Strait to Brrrrrrr....

Honesty would fix all of this.

The war started. Oil predictably surged. But gold fell, silver fell, bonds fell.

That’s the part nobody could explain. Iran was struck, the Gulf effectively closed (unless you happened to be Chinese). Oil spiked. Logically. But you know, gold is supposed to be the insurance against geopolitical instability. And those were the kind of headlines that used to send precious metals vertical. Instead, gold opened slightly higher on Sunday March 2nd and then spent the rest of the week chopping. Silver followed suit, just with more volatility. Had you been on a digital detox course, and you just came back… You wouldn’t know that the whole frickin’ Middle East was on fire!!

So what happened?

Oil happened. And then oil happened to everything else.

Crude went from $70 to $119 in ten days. Think about that number for a second. $119. The last time oil was there was March 2022, right after Russia invaded Ukraine, when the commodity markets went briefly insane and the financial system discovered it had quietly built itself on the assumption that nothing important would ever actually happen. It nearly came apart that spring. Nickel got suspended on the LME. Margin calls cascaded through commodity desks globally. It didn’t break, but only just.

At $119, equity markets dropped on recession and inflation fears simultaneously. Portfolios that had been managing risk perfectly fine at $70 oil were suddenly offside on everything else - corporate margins, consumer spending, rate expectations. When those positions started bleeding, you don't get to choose what you sell. You sell what's liquid. Gold is liquid. Silver is liquid. High-grade bonds are liquid. You sell what has a bid. And fast! Before your broker does it for you.

That’s why gold fell during a war. Not because anyone changed their view on gold. Because someone needed cash before the close.

Silver fell harder because it always does - smaller market, thinner book, more violent moves in both directions. Although with this specific war, there’s another dimension to it. A metallurgic one.

Silver has two demand profiles. There is the monetary bid: safe haven, inflation hedge, and general currency distrust. But silver is also an industrial metal. Solar panels, electronics, EVs, conductors of every description. And a prolonged disruption that chews through energy supply and manufacturing throughput eventually destroys industrial demand too. The monetary buyers front-run the crisis. The industrial collapse follows at its own pace, and if the crisis drags long enough, it can overwhelm the early gains entirely.

That’s the tension. Gold doesn’t have it - gold’s demand is almost entirely monetary. Silver is always fighting itself.

Nothing about the physical thesis that I’ve been outlining ad infinitum changed. The vaults kept draining. Shanghai kept paying a 14% premium over London. The drain didn’t pause for the margin call.

But here’s the thing about $119 oil. It couldn’t stay there.

Not because of supply and demand.

Because the financial system couldn’t survive it.

Oil is the lubricant of everything. Every supply chain, every industrial cost input, every freight contract, every derivative position has oil somewhere in its DNA. $119 oil doesn’t just hurt at the pump - it detonates through inflation calculations, through corporate margins, through the Fed’s already impossible position. A financial system running on the fumes of cheap credit and managed narratives cannot absorb a 70% oil shock in ten days. It would break. Again. Worse than 2022.

So $119 oil had to become something more manageable. And quickly.

Enter the Strategic Petroleum Reserve - Washington’s answer to every oil crisis, regardless of whether it applies. The IEA approved a record 400 million barrel release, the largest in history. The US alone is releasing 172 million barrels. Markets calmed a few days. But oil starts to climb again. Of course it did!

This is a flow problem, not a stock problem. Twenty million barrels per day are structurally offline. No strategic reserve on earth is designed to replace that - reserves exist to smooth short-term disruptions, not to substitute for the world’s main shipping artery indefinitely. The Strait of Hormuz was running 138 tankers per day before the war. It’s running 8 now. Eight. The tankers that are moving belong almost exclusively to China. The Strait isn’t closed. It’s licensed. And China has the only valid ticket.

The SPR can’t reopen refineries shuttered around the Gulf. It can’t move tankers sitting full in blocked ports. It doesn’t fix diesel in Europe up 55% in ten days, or fertiliser prices surging 30-35% because a third of global supply transits the same chokepoint. The physical supply is exactly as disrupted as it was before the announcement. The paper price got managed down but is now heading back up.

Iran itself is currently exporting more oil than it did before the war. 2.5 million barrels per day in March, almost exclusively to China, at roughly double the pre-war price. Iran’s economy is strengthening during the war it’s supposedly losing.

If you’ve spent any time watching the silver markets, you’ll recognise this instantaneously. You know exactly what a thumb on the scale feels like. The paper price is managed down. The physical reality goes the other direction. The gap widens quietly while the headline number provides cover.

The difference with oil is scale. Oil suppression has a time limit measured in weeks, not months. You reap what you suppress - and the suppression of $119 oil doesn’t fix the refineries, doesn’t move the tankers, doesn’t reopen the chokepoint. It just delays the repricing and charges compound interest on the deferral. Every week of artificially cheap oil is a week the investment in alternatives doesn’t happen. The eventual correction, when physical reality reasserts itself, will be worse for all the time spent pretending.

Sound familiar? It should!

While oil was busy nearly breaking the financial system, and then being managed back from the edge, something quieter was seizing up in private credit. Quieter, but in some ways more structurally dangerous - because an oil crisis has an ending. A liquidity mismatch does not.

Here’s a rough timeline, just since February.

Blue Owl gated its retail private credit fund. BlackRock limited withdrawals from its $26 billion fund after investors wanted 9.3% back - they got 5%, the rest can wait. Same BlackRock that wrote a private credit loan to zero in March, three months after valuing it at 100 cents on the dollar. Second time it’s done that. Blackstone injected $400 million of its own cash to cover record redemption requests on its $82 billion fund. Cliffwater’s $33 billion fund facing 14% redemption requests, paying out only 7%. And Morgan Stanley capped withdrawals on its $7 billion fund this week after investors tried to pull 11%. JPMorgan, same week, started marking down loan portfolios and cutting credit lines to private credit managers.

A fool and his money are soon gated.

The structural flaw was always in plain sight for anyone who wanted to look. These products sold “semi-liquid” access to 5-7 year illiquid loans. Quarterly redemption windows on assets that cannot be sold quarterly. It works fine in a rising market with steady inflows - you pay early redeemers with incoming capital, nobody notices the duration mismatch, everyone collects their fee. The moment net outflows begin, you discover you can’t sell the underlying assets fast enough to meet redemptions. So you gate. And then gating begets more outflows, because nobody wants to be last in line at a bank that’s already limiting withdrawals.

The people locked out of their private credit capital need liquidity from somewhere. Anywhere… NOW!!

They go to whatever markets still have it. Treasuries. Equities. Gold. Silver. Another hand on the sell button, for reasons entirely unconnected to the assets being sold.

And then there’s AI. Which is private credit’s dirtiest secret.

The entire AI buildout was underwritten on the assumption of either perpetually low rates or revenues materialising faster than costs. Neither happened. But there’s a layer underneath that is worse.

The Trillion-Dollar Oops

GPUs - the hardware the whole thing runs on - depreciate on paper over five years. In reality they’re obsolete in 18 to 24 months, because each new chip generation makes the previous one redundant. The book value says one thing. The resale market says something considerably more honest. Which means these companies aren’t just burning capital on growth. They’re burning capital to stay still - borrowing constantly just to replace hardware that’s carried on the balance sheet at a fraction of its real economic value.

Forty percent of private credit loan books are exposed to software companies running on this hardware. The loans were written against collateral marked at book value. Book value that always was a fiction. When credit tightens and those loans need refinancing or honest marking, you ‘discover’ the collateral backing a hundred-cent loan is worth sixty cents on a generous day. The ‘trillion-dollar oops’ is still unwinding. The house of cards was built on the carpet of cheap credit - and the carpet has been quietly shrinking since rates went up. Pull what remains of it.

The Fed meets March 18. Their options range from bad to worse.

Cut rates and you signal distress, fan the inflationary oil fire, and try to place $1 trillion in new debt every 100 days into a market that’s already buying its own paper back through Treasury buybacks - the largest in history happened this week - because primary dealers are choking on supply. Rate cuts into stagflation are the monetary equivalent of releasing the SPR: a gesture that manages the headline while solving nothing underneath.

Hold rates and private credit continues seizing, oil-driven inflation compounds, and the war burns through $1 billion a day on top of a $3 trillion annual deficit.

The fourth option - hold, sound dovish, quietly expand the balance sheet through whatever creative facility name that isn’t called QE - is almost certainly what happens. It worked in 2008. It worked in 2019. It worked in 2020. The stealth QE is already running through the buybacks. They just haven’t named it yet. All roads lead to money printing. The variable is only the timeline.

Now gold. Because gold’s week looked like a failure but wasn’t.

It fell less than silver. It recovered faster. The physical bid never actually went away. To understand why, you have to understand who has been buying gold for years and why a bad week changes nothing for them.

Since 2022 - when the West froze Russia’s dollar reserves and showed every non-aligned government exactly how conditional dollar neutrality was - central banks have been buying gold at a pace not seen in decades. Poland. Czech Republic. China. India. Turkey. Singapore. Gulf states. Not as a portfolio trade. As a policy decision. Gold has no counterparty. It can’t be frozen, sanctioned, or conjured out of thin air. When the margin call hit and traders sold, the sovereigns bought the dip. They bought every dip since 2022. They’ll buy the next one.

This matters because it means gold has a structural floor that silver doesn’t. Not a price level - a constant source of demand that absorbs selling pressure and compresses the downside. It’s why gold at $5,000 isn’t a bubble. It’s a re-rating of gold’s monetary role in a world where it has to carry weight that Treasuries used to carry for countries that no longer fully trust Washington with their savings.

The Bretton Whoops

The petrodollar stress makes this worse for dollars and better for gold. An Iran war that puts Gulf states in the crossfire of a conflict they didn’t choose, closes the strait their oil revenues flow through, and makes them quietly question the value of the security arrangement they’ve been paying for - that’s not a normal geopolitical event. That’s a stress test of the entire architecture. When petrodollar recycling slows, the natural destination for that sovereign wealth isn’t euros or yuan. It’s gold.

Western retail still hasn’t properly arrived at this trade. Global portfolio gold allocations sit around 2%. Historical bull market peaks have seen 8%. The gold rush, as it were, hasn’t even started yet.

Silver is the acute version. Without the floor.

Until very recently, no central bank was holding silver as a reserve asset. Russia started the trend in ‘24. Saudi Arabia followed in ‘25. India recently started as well. But in the grand scheme of things, this is only a drop. The floor is pure physical demand - industrial, investment, delivery - and it’s being measured now in trading days, not months.

COMEX registered silver has collapsed 59.5% since October 1 - from 193.7 million ounces to 78.3 million. 600~800 thousand ounces per day, leaving, no deposits, no reversal. Run-rate to zero: late July to early September. Shanghai trading at a 12-14% premium above LBMA for weeks, with the arbitrage channel that used to close that gap having stopped functioning around 2023. The SGE briefly pulled silver inventory from its weekly report - then quietly put it back, as if hoping No1 would notice the gap.

And then there’s the supply side, which almost nobody is talking about.

Most silver doesn’t come from silver mines. It comes out as a byproduct of copper, lead, and zinc refining - operations that depend on hydrometallurgical processes requiring industrial quantities of sulfuric acid. Sulfuric acid is produced as a byproduct of sour crude refining. The same Hormuz closure that’s strangling oil flow is, with a lag of weeks to months, also strangling the chemical inputs that base metal smelters depend on. Refineries shuttered around the Gulf means sulfuric acid production dropping means hydrometallurgical operations halting means silver byproduct output falling.

The crisis that is draining the vaults is simultaneously choking the pipeline that would normally refill them. A vice, closing from both ends.

The COMEX - the same week every major private credit fund was gating - cut silver margin requirements by 22%. Open interest at a 13-year low. They are not suppressing a rally. They are begging for volume. The exchange that set the global silver price for decades is becoming a rounding error.

Pull back and it’s one story with four acts running simultaneously.

Oil suppressed because $119 would have broken the system - again, but worse. Silver suppressed because honest pricing exposes decades of fractional-reserve paper games. Private credit frozen because honest pricing of those loan books triggers a writedown wave that makes 2008 look like a rehearsal. AI valuations maintained because the alternative is admitting that a trillion-dollar capital cycle was built on credit that no longer exists at the price it was underwritten.

Every suppression buys time. None of them buys a solution. You can’t have your liquidity and eat it too.

On March 18, Powell steps to the podium and tries to convince a room full of people that everything is under control. He’ll probably sound very convincing. He has had practice.

Transitory, they called it last time. Maybe this time they'll find an even better adjective.

All that's left to decide is what they'll call the credit facility. TALF. TARP. SLF. BTFP. Each crisis gets a fresh acronym and the same old printer. I'm hoping for CTRLP.