“No soup for you!”

Sorry, I couldn’t resist.

If you don’t immediately get the joke, congratulations: You’re under 40. If you do get it, but don’t immediately know why I’m employing it, also congratulations: Your life in middle age doesn’t revolve entirely around macro-market headlines.

Several European refiners were left in the lurch late this week when Saudi Aramco informed customers with term contracts they won’t be receiving a Mulligatawny allocation next month. Subsequent reporting suggested all of Riyadh’s European customers were impacted.

The decision to cut October allocations was made amid ambiguity around a timetable for repairs to the East-West pipeline that connects the heart of the Kingdom’s oil-producing region to the Red Sea port of Yanbu.

Sources told Reuters that three pumping stations — not two, as initially reported — along the conduit were damaged in last week’s drone attack. Estimates for restoring crude flows to normal along the line vary, but repairs could take as long as six weeks.

The map illustrates the problem. There are fewer and fewer viable, safe exit options for product trapped in the Gulf.

You gotta give the Guards credit: They’ve got the world over a barrel, figuratively and literally, despite being blockaded, broke and beaten badly on the conventional military front.

Indeed, the September 10 drone incident and the Houthis’ seizure of strategic coastal assets in Yemen served notice: Iran’s “Axis of Resistance” isn’t dead. The Quds still exert some operational control over PMF militia in Iraq, and the Houthis have won the war in Yemen, even if the international community will never admit as much.

To be sure, the Axis is just a shadow of the cross-border, purpose-built network that was Qassem Soleimani’s legacy. It’ll never be restored to its pre-2020 “glory.” But as we’ve seen over the past two weeks, no such revival’s necessary to wreak all sorts of havoc.

The figure below shows Dated Brent with front-month crude futures. The premium for the former’s indicative of the physical crunch: “Real-world” oil is ~$25 above paper crude.

This week’s high for Dated Brent, ~$130, was well short of the April record, but as Bloomberg wrote in their coverage, the “supply situation in Europe appears even worse” than it was earlier in the war.

With cargoes limited, “sellers are leaving no room for negotiation,” the linked article said, adding that Norwegian grades considered close substitutes for Saudi crude were offered this week at premiums of up to $35/barrel over Dated Brent.

Europe, then, is at risk of a second existential energy crunch in four years. After all, if refineries aren’t supplied, their output’s curtailed, which means even scarcer fuel and even higher prices for what fuel there is.

So… what? Or, more aptly, what now? I don’t know. Hormuz remains a giant question mark. Obviously, the IRGC’s letting some crude get through. Every shipment that makes it out to sea isn’t an example of evasion, nor of the US Navy’s alleged success in facilitating safe passage. But I doubt those shipments are much use to Europe, particularly not when China’s back competing for supply to refill its depleted reserves.

It’s well past time for the Trump administration to get serious about negotiating an end to this standoff. Trump was guaranteed to win a short conflict that pitted the combined might of the US war machine and the IDF against Iran’s pitiably overmatched conventional military. But he was guaranteed to lose a war of attrition, because as he himself observed on any number of occasions, you don’t have to do much to discourage ships from transiting a narrow waterway.

Now, seven months into a “five-week” war, the Guards and their remaining proxies have strangled Hormuz, blown up the Saudis’ Hormuz bypass and seized control of the Bab Al-Mandab.

There are 11 pumping stations along that Saudi East-West pipeline. It’s not obvious, to me anyway, why Kata’ib Hezbollah and/or Harakat al-Nujaba — the most formidable of the Quds-aligned Iraqi militia — can’t continue to launch drones at those stations in perpetuity. The Saudis can stand up air defenses, but that’ll cost a lot of money and it won’t stop every drone. The only limitation seems to be Iran’s capacity to deliver kamikaze UAVs to their Iraqi proxies.

I should note that Kata’ib Hezbollah and Harakat al-Nujaba denied they were responsible for the September 10 attack but… well, and with a chuckle, who else would it be? There’s some indication that “splinter” factions might’ve gone rogue, but I don’t know what that looks like: The Quds asked Kata’ib Hezbollah and Harakat al-Nujaba to bomb the pipeline, they said no, so the Guards recruited from within their own militias? I doubt it. Rather, my guess is that Kata’ib Hezbollah and Harakat al-Nujaba didn’t want to be bombed by the US and the Saudis, so they pleaded ignorance. (“Drones? What drones? East-West pipeline? Never heard of it.”)

Panning back out, Trump has to get this resolved. By not declaring victory and walking away at the five-week mark as he initially promised, he’s lost this war. He surely realizes that. He’s heard the derision. “Iran called, they want to make a deal” is now a running joke amenable to virtually any riff. One clever market participant posted a mock Bloomberg headline on social media this week that read, “TRUMP: WARSH CALLED, WANTS TO MAKE A DEAL.”

The risk to the rest of the world is that Trump’s pride won’t let him admit that this is a lost cause. Europe’s worsening predicament is a manifestation of moral hazard on Trump’s part: Americans are feeling the heat at the pump, but other than being aggravated by $5 gas, this conflict isn’t anywhere near the forefront of the collective American consciousness.

If Trump decides to impose a partial energy export ban in a bid to further insulate America from the consequences of the country’s latest Mideast misadventure, the global fallout could be dramatic — a “left-tail nuke to the global economy,” as Nomura’s Charlie McElligott put it this week.

Moreover, export restrictions wouldn’t likely bring about long-lasting relief for US consumers. In a September 17 article, The Wall Street Journal quoted one expert who warned that curbs only work “for a couple of months, and then you get higher prices anyway.” The Trump administration, the same person said, surely knows that. “[W]hether they have the discipline” to eschew the nuclear option “is another matter.”