Oil Jumps as Energy Supply Risks Persist | The Asia Trade 3/12/2026
Speakers
Summary
- The Strait of Hormuz is effectively closed due to the Iran conflict, disrupting up to 20 million barrels per day of oil flow.
- Coordinated Strategic Petroleum Reserve (SPR) releases from the US (172M barrels), Japan, and the IEA (400M barrels) are failing to lower crude prices, as they only cover 2 to 3 weeks of global supply.
- US inflation expectations have risen to 5.2%, pushing the US 10-year Treasury yield to 4.24% and reducing market expectations to just one or two Fed rate cuts this year.
- The US Dollar is surging to multi-year highs (USD/JPY crossing 159) as the US benefits from its status as a net energy exporter amid the crisis.
- Private credit markets are showing severe stress; Morgan Stanley capped redemptions on retail-focused credit funds, and JP Morgan is restricting lending to funds with heavy software exposure.
- AI data storage demand is accelerating, with Seagate projecting 20% to 25% annual market growth over the next few years.
- Chinese AI developers are facing new regulatory headwinds as Beijing restricts state-owned enterprise employees from using certain AI models over data security concerns.
Trade Ideas
There is no policy response that can stop this ascent of crude. Flow rate is what matters. The maximum sustainable flow rate is 2 million barrels per day from reserves, which pales in comparison to the 18 to 20 million barrels per day disrupted in the Strait of Hormuz. Strategic reserve releases are a temporary band-aid that cannot replace the physical flow rate lost from a closed major shipping chokepoint. Because the physical market remains undersupplied, oil prices and the equities of energy producers will remain elevated until the geopolitical conflict is fully resolved. LONG because physical supply constraints heavily outweigh government policy interventions. A sudden diplomatic resolution or regime change in Iran that immediately reopens the Strait of Hormuz.
We believe the market consumption is growing at a rate of 20% to 25% a year over the next few years. Storage is the foundation for all AI applications, and more than 80% of this storage is actually stored on disk drives. The market is heavily focused on AI chips (GPUs), but the massive data creation from AI inferencing and agentic AI requires physical storage. Hardware storage providers will see sustained, multi-year revenue growth and stable pricing power as they release higher-density drives to meet this unavoidable enterprise demand. LONG because data storage is a mandatory, high-growth derivative play on the broader AI infrastructure build-out. Supply chain disruptions involving critical materials (like helium) or a sudden pullback in enterprise AI capital expenditures.
As the world's largest oil and gas producer, the US may gain a relative advantage when we see some of the energy facilities in Saudi, Qatar, or Israel face disruptions. High energy prices act as a tax on importing nations (like Japan and European countries) but benefit the US economy. This dynamic, combined with sticky US inflation keeping Treasury yields high, will drive capital flows into the US Dollar at the expense of foreign currencies. LONG because the US Dollar offers a dual advantage of high yields and energy independence during a Middle East supply shock. The Fed aggressively cuts rates despite inflation, or a rapid collapse in global oil prices.
You should have gold in your portfolio so it really mixes it out. Even when we get solutions in the Middle East, we have a midterm election coming up, and in view of the Fed going down more, you would expect the demand for gold to be relatively strong. Equities and bonds are both vulnerable to the current mix of sticky inflation and geopolitical shocks. Gold serves as a necessary non-correlated asset that will attract capital as investors seek a safe haven from both Middle East volatility and US domestic political uncertainty. LONG because compounding macroeconomic and geopolitical risks require a third pillar of portfolio protection outside of stocks and bonds. A massive spike in real interest rates that increases the opportunity cost of holding non-yielding gold.
Private credit is in a storm. Morgan Stanley capped redemptions from one of its private credit funds, and JP Morgan is restricting lending to some of these credit funds because it is seeing the exposure to software that people can't yet fully appreciate. Retail-focused private credit funds expanded rapidly by lending to software companies. As AI disrupts traditional software business models, these underlying loans are losing value, triggering a liquidity crunch as retail investors rush to redeem their capital from illiquid vehicles. WATCH because the private credit sector is facing a crisis of confidence and bad underwriting that could force major asset managers to mark down their portfolios. Central banks inject massive liquidity, bailing out over-leveraged software companies and stabilizing the private credit market.
Energy accounts for a small portion of costs and their demand is unlikely to be affected by higher oil prices. Furthermore, people still prefer familiar characters over unknown characters, which is a testament to the strength Japanese companies have on intellectual properties against AI disruption. In an environment plagued by oil shocks and fears of AI replacing software/content creation, legacy gaming companies with deep, proprietary IP (like Pokemon) act as a defensive safe haven. AI cannot easily replicate decades of brand loyalty. LONG because top-tier gaming IP provides a dual hedge against both macroeconomic inflation (low energy costs) and technological disruption (AI). Consumer discretionary spending collapses globally due to a severe recession, hurting video game sales.
Chinese authorities have moved to restrict employees of state-owned enterprises and government agencies from running open core AI models due to security reasons. For AI models to be profitable, they require massive enterprise adoption. If Beijing restricts state-owned enterprises from using these tools due to data security and communication risks, the total addressable market for Chinese tech giants developing these models is severely capped. AVOID because government regulatory crackdowns will stifle the monetization and growth of AI initiatives for major Chinese technology firms. Beijing reverses its stance to prioritize global AI competitiveness, opening up government contracts to these tech giants.
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