In the spring of 2017, my wife and I decided to begin our investment in Real estate and closed on a 3 bed, 2 bath townhome in East Downtown Houston, Texas. We paid $294,000, put a 20% downpayment and got an interest rate of 4.75%. The mortgage payment for this property was $1,990 (this included insurance and property taxes) and we were able to rent it out shortly after purchase for $2,300/month. We were lucky to be able to cashflow from day one.

We still own that house today. It rents for $2650/month, Zillow puts its value at $360,000 and the mortgage balance is $198,000. On paper, this has been a successful investment: The rent has increased 15% over the period and we have built over $160,000 in equity in the property.

What is interesting is that if I tried to buy the same townhome today, at today’s price, with today’s interest rates, my mortgage payment will be about $2,900/month. At the current rent of $2650, this property would have a negative cashflow before I even think of maintenance, vacancy or property management costs.

This is the same house, in the same city with two different outcomes. That’s the reality that many investors or potential investors are facing today.

Your Interest Rate is your Biggest Leverage, Not Price.

Home prices in Houston have not risen as much as in other areas like Austin or Phoenix. The townhome we bought appreciated 22% over 9 years. The 2% a year of appreciation doesn’t sound exciting, but the real benefit is in the financing.

The average mortgage rate in 2017 was just over 4%. Right now, the same 30 year fixed mortgage rate is almost 7%. On the $235K loan we took, that would be an additional $600/month for the same loan amount.

This is one area that I notice a lot of investors underestimate. a 2% swing in your mortgage rate does more damage to your cashflow that even a 20% change in purchase price. Today, the interest rate is the biggest headwind that most investors face in their underwriting.

What does Cashflow look like Now?

The “Rent Yield” (Yearly rent divided by purchase price) on our first investment was 9.4%. $27,600 in yearly rent divided by the $294k purchase price. If we bought the same house now at the $360k valuation, even with the increased rent amount, the yield would be 8.8%. The main flaw with this analysis is that it doesn’t really address how most people purchase property. They mainly use financing.

The financing is what makes the deal:

2017 Purchase: $2,300 (rent) minus $1,990 (mortgage payment)= $310 in cashflow

Today’s purchase: $2,650 minus $2,994 (mortgage payment) = negative $344 cashflow

This is not just a Houston specific story. It is just the market I have the most experience in.

Inventory is shifting in your favor

In October 2015, Houston had about 37,000 active single-family listings and 3.8 months of supply according to the Houston Association of Realtors. Last month, the active listings were at 40,750, with 5.5 months of supply. The “months of supply” metric indicates how many months it would take to sell all active listing at the current rate of demand.

Due to the rise in inventory, buyers now have more negotiation power. It is now possible to ask for repairs, price concessions, and longer option periods because sellers no longer have that many alternatives.

Sellers have not fully grasped that times have changed

The length of days on the market for listings for sales has increased since 2022. MLS data shows that nearly 30% of active listings in Houston have taken a price cut in the last 30 days.

The fact that homes are sitting on the market longer and prices are still high shows that many sellers are still anchored to the pandemic-era pricing, even as all evidence tells them otherwise. Meanwhile, the luxury market is a different experience, with homes over $1 million having the most transaction volume. This emphasizes the “K-Shaped” economy I have tried to describe numerous times in the past: majority of the economic activity is being done by the highest income earners.

Insurance and Property Taxes are compounding the Interest rate problem

Now that we have addressed the impact of rates, the property taxes and insurance costs affect the carrying costs for investors.

The insurance premiums for Texas homeowners rose nearly 60% between 2015 and 2026. This has been has been driven by increases in storm-related claims and increased replacement costs as a result of inflation. Houston is now the most expensive metro in Texas for home insurance. The average annual premium in 2025 for Houston was $5,653. I personally have seem my home insurance premiums more than double over the last 4 years.

The story is similar for property taxes. In Harris county, property taxes have grown 58% since 2017. The rising valuations of property values over this period has led to this increase. I see the same thing across many states that rely of property taxes as their main source of revenue.

Here is what matters for you if you plan to invest in Texas. Homesteaded properties (homes that the buyer lives in) get a 10% cap in how much the assessed value can increase. Investment properties don’t get this cap. That means that investment properties can get reassessed drastically from year to year with no ceiling. This makes property taxes a real and growing cost that many investors don’t factor into their underwriting over the holding period.

From 2010 to 2021, the real estate market rewarded investors who just showed up with a downpayment and reasonable credit. The cheap debt was the one doing most of the work for their investment. From 2022 onward, the market has now rewarded investors who can source below-market deals, structure their financing creatively and manage their operating costs, the biggest being insurance and property taxes. Capital is no longer free and returns have to earned by the deal structure.

This does not mean that the opportunity to invest in real estate has disappeared, but that the bar for success has been moved higher and the tools to clear that bar have changed. The paid section of this post will cover what this looks like in practice. I will address what a deal needs to make sense today, where the numbers still work and how to structure your financing in the 7% interest rate environment. We will also cover strategies for fighting back against property tax increases.

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RECAP: In Part 1, we covered the background of navigation in international waters and the legal fight over the strait’s closure. For Part 2, we covered strategic reserves, the gap between developed and developing economies, and why refinery capacity, not crude supply, has the largest impact on fuel prices. This week: We will address what happens when the energy required for the AI buildout collides with an energy system already under strain, and the framework to take investment positions based on the topic covered in this series.

I started this series because the legal question surrounding the true ownership of waterways interested me more than the headline topics did. I’m ending it on an energy demand story most coverage of Hormuz has missed entirely. The lack of tanker traffic through the Hormuz strait is a supply shock and the AI buildout is the largest new source of energy demand the world has added in a generation. The battle to balance both interests in one of the latest challenges for global economies.

Global data centers are on track to double their electricity use by 2030, and the AI-focused share of that is set to triple. A meaningful share of that new demand runs on natural gas. Other sources of energy are not as reliable and wide spread of utilization of nuclear energy is not yet available. The Strait of Hormuz closure just took roughly a fifth of the world’s LNG supply off the table.

The AI buildout’s energy appetite is a current problem

As mentioned earlier, demand from AI-focused data centers is set to triple by 2030 and I don’t expect the trend to be gradual. Electricity demand from data centers grew 17% in 2025 alone, and AI-focused demand grew 50%. The other demand sources are cloud computing, supporting infrastructure to support consumer digital consumption (streaming and social media), and crypto mining operations.

The capital behind this is enormous. The five largest technology companies spent more than $400 billion on data center and AI infrastructure in 2025, this number is already larger than global investment in oil and gas production. That spending is set to rise by roughly 75% in 2026, putting combined 2026 capex in the range of $600 billion. In the US alone, data center capacity is expected to more than double between 2026 and 2030, and by the end of that window data centers are projected to consume more electricity than manufacturing all of the country’s energy-intensive goods, steel, cement, aluminum, and chemicals, combined.

How does the Hormuz closure affect AI’s energy demand?

The grid cannot connect new data centers fast enough, so hyperscalers (companies that run cloud computing and data center infrastructure) are increasingly generating their own power on-site, and natural gas is winning that race. Gas’s share of planned new data center capacity rose from 11.1% in 2024 to 18.1% in 2026. US natural gas demand from data centers specifically could reach 6.1 billion cubic feet a day by 2030. Meta is sourcing power from a new 200-megawatt gas plant in Ohio. CloudBurst has signed a long-term deal for up to 450,000 MMBtu a day of gas in Texas. Exxon has a pipeline of over 2.7 gigawatts of data center power projects. This is now a core revenue source for the energy industry.

That demand is arriving at the same moment the Strait of Hormuz closure permanently reduced global LNG supply. Over 90% of Qatar’s and UAE’s LNG exports go through the strait, with no alternative route, together representing close to a fifth of global LNG trade. Iranian strikes on Qatar’s facilities knocked out about 20% of the country’s LNG capacity, and could not be back on the market for an estimated three years, regardless of when shipping through the strait itself resumes.

WTI crude is now at $78, and just two ships transited the strait on August 2 against a pre-crisis baseline of roughly 73 a day. Even in the best case where shipping resumes soon, the physical damage to Qatar’s LNG capacity does not repair itself on the same timeline.

A K-shaped split among developing economies

Energy-intensive industries in Europe already pay roughly double what US firms pay for power, and about 50% more than firms in China or India, according to the IEA. That gap is a preview of what’s forming globally, except the split does not run cleanly along a developed-versus-developing line. It’s about who has cheap, available power and who doesn’t.

Amazon has committed $6 billion to Malaysia and $5 billion to Thailand to data center development. Google is building a $1 billion facility in Thailand. Microsoft has pledged $1.7 billion to Indonesia and $15.2 billion to the UAE, the latter explicitly tied to the region’s ability to deliver renewable power at scale. These are developing or emerging economies, and they are becoming energy-demand winners in this cycle.

Unfortunately, Sub-Saharan Africa is the mirror image. The region holds 18% of the world’s population and some of its best underused renewable resources, hydropower, geothermal, solar, yet accounts for less than 1% of global data center capacity. An estimated 666 million people there still lack electricity access entirely. These are also the economies with the thinnest strategic reserves and the least capital to absorb an oil and gas price shock, the same countries Part 2 flagged as sitting well under the IEA’s 90-day cover standard. They are being squeezed on both ends: paying more for imported energy because of Hormuz, and largely locked out of the capital now flowing toward AI-linked power buildouts elsewhere.

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RECAP: In Part 1, we the underlying legal fight over the Strait of Hormuz closure, now past 140 days, and why neither Iran nor the US is bound by the treaty everyone else uses to settle it. It seems like we just have a power showdown to see how much pain each party is willing to take.

This week, we will address what the world’s oil reserves looked like going into this crisis, and why that picture is wildly uneven. I want to look at the buffer the world built to survive exactly this kind of shock, and why that buffer looks completely different depending on where you live.

Where the US reserve stands right now

The US Strategic Petroleum Reserve (SPR) is now at about 308 million barrels as of the week of July 28, 2026. This is a massive draw down from the authorized capacity of 714 million barrels. This is the lowest level since March 1983.

A Government Accountability Office report in May 2026 found more than a quarter of the reserve’s inventory was not available for drawdown due to equipment outages. Department of Energy officials told auditors the reserve’s pipelines, caverns, and storage tanks are held together “with Band-Aids.” This means that not all of the remaining 308 millions barrels might be available for use. Even though a $1.4 billion repair plan has been approved, its scope has been narrowed to fit the budget, as complete repair will exceed this budget.

Developed reserves versus developing reserves

The International Energy Agency (IEA), made up of 32 countries was created to be able to respond to oil shocks. Membership in the IEA requires holding at least 90 days of oil reserves. The US, even after this year’s releases, sits at roughly 94 days.

With other countries, the story is a little different. India currently has a national reserve capacity of 9 to 10 days. Add in commercial inventory held by state refiners and the total national capacity gets to about 74 days. .

There is a general patters that is emerging; developed economies have oil reserves to run their economies and most developing, oil-importing economies never had the capital or the obligation to do the same. When a chokepoint shock like Hormuz hits, that gap shows in how much pain each country absorbs before it shows up in pump prices, industrial input costs, and currency pressure.

Why crude is cheap to stockpile and refined product isn’t

The US SPR holds crude across four Gulf Coast sites carved into underground salt domes, a storage method that is stable, cheap per barrel, and built to sit dormant for decades. Refined product doesn’t work that way. Gasoline and diesel need above-ground tanks, degrade over time, and must meet regional and seasonal blend specifications.

The economy does not run on crude. It runs of its finished products. The only US regional refined product reserve left is the Northeast Home Heating Oil Reserve, which is made up of 1 million barrels of ultra-low-sulfur diesel spread across four commercial sites in Massachusetts. That is less than two days of Northeast consumption. For comparison, the crude SPR’s holdings cover more than 30 days of national crude consumption. The other finished product reserve, the Northeast Gasoline Supply Reserve, was ordered sold and shut down by Congress in 2024.

The SPR can put more crude into the system, but the economy does not run on crude. It needs finished products. Turning crude into fuel is refining’s job, and that is where the next constraint sits.

The refinery capacity and crude slates

US refineries entered this crisis already running close to their limit. Their utilization hit 94.8% in December 2025, before Hormuz even closed, and has stayed in the 92% to 95% range through 2026, processing roughly 17 million barrels of crude a day. Seven major refinery closures and conversions since 2019, including LyondellBasell’s Houston plant and Phillips 66’s Los Angeles refinery, have permanently removed an estimated 1.2 to 1.3 million barrels a day of US crude processing capacity. California alone lost about 27% of its statewide refining capacity in that stretch with Valero closing one its refineries last year.

None of that lost capacity returns just because the SPR releases more crude. The bottleneck sits at the refinery, not the wellhead. This is why we have seen the price of refined products outpace the price of crude. This is also the reason we have seen strong performance in the refiners. Take Valero for example:

The 3-2-1 crack spread (three barrels of crude refined into two of gasoline and one of diesel) normally runs $10-20/bbl. It hit $55.78/bbl in March 2026, putting it in territory historically associated with major refining-system disruptions like Hurricane Katrina, the 2008 crisis aftermath, and the 2022 Russia-Ukraine shock.

There has been billions of dollars spent in building refining capacity in US Gulf Coast that has allowed it to grow to roughly 29% of US refining capacity. These refineries were engineered to run the medium and heavy sour crude that comes from the Gulf countries. The shale boom in the mid-to-late 2000s created a surplus of light sweet Permian and Eagle Ford barrels instead. Because in the difference in the crude slate produced in the US and the capability of US Gulf Coast refiners, the shale boom didn’t improve the self independence when it comes to finished products. When the sour barrels from the Gulf countries got cut from the Hormuz closure, and the available substitute is domestic light sweet, US refineries run below their designed potential, and the product mix tilts toward gasoline and away from diesel and jet fuel, the two products this crisis has made scarcest.

Europe is living a compounding version of the same problem. Russia banned diesel exports to Europe in July 2026, citing Ukrainian strikes that had knocked out close to 30% of its refining capacity. European refining capacity is on its own structural decline, down roughly 400,000 barrels a day recently, with projection of a loss of more than 5 million barrels a day by 2050. Europe’s crude problem and its refining problem are now arriving at the same time.

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I’ve been following the Strait of Hormuz a lot closer recently. It’s crazy to think that roughly a fifth of the world’s oil and a large share of its LNG pass through this one area. On the other hand, there is a legal fight underneath the closure that is more interesting than the headlines write about, and I do not think most coverage of this crisis has explained it properly.

I will attempt to explain the current situation by splitting it into three parts.

Part 1, below, covers the legal framework. What “international waters” actually means, why Hormuz does not fit the standard definition cleanly, and why Iran believes it has a claim to the strait that the US does not recognize. Then I cover where the closure stands today.

In Part 2, we will cover Strategic Petroleum Reserves (SPR). What they are and where they stand globally, how developed and developing economies differ in what they hold and how, and a storage problem I think is underpriced: it is far easier to stockpile crude than refined product, and refinery capacity limits in the US and Europe could let gasoline and diesel prices drift away from crude even if crude reserves hold up fine.

Finally, Part 3 will dive into energy demand. Specifically, what happens when a supply shock like this one collides with the AI buildout and the global race for compute, what that means for developing economies competing for the same energy, and the full positioning framework across energy, Bitcoin, currencies, and defensive equities.

Now, Part 1.

In 1982, delegates from more than 160 countries signed the United Nations Convention on the Law of the Sea (UNCLOS). Countries on the coast were granted a larger territorial area, extending from 3 to 12 nautical miles off their coast. This agreement guaranteed transit passage through international straits, regardless of how narrow they were. That agreement set a precedent for free passage through most of the world’s oil chokepoints today.

Things get interesting when you realize that neither Iran nor the United States ever signed it.

Why “international waters” doesn’t fit Hormuz

Under the Law of the Sea framework, a coastal country’s territorial sea extends 12 nautical miles from shore. Iran and Oman both claim that limit. The Strait of Hormuz measures roughly 20.75 nautical miles (~24 miles) across at its narrowest point. Add Iran’s 12 miles to Oman’s 12 and the total exceeds the width of the strait. There is no strip of high seas running down the middle. Iranian and Omani territorial waters overlap entirely.

This is exactly the scenario the 1982 Convention attempted to resolve. The agreement grants ships and aircraft the right of “transit passage”, even where the strait sits entirely inside the territorial waters of the bordering states. This includes submerged submarine transit and aircraft overflight.

The issue with Iran is that they reject that transit passage applies to Hormuz. Iran was not a party to the 1982 Convention. It argues that “innocent passage” under the 1958 Convention on the Territorial Sea governs the strait instead. Innocent passage is narrower. It excludes submerged submarine transit and overflight, and a coastal country can suspend it temporarily for security reasons. Iran’s position is that it can regulate or halt passage through its half of the strait because that half is Iranian territorial water, not the kind of international water the US assumes it to be.

The US claims that transit passage has become customary international law, binding on every country whether or not it signed the treaty. The US was also not a UNCLOS party, which weakens its argument, though it enforces the transit passage rule regardless. Oman, notably, signed the UNCLOS agreement and is bound to permit transit passage through its half of the strait. Iran cannot legally speak for Oman’s waters, even where it tries to control traffic through the shared channel.

Where the closure stands today

Iran closed the strait after US and Israeli strikes on Iranian targets on February 28, 2026. An attempted ceasefire in April failed within days. The US imposed a naval blockade on Iranian ports on April 13, and talks between the two nations that same month collapsed over the same two issues: passage rights and Iran’s nuclear program.

In June, there was hope when a 14-point agreement framework was brokered by Pakistan. It was to reopen the strait toll-free for 60 days and directed Iran to negotiate the strait’s long-term administration directly with Oman. In my opinion, this was an implicit admission that the underlying legal question was never resolved. The deal also included a US pledge toward $300 billion in Iranian reconstruction financing.

Unfortunately, the truce did not hold. Fighting resumed in early July and the US reimposed its naval blockade. Iran reclosed the strait and blamed what it called illegal US military movements. As of July 20, 2026, the closure has run more than 140 days since the original February 28 strikes.

Daily tanker transits, which averaged 40 to 50 vessels before the war, had fallen below 10 a day by mid-July. Several of the world’s largest container carriers have suspended Hormuz passage entirely and rerouted Asia-Europe cargo around the Cape of Good Hope, adding close to two weeks to each voyage. War risk insurance for Gulf transits is running at roughly eight times its normal rate.

The price of crude has moved with every escalation and every rumor of a deal. It traded near $69.80 on January 30, before the strikes, rose to over $100 at the crisis peak, and is now trading at $89. Roughly $20 above where it stood a year ago.

The oil market has been trying to price in this war for five months. I’m not sure it has fully priced in a second question: how much of the strategic reserves used to soften that initial shock is left to absorb a longer-term closure of the strait. That is where Part 2 goes.

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Our government is running three policies at once that don’t necessarily agree with each other.

Fiscal policy (domestic government spending) wants growth. Trade policy (with other countries) is losing its legal footing. Monetary policy (from the central bank) is stuck holding rates in the middle, unable to fully address price stability or full employment.…

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Now the question that actually matters for your portfolio: where does the asymmetry of the AI buildout create an edge, and where does it create a trap?

Three ideas, ranked by how directly the data supports them. I have attached rough probability weights to each. These are not forecasts. They are my read of how likely the thesis pays, and they are there to force discipline about sizing, not to pretend to possess a precision I do not have.

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In 2001, a Bell Labs researcher named Andrew Odlyzko did something almost no one else in the telecom industry bothered to do. He checked the math.

The entire pace of the fiber optic buildout rested on the premise that the Internet traffic was doubling every 100 days. WorldCom said it. The industry repeated it. Investors financed against it. If you believ…

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Let me be direct about what the setup actually is right now.

You have a market that has been selling off since Friday. The same week where the largest IPO in history prices. You have index rule changes that guarantee another mechanical selling window in late June and early July when the Nasdaq-100 rebalances for SpaceX. You have a Fed sitting at 3.50 to 3.75 percent that cannot easily cut because CPI just printed 4.2% year-over-year, and the May jobs report came in higher than expected.

If you believe the economic numbers, nothing about this indicates a recession. The base case is not a 2008-style credit unwind. The base case is an extended period of chop, two identifiable selling windows, and a Fed that eventually pivots but later than consensus expects. Position accordingly.

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On Friday June 5, 2026, the Nasdaq dropped 4.18%. The S&P 500 lost 2.64%. The headlines blamed chips, but the real story is much more nuanced, structural and it has everything to do with the week ahead.

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Demographics move slowly. They also move predictably. Unlike earnings surprises or policy pivots, the demographic trajectory is largely knowable decades in advance. That predictability is a capital allocation edge if you are willing to act on multi-year horizons.

Here is how to read the demographic headwinds against specific asset categories and investment themes.

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Every major developed economy is below the 2.1 births per woman required to replace its population. The US sits at 1.79, the EU hit a historic low of 1.34 in 2024, and South Korea is at 0.73. The economic consequences run directly into fiscal solvency, labor supply, capital flows, and long-term asset values. In my opinion, this is the most important str…

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In September 1960, five countries gathered in Baghdad and formed one of the most consequential economic organizations in modern history. Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela created the Organization of the Petroleum Exporting Countries (OPEC) with one explicit goal: take back control of oil pricing from the Western multinationals, the “Seven Sisters”, who had been setting posted prices unilaterally for decades. The producers wanted a seat at the table and OPEC gave them the opportunity. The Seven Sisters were made up of the following companies:

• Standard Oil of New Jersey (later Exxon, now ExxonMobil) — US

• Royal Dutch Shell — Anglo-Dutch

• Anglo-Persian Oil Company (later BP) — British

• Standard Oil of New York (later Mobil, merged into ExxonMobil) — US

• Standard Oil of California (later Chevron) — US

• Gulf Oil (later absorbed into Chevron and BP) — US

• Texaco (later merged into Chevron) — US

Throughout the 1960s, oil traded around $1.80 per barrel as OPEC struggled to coordinate. Its members fought over production quotas from the first meeting in 1962. But by 1973, with seven more nations having joined and US oil production in structural decline, OPEC controlled 56% of global supply. It had the leverage it needed.

In October 1973, Arab OPEC members imposed an oil embargo on the United States in response to US military support for Israel during the Yom Kippur War. The price of oil went from $3 per barrel to $11.65 by January 1974. A 300% increase in four months. The US economy contracted by approximately 2.5%, inflation surged, and the Federal Reserve found itself managing a supply shock it had no tool to fix. Seven European nations banned Sunday driving. The UK imposed a three-day work week. Gas stations in the US closed on Sundays and rationed fuel by license plate number.

The 1973 embargo was the clearest demonstration in history of what a coordinated producer bloc can do to a supply-dependent world. OPEC had shown that energy was a geopolitical weapon, and the West had no immediate defense against it.

The OPEC block starts to erode…

The embargo’s success came with a cost OPEC did not anticipate. High prices triggered a global hunt for alternative supply. Exploration accelerated in the Gulf of Mexico, the North Sea, Alaska, and Siberia. The USSR became the world’s top oil producer. By the 1980s, non-OPEC output had grown sharply and OPEC’s market share collapsed. The 1986 oil glut sent prices crashing and exposed the cartel’s core structural weakness: it could not enforce compliance among its own members.

This tension has defined OPEC ever since. The cartel’s power rests entirely on its members agreeing to produce less than they are capable of producing. The moment individual interests diverge from collective discipline, the it’s control over oil markets cracks. Angola, Ecuador, and Qatar each eventually walked out.

OPEC adapted. In 2016, it formed OPEC+, a 23-nation framework that brought Russia, Kazakhstan, and other major producers into a coordinated production management structure. That expanded the cartel’s market reach. At OPEC+’s peak, the group influenced roughly 41% of global supply.

But OPEC+ also exposed a second structural problem. Production decisions became dominated by Saudi Arabia and Russia. Smaller members, including the UAE, found themselves bound by quotas that were calibrated to other nations’ fiscal needs and geopolitical agendas, not their own.

Why the UAE left

On April 28, 2026, the UAE announced its withdrawal from OPEC. The exit became effective May 1. The UAE had been a member since 1967, 59 years.

UAE Energy Minister Suhail Mohamed al-Mazrouei stated the decision was made after a “careful look at current and future policies related to level of production.” He confirmed the UAE did not consult Saudi Arabia before announcing. They informed no other OPEC member in advance.

The surface explanation is a frustration with the quotas, but I believe there is a deeper explanation that is a bet on time.

UAE spent the last decade building one of the most efficient oil production machines in the world. By 2024, UAE production capacity reached 4.85 million barrels per day. The OPEC+ agreement capped it at 3.4 million barrels per day. The UAE was being forced to leave 1.45 million barrels per day of productive capacity idle every day, capacity it had paid billions to develop.

The UAE committed $145 billion in upstream investment through 2030 with a target of reaching 5 million barrels per day by 2027. That target was impossible inside OPEC+. The UAE was pumping nearly 30% below its stated capacity under the agreement.

The geopolitical context made the decision easier. The UAE-Saudi relationship has deteriorated steadily over the past several years. Both countries have taken opposite sides on Yemen. The UAE signed the Abraham Accords with Israel in 2020. Saudi Arabia has not. The Iran war has even made the rift worse. Iran targeted UAE shipping through Hormuz. Saudi Arabia supported a more diplomatic posture. The UAE concluded its regional interests no longer aligned with the cartel that Saudi Arabia effectively controls.

The UAE seems to be positioning to sell as much oil as possible before global demand peaks. That is a fundamentally different strategy than Saudi Arabia’s, which requires a stable price floor to fund Vision 2030 at a breakeven estimated between $70 and $80 per barrel.

The structural damage to OPEC

The UAE’s exit is the biggest fracture in OPEC since it was founded in 1960. To understand why, you need to understand spare capacity.

Spare capacity is idle production that a country can bring online quickly to respond to a supply shock. It is the mechanism by which OPEC actually manages the market. When supply disrupts somewhere, OPEC’s spare capacity holders can compensate. When prices fall too far, they can cut production. Saudi Arabia and the UAE held the majority of the world’s total spare capacity of more than 4 million barrels per day.

The UAE’s departure removes the cartel’s second-largest spare capacity holder. It is now clear that the move removes one of OPEC’s main levers to manage the market. OPEC will become “structurally weaker” as a consequence.

Saudi Arabia retains its own spare capacity. It will still exert market influence. But it now operates as the sole anchor of a smaller, less credible cartel. And Iraq and Kazakhstan have both already struggled to comply with quota commitments. The UAE’s exit visibly lowered the political cost of defection, and I’m sure the other members noticed.

In an increasingly fractured and polarized world, where nationalistic imperatives override everything else, does it make sense to be in an organization that has essentially become all about sacrificing self-interest for the greater good?”

That question will now circulate among every remaining OPEC member with an investment agenda that conflicts with its quota.

Three scenarios for the oil market

The immediate price impact has been minimal. The Hormuz closure, which has shut in close to 2 million barrels per day of UAE offshore production, masked the announcement. You cannot flood a market when your main shipping route is controlled by a hostile state.

But the Hormuz closure is temporary. Once the strait reopens, the market dynamics change materially. Three scenarios are possible:

Geographic winners and losers

The consequences of the structural weakening of OPEC varies by geography.

Saudi Arabia absorbs the most institutional damage. It is now the sole anchor of a cartel that controls a smaller share of global supply, has a weaker compliance mechanism, and faces an independent UAE that will pursue market share aggressively. The fiscal pressure compounds a geopolitical commitment that most analysts have not yet connected to the oil price outlook.

In May 2025, Crown Prince Mohammed bin Salman and President Trump announced Saudi Arabia would invest $600 billion in the United States. By November 2025, that figure was expanded to nearly $1 trillion, covering AI infrastructure, defense procurement, energy technology, and industrial partnerships. Oil accounts for approximately 60% of Saudi government revenue. If a supply increase in the market causes oil prices to trade lower for an extended period of time, Saudi Arabia’s fiscal deficit will have to grow to meet these obligations.

The $1 trillion figure is not a liquid commitment sitting in a sovereign account. It represents roughly 80% of Saudi Arabia’s annual economic output and nearly five times its annual oil export revenue of $210 billion. To meet it, Saudi Arabia would need to reallocate existing foreign assets, issue new debt, or sell domestic assets to foreign investors. Each of those options becomes more expensive when oil prices fall. A sustained move toward $65 Brent pressures the entire US-Saudi investment architecture built over the past 18 months, and with it, a core diplomatic relationship the Trump administration has publicly used as a foreign policy win.

Saudi Arabia therefore has incentives that extend well beyond OPEC quota mechanics to prevent a prolonged low-price environment. That political pressure is something to continue to watch.

Asia benefits most from a weaker OPEC. China, India, South Korea, and Japan are the world’s largest crude importers. A post-Hormuz supply increase from an unconstrained UAE reduces import costs and eases energy-driven inflation across the region. India has been actively diversifying its supplier base since the Russia sanctions. A UAE with no quota ceiling is a reliable, low-cost, politically accessible addition to that mix.

The United States sits in a contradictory position. The Trump administration has been openly hostile to OPEC and favors lower oil prices. A structurally weaker cartel serves that political objective. But US shale producers require prices above roughly $60 per barrel to remain economically viable at the margin. A sustained price collapse under Scenario 3 would create domestic production pressure, reduce drilling activity, and ultimately constrain US production growth.

Africa’s OPEC members face the most acute fiscal risk. Nigeria, Angola, and the Republic of the Congo operate with high breakeven costs and narrow fiscal buffers. They cannot defend market share in a price war. Angola already withdrew from OPEC in January 2024. Nigeria’s structural fiscal challenges worsen at every dollar below $75 Brent. These are balance of payments risks with potential currency and debt implications.

Europe gains cheaper import costs on the medium-term horizon but remains exposed to Hormuz disruption risk in the near term. The continent’s energy security status is still a topic of contention. It is still dependent on the same chokepoints that Iran currently controls.

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The best way to understand what is happening now is to look at what happened before.

Remember the oil embargo in 1973?

Arab OPEC members cut production and banned oil exports to the United States. Oil prices quadrupled in four months. The stock markets collapsed and Supply chains seized up across Europe and North America.

What performed well during this pe…

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What to actually do with this

The divergence in performance between gold and Bitcoin over the past year has direct portfolio implications. Most retail investors are framing it wrong.

The wrong frame: gold won, Bitcoin lost, sell Bitcoin and buy gold.

The right frame: gold and Bitcoin are not competing. They serve different functions in different macro regimes. The question is how to hold both, how much of each, and what signals would change the sizing.

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College ROI is declining. Housing is locked out for most first-time buyers. Real wages have been losing ground against true cost of living since 2001. Retirement savings are near zero for a majority of working Americans. Demographics are tightening the fiscal screws further.

The question for capital allocation is not whether these trends exist. The data makes that case without ambiguity. The question is who benefits from them, what asset classes are structurally supported by the very conditions that are squeezing household formation, and what moves make sense given the environment.

This section works through five positioning areas in sequence: housing-related assets, hard assets and Bitcoin, education as a capital allocation decision, retirement gap strategies, and the demographic portfolio overlay. Each is grounded in current data.

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In 1955, a factory worker in Detroit could buy a house, support a family on one income, and retire with reasonable security after 30 years on the factory line. The system was built to allow for this. Neither result is true today.

The “American Dream” was a structural promise: hard work plus the right moves equals upward mobility and lasting prosperity. T…

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In the free section, we identified the risk. Here, we answer the only question that matters: what do you do with it? The five steps below are a direct response to the specific scenario this article lays out: an energy-driven demand loop, accelerating AI displacement, and a fiscal position that limits the government’s ability to intervene cleanly. Let’s go through five concrete steps covering income exposure, debt stress-testing, and hard asset allocation sized for a fiscal environment heading toward sustained currency expansion. If your income, your business margins, or your debt load are exposed to the cycle described above, this is the section worth reading first.

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In last week’s post, we played out the scenario of the Hormuz Strait staying closed through the end of 2026. As I’ve mentioned previously, OPEC’s oil embargo in 1973 sent crude prices up more than 300% in under six months. Economists were calling for the stagflation playbook: high prices, stagnant growth, no clear policy solution. They were right about …

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PREMIUM THESIS

The free version of this story described what is happening and why it matters. This version answers the question you actually need answered: what do you do with it?

Three things are true simultaneously. Energy is the best-performing sector of 2026 by a wide margin. The market has priced a disruption. The market has not priced a sustained one. Those three facts, held together, define where the opportunity and the risk sit right now.

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