The Real War Isn't About Iran

The Brent-WTI spread hit $12 this week. WTI crude is trading at $88.50 while Brent is at $100.50. For Tom Luongo, that spread tells the whole story: the Brent paper oil market is desperate to keep the price of oil high because someone is going to go broke if it collapses. Brent is a purely financial contract — "the world's biggest contract for difference on the planet" — while WTI is physically settled. When that spread blows out, it means someone is short collateral and needs the derivative contracts based on Brent to stay in a range that prevents a margin call.

The Midpoint Turn

Luongo describes the Iran conflict as a movie that looks like one thing in the first half and then reveals itself as something else entirely. The story sold to the public was about Iran's nuclear capability. The real story, he argues, was always about breaking the old colonial powers of Europe. The sequence of events is too coordinated to be accidental.

The first move was Lloyds of London canceling shipping insurance. That effectively closed the Strait of Hormuz — not through Iranian military action, but through legal and financial means. Tankers couldn't move without insurance, making them sitting ducks. "London has closed the straits," Luongo says. "The tankers can't move because of legal reasons."