War With Iran: Why Oil Didn’t Spike As Expected

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1:07Alex Health:As AI reshapes professional services, law firms and in-house teams are rethinking how complex work gets done. Harvey.ai is an AI platform built specifically for legal practice, helping teams analyze documents, draft with precision, and collaborate securely across matters. Today, more than half of the AMLA 100 use Harvey. Learn more at Harvey.ai. Today's number? Six. That's how many Olympic medals Eileen Gu has won, making her the most decorated free skier of all time. The 22-year-old achieved this while also balancing full-time studies at Stanford, as well as a successful modeling career. Today's other number is 99.

1:52Alex Health:That is the percentage of parents who wish their kid was Eileen Gu. Money market matters. If money is evil, then that building is hell.

2:02Ed Elson:The show goes on! The folks are never watched the show, show!

2:08Alex Health:Welcome to Prof G Markets. I'm Ed Elson. It is March 3rd. Let's check in on yesterday's market vitals. The major indices rode out a volatile session after the US-Israel strikes on Iran. More on that in a moment. Still, the indices ended the day in the green. Meanwhile, the yield on 10-year treasuries surged the most since April. Oil spiked, the dollar rose, and gold climbed above$5 ,300.

2:35Alex Health:Okay, what else is happening? The United States is at war with Iran. The US and Israel struck the country on Saturday, killing Supreme Leader Ayatollah Khomeini. Iran responded with retaliatory strikes across the region, including attacks on U.S. military bases. The president said the military operation will last around four to five weeks, but could continue for, quote, as long as it takes. Markets opened in the red on Monday, but by midday, the major indices had recovered. Meanwhile, Brent crude, the global price gauge for oil, jumped 7 % to just over$77 per barrel. Oil prices were already up 17 % this year, in anticipation of a possible attack.

3:17Alex Health:Joining us to discuss what this war means for us, what it means for markets, we're speaking with Matt Smith, oil analyst at energy consulting firm Kepler. Matt, welcome to the show. Let's get right into it. Obviously, quite rattling news for all of us for many reasons. When you look at what's happened in the markets here. What is jumping out to you? What are the markets telling us about what is unfolding in Iran right now?

3:48Ed Elson:Yeah, sure. So there's been sort of some undulations, I would say, across the various different commodities. So, you know, everyone has been focused on crude and breathing a bit of a sigh of relief, to be honest, because there was the expectation we could open up 15, 20 percent and we only opened up 12 percent. As you just mentioned, We closed up about seven, something like that. So not the worst case scenario. And the reason there's such a concern about crude is because you have that reflected straight through into prices at the pump. So in the US, even though it's very much insulated from the supply shocks, you still get affected because crude is a global benchmark.

4:28Ed Elson:And that's the input price to refine for that gasoline. But some other things that we saw across the energy complex was with natural gas. So we've seen a difference this time around to the 12-day war of last year where Iran just retaliated against Israel. This time it's sending missiles, drone strikes to many different countries and attacking energy infrastructure. So while everyone has been watching that crude price, you've actually seen diesel prices up 15 % because you saw the Rastanoura refinery in Saudi Arabia get hit. And then with natural gas prices in Europe, they're actually up nearly as much as 50 % today because we saw Qatar, an LNG terminal struck there as well.

5:17Ed Elson:And so there's ripple impacts across all of these various different energy commodities. And actually beyond that as well, in terms of fertilizer, a third of fertilizer in the world exported on seaborne basis comes out of the Middle East. So lots of ramifications here.

5:32Alex Health:Why is it that oil didn't rise as much as everyone thought it would? I mean, I remember a week ago, perhaps a few days ago, the consensus was, if this happens, oil is going to absolutely rip. It went up, but it didn't go up nearly as much as people seem to think. Why is that?

5:53Ed Elson:It's interesting, actually, because we've kind of got the worst case scenario in terms of the Strait of Hormuz here. So there's a rumor hitting right now that Iran has closed the Strait of Hormuz. Regardless if that's true or not, the threat of them hitting a tanker with a missile or a drone strike has stopped that flow of crude and products and every other tanker going through there. And so we are kind of hitting that worst case scenario here now. And so you would perhaps expect prices to rally more. Maybe it's just because with President Trump, he's saying that these strikes are going to be persistent.

6:31Ed Elson:We've just had Marco Rubio talking about how these strikes on Iran are going to get even worse. And so there's going to be this absolute pummeling of Iran in the near term here. And so perhaps people are thinking this is going to be a short-term event and we're going to get over this in a few days.

6:47Alex Health:That is interesting that because we're going to be, it is presumed that we will be harsher perhaps on Iran, hit them harder than most analysts thought, that that will mean that there will be more oil flow, essentially. that oil will continue to move freely through the Strait of Hormuz, which I'm sure we're going to be hearing a lot of the next few weeks and months. Why is that exactly? And I know that I'm now asking you to basically play military analyst, but it's interesting, as an energy analyst, you kind of have to. Why does hitting Iran hard necessarily mean for the analysts that oil will be good and that oil will make its way out of the region?

7:35Yeah, sure.

7:36Ed Elson:And so whether it's that the US is going after a regime change, which there's some doubt whether that's the case, or whether it's just simply they're trying to obliterate any nuclear ambitions in Iran there, or whether it's just attacking the military side of things, wiping them out there. Once you get past that, then there is the situation where the uncertainty is lifted and the likes of Iranian barrels could even flow stronger. So it's really important to bear in mind what happened last year in terms of that 12-day war. As soon as those nuclear sites were hit, you had President Trump come out on the presser and he was like, OK, now that this has happened, we've got what we wanted.

8:19Ed Elson:Now, China, start buying that Iranian oil again. And so it went straight to getting those oil prices down. And so it's like, once these ambitions and goals are achieved, then the potential flow of prices afterwards is perhaps a much more likely proposition. But maybe it's that, or maybe it's just the fact that we just didn't get a bunch of tankers on fire around the Stradio Hormuz today.

8:43Alex Health:Is there an outcome that energy investors and energy analysts, those who work with oil and gas, is there an outcome that most want? I mean, when an oil firm, a consulting firm, or even an oil investment firm sees what's happening in Iran. I mean, obviously, this is a political issue. Some people support what's happening. Some people don't support what's happening. But say you're an investor in this stuff. What do you think when America strikes Iran?

9:15Ed Elson:Yeah. And I think it's a stability thing, right? So OPEC as a whole, this group of oil producers they want stability of price i think oil investors want stability in terms of the geopolitical backdrop right and so i think if it if iran is addressed here in the same way as we've had venezuela addressed it's one more hot potato that the market doesn't have to think about or deal with and so that taken out of it gives way less uncertainty and so that's a positive thing for investment so i think that's perhaps the best way to look at it yeah certainty understanding

9:49Alex Health:what the path forward is. And it sounds like what the analysts seem to say, or what maybe the price is telling us, is that people believe that Trump is going to conclude this. Yes. Or at least that this will be far less uncertain now than it was, I suppose, a year ago.

10:06Ed Elson:Yeah, no, no, absolutely, absolutely. And that's the thing here as well, right? You've got this really interesting situation with sanctioned barrels in the global market here, where you've got, you know, Russia is pushing out three and a half million barrels a day. that is a massive discount that isn't open to all of the world you've got india that is buying that you've got china that is buying that so you've essentially got a two-tier market here it's the same thing for iranian crude where all of that crude is basically going to china because nobody else will buy it and it's the same thing with venezuela or it was until there was the incursion there now that venezuelan crude is not at a steep discount and only going to china it's now going to the broader market at a at a more fair market price so you're essentially going to be doing the same thing in theory with iranian crude if that situation the situation gets resolved there sanctions are eased those barrels that were only previously going to china at a big discount could be making its way into the market at a market price which would bring all prices down essentially so that's that's maybe the path we see from here and then you've only got ukraine russia to deal with.

11:13Alex Health:Right. Just final question before we let you go. Are there any blind spots that you think that energy investors perhaps are displaying here, something that they're missing? And what I'm getting at with this question is, it seems that there is a sense, not necessarily of certainty among the investment community, but maybe less uncertainty than we thought. I mean, And prices have gone up, but not as much as we thought, which reflects that maybe they're feeling a little less anxious about this situation than perhaps one would have predicted. Is there anything that maybe they are missing? I, as an observer, am looking at what's happening in Iran.

11:53Alex Health:I feel anxious. I feel concerned. Is there perhaps too much certainty or not enough uncertainty?

12:02Ed Elson:I think we just don't know how this is going to play out, right? because it could play out just over the next couple of days, as we talked about, with an absolute pummeling of Iran, or it could be the one to four weeks, as Trump has talked about. But I think the one concern from an oil investor perspective is that if this issue gets cleared away, then you essentially have one less uncertainty in the market. And the broader fundamentals for the oil market have been fairly soft. We've had this kind of excess in the market in terms of supply so you could really have this geopolitical premium unwound in prices here we could really uh head considerably lower from where we are so that's positive for prices at the pump it's positive for consumers not necessarily positive for oil in oil investors and it's just the flip side of this is that if this does continue on for the for for weeks and potentially into a month or two you have the mid-east gulf here where even we're seeing now is the tankers are building up there they're loading crude they're loading products but they're sat there and they can't get out eventually that gets bottlenecked up right and you have to see these mid-east gulf producers starting to shut in production because they simply can't export the stuff and so that that's a

13:15Alex Health:consideration to think about too lots of interesting stuff here matt smith oil analyst at energy consulting firm Kepler. Matt, thank you. We really appreciate your time.

13:26Ed Elson:Thank you.

13:28Alex Health:After the break, OpenAI's record funding round and Anthropic gets into a fight with Trump. And for even more Markets Insights, you can subscribe to my weekly newsletter, simply put, at edwardelson.substack.com.

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16:20Alex Health:We're back with ProfG Markets. OpenAI just closed the largest private fundraising round in history. The company said on Friday that it raised$110 billion. That is more than double its record-breaking raise from a year ago. The round boosts OpenAI to a$730 billion pre-money valuation, nearly double the valuation of its closest rival, Anthropic. Its backers include Amazon, who put in$50 billion, and NVIDIA and SoftBank, who each contributed$30 billion. Meanwhile, the ongoing Anthropic-Pentagon dispute came to a head on Friday. Trump blacklisted the company and directed every federal agency to immediately stop using Anthropic's products.

17:03Alex Health:That order came after Anthropic refused to loosen its AI guardrails for surveillance and lethal strikes. Within 24 hours, OpenAI swooped in and signed its own deal with the Pentagon. Users then called for a boycott of OpenAI, which sent Claude, Anthropics chatbot, to number one on the US App Store. Tons of drama, tons of developments here in the AI race, here to unpack all of it. We're speaking with Alex Heath, author of the Sources newsletter and co-host of the Access podcast. Alex, good to see you. I'm going to jump right into it. First, let's just start with what I think is the more boring news, which is OpenAI raising$110 billion.

17:43Alex Health:A month ago, that would have been incredible. But now that Trump is fighting with Anthropic, it sort of disappears into the background. Initial reactions to OpenAI's fundraising round.

17:55Matt Smith:We knew this round was happening for a while. They've been putting it together. The thing that jumped out to me was that it was, I think, about$10 billion oversubscribed, right? I think they were shooting for 100, and it sounds like there's going to be billions more still contributed by sovereigns and other large firms in the coming weeks and months. The Amazon partnership is a big one. My read of that is that OpenAI knows that it has essentially lost the Apple partnership to Google, which, as we know, just did that recent Gemini deal. OpenAI, for how well ChatGPT is doing, they still need more distribution.