Blame China.

No, seriously.

If you’re vexed by triple-digit crude and you need another scapegoat in addition to Donald Trump, the IRGC and “a bunch of goat herders,” to employ Tom Cotton’s absurdly ethnocentric, but admittedly hilarious, characterization of the Houthis, you might point a finger at Beijing.

Early on in the Iran war, Xi Jinping was credited with helping the world avert what might’ve otherwise been an existential energy shock by sharply curtailing Chinese state oil purchases. That removed a huge source of demand during history’s most severe supply disruption.

Now, though, China looks to be refilling its depleted reserves, an effort that doubles, purposefully or not, as a political weapon ahead of the US mid-terms.

Recall that Chinese crude imports rose in August and July after falling to their lowest levels on record. As Nomura’s Charlie McElligott wrote Tuesday, Beijing’s “ripping the market and lifting offers to backfill what it emptied in emergency reserves earlier during the war.”

A picture’s worth a thousand words. The figure above gives you a sense of the situation.

“In my opinion, they know exactly what they’re doing,” Charlie said, in the same note, calling this the Trump administration’s Achilles heel. It’s also a way to lean on the Europeans at a time when Brussels is getting especially “prickly” about China’s trade surplus and the read-across for local industry.

Speaking of oil and Europe, Reuters said Tuesday the Saudis told European customers that “some September-loading crude cargoes will be canceled” following attacks on the “temporarily” shuttered East-West pipeline, which was struck last week by drones launched from Iraq. Although optimists insist the disruption’s not the end of the world, it’s insult to injury and some view it as a “last straw” moment, particularly in a scenario where Chinese demand’s coming back online and competing for scarce barrels.

Of course, as noted here on Tuesday morning, crude’s the proximate cause for the ongoing turmoil in rates, and as one of McElligott’s colleagues is fond of reminding market participants, every asset class is short rates vol.

The figures above are one way to illustrate the point. Europe’s “patient zero” as crack spreads are “dragging EUR swaption vol back towards the early Iran-war highs,” Charlie went on.

This puts central banks in a tough, albeit familiar, spot in the 2020s: Condemned to deploy a demand-side tool (rate hikes) to sort out a supply shock.

As far as Trump and the mid-terms, there’s now a very real risk of export restrictions. “With Trump backed into a corner of his own making, hypothetical US energy export curbs will pick-up delta the longer this mess” drags on, McElligott said, adding that “both Iran and China are incentivized to see it continue.”