitical premium, meaning as soon as war kicks off, days 1 through 14, oil spikes to about $80 to $95. We blew through that range in March. Phase two was the strategic petroleum reserve offset where the United States starts to drain its petroleum reserve in order to put some downward pressure on prices.

[00:05:50]That's days 15 through 35. And there you see oil in the $95 to $115 range. That phase ended last month. In phase three is the structural shortage, which is days 35 through 60. And typically there you see oil at $115 to $145. And there you start to see physical shortages in the Asia-Pacific. Japan, Korea, and India have begun rationing power. And China has begun deploying its strategic petroleum reserves, too. That's where we are right now. 2 months into the war, crude oil at $115. and Asia has already begun rationing. Phase 4 is panic pricing and that's days 60 through90.

[00:06:26]There you see oil between $140 and $185.

[00:06:29]Fears begin arising of the strategic petroleum reserve being fully depleted.

[00:06:33]You start to see hoarding and demand destruction begins at $130. And when I say demand destruction, I don't mean people just choosing not to drive their cars anymore. I mean, every single product or service in the economy with oil as an input cost becoming so prohibitively expensive that people just stop buying it and we enter into a recession. And phase five is equilibrium. That's days 90 and beyond where crude oil hits $1500 to $200. And that's the point where the supply gap and demand destruction find a new dynamic balance. So, it all boils down to this. If the straight of Hormuz stays disrupted for another 4 to 8 weeks, we're not in phase three anymore. We are walking straight into a recession. And here's the part that should stop everyone watching this in their tracks.

[00:07:15]Goldman's worst case scenario assumes that Hormuz fully reopens within the next 8 weeks. It doesn't even model what happens if Iran holds out longer. Their language for that scenario is, and I'm quoting again, nonlinear price increases. That is a Wall Street euphemism for 200, 250, and $370 a barrel. In other words, 7, 12, $15 gasoline. The world has never absorbed 11 million barrels per day of demand destruction through price alone. The biggest demand destruction event in modern history was co and that was in price driven. That was because we shut the world down. Every prior oil crisis 1973, 1979 and 2008, none of them broke 5 million barrels. So what's happening right now is we are being asked to do something twice that size in a matter of weeks. And the way that you do that without a government edict is to push the price high enough that the world physically stops using the fuel. That's what demand destruction means. The cure for higher prices is higher prices. And ultimately, when 10, 12, $15 a gallon gasoline comes around, people will stop buying it. Now, let's go to wave three.

[00:08:20]This is where the cascade gets ugly and where almost nobody on financial Twitter is looking. Fertilizer. As you can see on this chart right here, Hormuz isn't just oil and natural gas. It's the choke point for a huge percentage of the world's fertilizer. URA, ammonia, potach, all of it moves through the straight of Hormuz. Fertilizer exports through Hormuz have collapsed to a trickle. The chart looks like a cliff and the window for applying fertilizer this growing season is closing right now. Pull up the next chart. You can see right here, 78% of southern farmers say they cannot afford the fertilizer that they need this year. That is the highest number on record. And only 19% pre-booked their fertilizer ahead of the season. So, cotton, rice, peanut growers, the most fertilizer inensive crops on the entire board barely locked anything in. Only 13% of cotton growers and 9% of peanut growers are pre-booked.

[00:09:11]And as a result, guess what's happening to prices. You can see right here, weed futures just hit their highest level since June of 2024. Surging fertilizer prices plus surging diesel prices equals surging crop costs. US farm sector losses have already exceeded $50 billion across the past three years. In fact, 94% of farmers say that their financial situation has gotten worse. We have the lowest cattle inventory on record, and farmers are selling off entire herds because they can't afford the diesel to haul them. Famines do not start with empty shelves. They start with a farmer in Kansas applying half the nitrogen he needs because he can't afford the rest.

[00:09:50]Now multiply that across 70% of American farms. The pressure is upstream and most of the country won't feel it for another 6 to 12 months and that's when wave four kicks in, which is food. And unfortunately, it's already locked in.

[00:10:03]The grocery aisle hasn't priced it yet, but the fertilizer chart already did.

[00:10:07]Now, here's where the second order kicks back into the macro. I want everyone watching this to understand the phrase.

[00:10:12]It's called the principal agent problem.

[00:10:14]Think about it this way. You're the principal. Your money is what's at stake and the Federal Reserve is the agent.

[00:10:20]Their incentive does not match your incentive. Faced with this crisis, the Fed can't print oil. They can't print fertilizer or diesel, but they can print dollars to chase a shrinking pool of physical goods. And that is the trap. If oil keeps climbing and the Fed cuts rates, inflation expectations unanchor and the bond market explodes. But if the Fed holds tight, the consumer gets crushed and the cascade keeps moving.

[00:10:43]High diesel prices hit trucking. and trucking hits manufacturing, high fertilizer prices hit food, and then food hits the consumer. You see margins collapse, layoffs start, and the recession kick off. Real quick before I keep going, if this kind of macro breakdown is the reason that you watch this channel, hit the join button down below and become a member. It's the single best way to support the work, and it keeps videos like this one possible, and viewers of this video got to watch it a couple of hours early. Now, back to it. Let me show you what's already showing up in the data. As you can see here, this is the ISM prices paid index, and it just surged 6.3 points to the highest reading since May 2022, the last time that oil prices spiked. Prices paid by manufacturers are up 25.6 points over the last 3 months, which is the biggest 3-month increase on record. So, you have prices ripping, jobs contracting, and ultimately this indicates stagflation.

[00:11:31]You also have the ratio of US leading economic indicators, which just dropped to84. that matches the low from the 2008 financial crisis. This index has fallen in seven of the last eight months and it has never sat this low outside of a recession, not once. So, the economy is already breaking. We could see it plainly in the data, but the market is just choosing not to look at it. Now, I know some of you are thinking, Joe, this is a lot of analysts saying really scary things. How do I know any of this actually plays out? Well, I'm not going to just tell you. I'm going to show you the receipts. You can see right here, this is the chart from 1973 of the S&P 500. You can see in October the Arab oil embargo gets declared. Stocks initially hold. They actually grind sideways for months and then the embargo gets lifted in March of 1974. And then the bottom falls out. The S&P 500 didn't bottom until October of 1974, a full year after the embargo started and 7 months after the embargo ended. The stock market fell 50% in nominal terms. But when you adjust for the inflation that the oil shock unleashed, the index didn't recover for another 16 years. Stocks took a very long time to grasp the implications of the oil shock. That's the historical pattern of every oil shock. The market doesn't price it in on impact. It only prices it in on the cascade. Oil hit $147 per barrel in July of 2008, which marked the beginning of the great financial crisis. Lehman Brothers didn't fall until that September and the market didn't bottom until March of 2009, some eight months later. Every single time that real oil prices have surged 50% above trend, as you can see here, six out of six times in modern history, it has triggered a recession. And we just hit that threshold again last week. Now, here's the chain of events once again for you to remember. First, you have gasoline.

[00:13:15]That leads to high diesel prices, fertilizer prices, high food prices. The consumer eventually breaks. The bond market sells off. And then the Fed is forced to cut and print money out of thin air. We are between phases one and two and the market is acting like the chain ends at phase one. Now here's the part that matters most for everybody watching this. There are two options here. Option number one is the Fed holds the line. Inflation gets crushed and the economy goes into a deep hard recession.

[00:13:42]And option number two is the Fed caves.

[00:13:45]Kevin Worsh takes over his Fed chair in just 10 days. And he's already on the record calling the 2022 inflation response the biggest policy mistake in four decades. He wants rate cuts. The administration wants rate cuts and the political calendar demands rate cuts.

[00:13:58]Ray cuts won't fix a physical commodity supply shock. And you can't print a barrel of oil, but rate cuts will be used as the final lever to juice asset prices and protect the incumbent into November. Option number two is what they're going to pick. They always pick option number two. The decision tree is mechanical at this point. The last oil shock of this magnitude was 1973. Before that, you have to go back to World War II and World War I. So, drop supply shock in the comments if you want me to break down the full historical playbook of how every prior oil shock was resolved, who got crushed, and who got rich. I'm watching the comments on this one, and the most asked angle becomes the next video. Now, back to it. So, the playbook is like this. I want you to pay attention here. Equities take the damage in real terms. Bonds get monetized, meaning the Fed prints money out of thin air in order to buy them directly from the Treasury and banks. In other words, money printing, causing the dollar's purchasing power to go lower. And the assets with no central bank backs stop or ability to be printed into existence, those are the ones that capture the most upside. That's gold and of course, Bitcoin. So, this is where the Bitcoin thesis snaps into focus. Bitcoin just reclaimed its bull market support band for the first time in 6 months and it's sitting just 1.3% below the 200 day exponential moving average at $82,000.

[00:15:12]In January, it was 2.9% below, meaning we are closer to breaking into a full-blown bull market reversal than we were back in January. We also have five consecutive weekly higher lows, and Bitcoin has never made a new low after six consecutive weekly higher lows. So, we are one week from that signal. You also have Wales, which just bought 270,000 Bitcoin over the last 30 days, the highest pace in 24 months, and $7.9 billion in shorts have been liquidated since February. The market is systematically squeezing bears on every upside impulse. So, Bitcoin is forming a base while the bond market breaks and equities sit at record highs. That divergence is the entire trade. Not to mention, Bitcoin is up 30% since the start of the war and it's still the best performing asset. During the 1970s of stagflation, where we had low economic growth but high inflation, bonds lost 31% in real terms, the S&P lost 50% in real terms, but gold ran 23x while oil ran 10x during oil shocks and stagflation. Hard assets always went out. Now, I know what some of you are saying. The market is at all-time highs.

[00:16:15]Bitcoin is consolidating. None of this looks like a crisis. Well, I want you to look at that 1973 chart again. The market held its highs for two months after the embargo started and the bleed didn't begin until the second order effects started showing up in inflation and earnings. We are exactly there right now. The earnings don't show up until Q2 prints in July and August. And ultimately the official recession label, if we get one, will not come until 2027 because the Bureau of Economic Research backdates these things. The economy almost always breaks before the institutions certify that it broke.

[00:16:49]There are three forces converging here.

[00:16:51]independent of one another. Number one is the physical oil cascade that is accelerating, not stabilizing. You can see here the futures curve is pricing oil above $90 for the next 7 months into 2027. The market is telling you that the straight of Hormuz stays disrupted.

[00:17:06]Number two, the bond market is breaking.

[00:17:08]The 30-year yield above 5% tells you the market expects extremely high inflation.

[00:17:13]And this also kills investment in AI and other hyperscalers because they cannot fund new infrastructure at that cost of borrowing. That collapses the only sector holding the stock market up. And number three, the political clock makes the policy response inevitable. Money printing is inevitable when the only lever you have left is asset prices. All three forces converge on the same conclusion. The dollar gets debased to paper over this oil shock. hard assets repric much higher and Bitcoin is the best asset in that bucket due to its fixed supply schedule that no central bank can dilute. Now, let me bring this home. There's an oil shock unfolding right now that's about to repric every asset on Earth. And the cascade is already in motion. Wave 1 is at your gas pump. Wave two is in the trucking lane.

[00:17:59]Wave three is your fertilizer bag, which leads to wave four, higher prices in the grocery aisle. Wave five is your job.

[00:18:06]Wave six is the bond market breaking. in wave seven is the Fed cutting rates and buying bonds with freshly printed money.

[00:18:12]The last time stocks faced an oil shock of this magnitude, it took 16 years to get back to break even in real terms. No central bank on Earth can print a barrel of oil. No monetary expansion can dilute Bitcoin. Therefore, it is ultimately the best asset to position yourself in ahead of this crisis. If you want the deeper case for why Bitcoin is the asset that captures what comes next, check out my last video on why Bitcoin will be the best performing asset during the AI revolution, and I'll see you over there.

[00:18:39]Hit the join button down below to support the channel and become a member, and book a one-on-one session with me at the link in the description. I'll see you in the next one.