Although the stock market is now celebrating the announcement of a two-week ceasefire between the U.S. and Iran, recent headlines have mostly been filled with gloomy forecasts about an upcoming global energy shock, supply deficits, and the inevitable decline of the global economy. I will not argue with the fact that a protracted war and interruptions in oil supplies are a negative scenario for the whole world. However, in my view, in this panic, one fundamental macroeconomic nuance is missed: in geopolitics and economics everything is relative.
I am inclined to believe that during a global storm, the winner is not the one who manages to grow, but the one who falls slower than the others. And if we look at the current configuration through the prism of relativity, a highly paradoxical picture emerges.
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I think that in the event of a protracted energy crisis, the United States, despite internal inflationary costs, can end up on the winning side, significantly strengthening its positions in relation to key competitors — China and the European Union.
The Illusion of Vulnerability: Price vs. Physical Availability
The main mistake which, in my opinion, many observers make, is mixing the concepts of “high price for energy carriers” and “physical deficit of energy carriers.”
For import-dependent economies, such as the EU, Japan, South Korea, and, most importantly, China, the blockage of Middle Eastern supplies is an existential threat. For them, the question is not how much fuel will cost, but whether it will be physically available at all to support the operation of factories and logistics.
For the United States, the problem looks completely different. I would characterize this as an unpleasant price shock, but by no means a physical deficit. The American economy possesses a unique margin of safety — it is secured by its own resources.
If we turn to the numbers, we will see that the U.S. today is a net exporter of oil and petroleum products. Yes, if one counts exclusively crude oil (CLK26), the picture might seem mixed, but if one takes the aggregate production of liquid hydrocarbons — crude oil together with natural gas liquids (NGL) — the volume of U.S. production exceeds its internal consumption. Besides, America is completely self-sufficient in matters of natural gas extraction and acts as its largest exporter (LNG). Physically, America has fuel. The question lies only in domestic pricing.
The North American Energy Fortress
Moreover, I believe that looking at the U.S. in a vacuum is incorrect. If we look at America’s closest neighbors, forming a single logistical and economic zone, the situation for Washington becomes even more advantageous. Canada is a major producer with a giant surplus of production over consumption, and the lion’s share of this excess is historically directed to the U.S. market through protected overland pipelines. Mexico preserves the stability of crude oil supplies. If we broaden the scope to the Caribbean basin and include Guyana in the equation, which before our eyes is turning into a new major exporter with growing production volumes, the picture becomes extremely clear.
In my view, the aggregate potential of this macro-region forms a true “North American Energy Fortress.” While tankers heading to Asia or Europe will be exposed to geopolitical risks in narrow straits, the energy supply of the U.S. is based on protected internal and continental logistics.
In a proportional comparison, while the economies of Asia and Europe will be suffocating from a physical shortage of resources, risking an industrial shutdown, the American economy will suffer only from inflation. And exactly this difference in the depth of the problems, as it seems to me, lays the foundation for a serious competitive advantage of the U.S.
Closed-Loop Economy: Balance of Payments and Internal Redistribution
Continuing the thought about relative stability, I consider it important to look at the situation through the prism of the balance of payments. If we accept the fact that the United States today acts as a net exporter in the aggregate of liquid hydrocarbons and natural gas, then the rising cost of these resources on the global market carries a completely different macroeconomic meaning for Washington than for its trading partners.
For the import-dependent economies of Europe and Asia, a sharp jump in energy prices is a net outflow of capital from the country. This is money that forever leaves the national economy, worsening the trade balance and exerting colossal pressure on local currencies.
For America, however, as it seems to me, this process looks different. Probably, for the U.S. balance of payments, the rising cost of oil and gas is rather a plus. Because the country sells more energy resources to external markets than it buys, the overall financial flow from these operations becomes surplus.
Undoubtedly, I do not deny the fact that inside the U.S. itself, the ordinary consumer and business has faced increased costs for fuel. This is a painful inflationary process. However, from a macroeconomic point of view, I propose to look at where exactly these overpayments go. Unlike Europeans, who give their capital to external suppliers, American consumers redistribute funds in favor of American energy corporations themselves.
In my opinion, this is a fundamental difference: the money stays inside the country. The increased rate of profit settles on the accounts of oil companies in Texas or North Dakota, which, most likely, will reinvest part of these super-profits into internal infrastructure, extraction technologies, and adjacent industries. That is, it is a matter of internal concentration and redistribution of capital, and not its irretrievable loss for the national economy.
Energy Arbitrage and Industrial Magnet
This internal margin of safety, I suppose, inevitably triggers yet another powerful process — a massive industrial arbitrage.
In conditions when on the Eurasian continent the cost of energy breaks historical maximums and the reliability of supplies is under constant threat, the production costs there objectively skyrocket. Energy-intensive productions (from the chemical industry to metallurgy) in Asia and Europe can find themselves on the brink of profitability.
I believe that in such a configuration, the United States automatically turns into an investment magnet for the real economy. If American industry has physical access to fuel and raw materials inside the country, even if at increased, but still more predictable and probably discounted prices compared to global ones, the relocation of production capacities to the U.S. becomes not just a political slogan, but a matter of economic survival for many corporations.
To some extent, however cynical it might sound, a protracted energy crisis beyond the borders of America can act as the most effective catalyst for the reindustrialization of the U.S. itself.
Global Capital Vacuum: The Law of Conservation of Money
Finally, I turn to perhaps the most non-obvious, but fundamental factor: the global capital market. In global macroeconomics, an immutable law operates: if a massive outflow of funds occurs from somewhere, they cannot simply evaporate. Capital cannot fly away to Mars; it must land somewhere.
When an energy shock hits the economies of Europe, Asia, or developing countries, the logical consequence becomes the flight of investors from risks. Businesses and the population seek salvation from depreciating national currencies, stagnating markets, and, as in the case with some countries, from distrust in their own state institutions during a period of crisis.
I suppose that in this situation, the United States, being the issuer of the main reserve currency, launches a natural “vacuum effect.” America historically acts as a global magnet for liquidity anyway, but in moments of acute global upheavals, this process amplifies many times over. Investors have to choose the lesser of two evils. Yes, the U.S. economy will also experience negative pressure from expensive oil, but against the backdrop of sinking competitors, it looks incomparably more reliable. The stronger the economic “fire” beyond America’s borders flares up, the more intensely global capital will seek refuge in the dollar zone.
Paradoxical Solution to the National Debt Problem
Exactly this massive inflow of capital, in my view, brings us to an elegant macroeconomic paradox concerning the American national debt.
In recent years, many experts expressed justified skepticism regarding the ability of the U.S. Treasury to stably place new volumes of debt, pointing out that foreign investors were gradually reducing purchases of Treasury bonds. Talks about the decline of dollar hegemony became commonplace.
However, a protracted energy crisis, as it presents itself to me, is capable of cardinally breaking this trend. Where will the frightened global capital, fleeing from a de-energized Eurasia, head? Traditionally, into American debt instruments as the ultimate defensive asset. I consider it highly probable that this forced, panic demand from global investors will give the U.S. debt market new strength.
Simply speaking, the deficit of the American budget and the costs of the Treasury will be easily financed at the expense of the money of those very countries that will suffer from the Middle Eastern crisis the strongest.
Conclusion: The Winner in the Survival Marathon
In conclusion, I want to emphasize once again: war and energy starvation are no cause for celebration for the global economy. A slowdown in growth rates will inevitably affect everyone.
But if we evaluate geopolitics in proportions and relative values, the picture changes radically. The U.S. possesses a physical resource base, a surplus energy balance, and the status as the main financial haven. I think that in the conditions of this crisis, the American economy will fall slower than all the rest. And at the expense of the inflow of fleeing capital and the relocation of industry from Eurasia, America has all chances to exit this storm with an even greater lead over its main economic competitors.
On the date of publication, Mikhail Fedorov did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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