The Abundance Illusion of Energy

   The deepest enigma of 2026 may not be UAP/UFOs, but why did the price of oil avoided rising to 150 dollars per barrel following the closure of the Hormuz Strait plunging the world in a depression? Have the principles of Neo-classical economy built over 200 years of history suddenly stopped working? 

   The article bellow is quite interesting because it highlight what happened during the crisis. Trump played a dangerous game, took a chance and lost. He was then rudely awakened by the true "financial" masters of the world who suddenly said "Stop!" as the world was on the verge of the precipice. 

   There will be consequences but for the time being we avoided the worst, although the energy crisis itself is far from over.  

"The Abundance Illusion" by Jeff Currie

In February 1977, Jimmy Carter addressed the nation from the White House library wearing a cardigan sweater. The thermostat had been turned down. The message was unambiguous: energy is finite, security is earned, and comfort has a cost. Two months later, in what became known as the Moral Equivalent of War (MEOW) speech, he named the program to build a secure domestic energy base the ‘energy transition’ — a term that had nothing to do with the environment and everything to do with what happens when a foreign power controls your fuel supply. Nixon had already launched Project Independence; Ford had signed the Strategic Petroleum Reserve (SPR) into law.¹ Carter was naming the security imperative every serious government already understood in private: the most irreplaceable input to the modern economy was also the most geopolitically exposed. The press named it MEOW and Congress ignored him.

When Carter told Americans the energy shortage was a crisis, the admission was honest and politically fatal. His political successors drew the obvious conclusion, and thus the abundance illusion was born: never admit to scarcity. Fear may drive policy, but greed is what gets the votes. And thus the template became reassure markets with words and hundreds of millions of barrels from strategic reserves and hope that talking down prices would bridge the gap until supply returned and the problem quietly resolved itself.

It has worked for every US Administration since Bush Sr. The inventory buffer became the policy. Consume the insurance, call it abundance, and avoid the pain of rebalancing. The hard work Carter asked for — building the physical capacity to never need the buffer — was quietly abandoned. The energy transition gradually became an environmental project, eventually losing much of its security logic and curdling into a polarised fight over green and brown that has lasted a quarter century.

That template is being applied again today — and markets have accepted it. Prices have fallen nearly 20% from their 2026 peak. A Goldman Sachs survey of 839 institutional investors conducted between June 1 and 3, 2026 found a record two-thirds expecting oil prices to fall further — the most bearish reading in the ten-year history of the poll. The same bearishness is visible in energy equities sold to pre-war lows and long-dated futures pricing a swift return to normality. This confidence has created both physical and financial destocking in hopes of buying lower in a matter of weeks — the abundance illusion reproducing itself one position at a time. China’s decline in crude imports has become the consensus explanation — the world’s largest importer facing “demand destruction,” the market rebalancing rationally. It is a compelling narrative, but in my view it is also wrong.

China and the New Joule Order

One country never made the West’s mistake. Fifty years after Carter’s speech, China has executed on what he asked of the West — without ever making environmentalism the justification. While Washington and Brussels argued about green and brown, Beijing simply built both. Whatever the climate benefits, China did not build 1.2 terawatts of solar capacity primarily for them. It built that capacity because it understood the MEOW lesson better than Carter’s own successors — security first, with decarbonization as a welcome dividend.

The country that controls the electron controls the joule. Every gigawatt of domestic generation is a gigawatt that does not transit the Strait of Hormuz, the Red Sea, or the Malacca Strait. Every EV on a Chinese road is a barrel of Iranian crude that no longer needs safe passage through someone else’s water. And ultimately the country that controls the joule controls the AI race.

This is the New Joule Order (NJO): the era in which the security premium becomes the dominant force in energy markets. Electrification is the purchase of optionality — an electron can be sourced from oil, gas, coal, sun, wind or nuclear, while the combustion engine is married to a single fuel that must transit someone else’s chokepoint. China has been building toward it since the 1990s. The West is still debating it — and the gap is now measured not in conference emissions pledges but in barrels per day, inventory levels, and the declining usable capacity of strategic reserves.

What looks like demand destruction is the New Joule Order being exercised in real time. China is exercising the real optionality for which they invested. At elevated prices — Chinese retail fuel prices jumped roughly 30% when the conflict began — price-driven suppression adds 0.5 to 0.7 mb/d of reduction. During the five-day May Day holiday, EV charging on highways surged 55.6% year-on-year, with nearly a quarter of cars on Chinese highways electric — a 33% increase. Chinese consumers faced with higher gasoline prices are charging rather than filling up, switching fuels on a dime because the infrastructure already exists. Industrial switching to coal-fired generation adds another 0.3 to 0.5 million barrels per day (b/d) of displacement; thermal generation is up 160%.

Figure 1: China invests in New Joule Order

The coal figure should not alarm those focused on emissions. Coal is the bridge, not the destination. China’s renewable and nuclear capacity carries zero marginal cost once built — fixed costs are sunk, the fuel is free, and every additional gigawatt displaces a barrel at no incremental expense. This is the same logic that made asset-light technology businesses so powerful: once the infrastructure exists, the marginal unit costs nothing. First, the Chinese replace imported barrels of oil for transportation that is now electrified. Then, the Chinese reduce the coal for baseload power. Eventually, they will replace imported gas for peaking. The flexibility Carter asked America to build through sacrifice, China built through investment — and is exercising now. In aggregate, China’s demand flexibility envelope is likely worth 2 million b/d. Clearly, this does not explain the entire 6 million b/d decline in imports — but they are no longer building SPRs and have stopped exports which explains another 3-4 million b/d of the decline. The key is a flexibility in demand no other nation can come close to matching.

Robbing Peter to pay Paul

I believe the narrative of American energy dominance completing the rebalancing is equally misleading. Total US crude exports have surged from 3.9 to 6 million b/d, up roughly 2 million b/d since the war started. Supertankers that once loaded in Ras Tanura and Basra are queuing in the Gulf of Mexico. On the surface this looks like the energy dominance thesis working as advertised. Look beneath the surface and the picture is entirely different.

Figure 2: US energy exports outpace production

The United States is cashing out its insurance policy in order to maintain the illusion of abundance. The SPR has fallen from above 415 million barrels in March to approximately 357 million today, on a trajectory reaching operational minimums by early autumn. Cushing² has declined from 33 to roughly 24.5 million barrels, weeks from nearing the floor below which the futures settlement mechanism begins to break down. Commercial crude inventories have erased their entire 2026 build in five weeks. Gasoline stocks have drawn for fifteen consecutive weeks. Diesel stocks are near critical levels before the summer driving season. This is not supply responding to price. It is inventory responding to price. And inventory, unlike production, has a floor.

It is robbing Peter to pay Paul — liquidating the buffer built over decades to suppress the very price signal that would trigger the investment response the market needs. These are global markets. The United States draws its SPR; the world prices off the suppressed signal. When Cushing hits its operational floor — a matter of weeks at current trajectories — the self-correcting mechanism arrives not gradually but abruptly.

Figure 3: Crude oil petroleum products are depleting US inventory

The mispricing and the summer reckoning

The core of the mispricing is not in the spot price. It is in the long-dated curve. Forward oil prices are now lower than when the war started, and energy equities have followed. This assumes Hormuz reopens imminently and the world returns to February 27 in a matter of weeks. It has been the consensus since the first week of March, and it has been wrong every week since.

Iran has more leverage today than at any point in the last 47 years; its Hormuz position is the most powerful negotiating instrument any energy producer has held in peacetime. And the consensus has discarded one further variable entirely: seasonality. The seasonal swings in oil demand are enormous, predictable, and possibly about to move violently in the wrong direction. Military operations in the Middle East do not escalate meaningfully during summer — the heat makes sustained operations very difficult — so it increases the odds of further delays, by which point the inventory position will be dramatically worse. Iranian drones were fired at the strait as recently as June 5. This is not a dispute approaching resolution. It is a dispute being managed toward the next deadline.

The decomposition of the supply shock makes this plain. Total production shut in is approximately 11 million b/d; non-OPEC producers have added 0.5 million b/d, leaving a net shock of 10.5 million b/d. Inventory draws account for 5 million b/d, the seasonal demand decline from February to May for 3 mb/d, and Chinese flex demand for 2 million b/d. That explains nearly all of it, but in the third quarter the seasonal pattern reverses sharply. Summer driving, agriculture activity, and air conditioning demand adds 5 to 6 million b/d back into a market running on a depleted buffer. The Chinese flex option is largely exhausted and the SPR is near its floor. Cushing is weeks from its operational minimum. The 3 million b/d tailwind becomes a 5 to 6 million b/d headwind. And the consensus remains positioned for resolution.

The NJO framework has always rested on a single observation: the world underpriced physical commodity security for a decade, and the repricing would be non-linear. The Hormuz crisis has confirmed the thesis; the abundance illusion has merely delayed its financial expression. China built the New Joule Order on its home territory before anyone else understood the game. It is quite likely that the West is now going to have to build it under duress, at crisis cost, from a depleted strategic position. The abundance illusion has not changed the underlying physics. It has simply compressed the timeline for when the physics reasserts itself.