Newsletter · · Ashutosh Agarwal
China Refuses the Iran Oil Squeeze as Diesel Nears a Record High - Oil: OPEC+, Shale & Geopolitics - Week of August 25, 2026
Oil and geopolitics newsletter for the week of August 25, 2026. Podcasts converged on why the Iran economic-pressure squeeze only bites if China cooperates, and China has refused, while the real pain shows up in diesel, freight, and refining margins.
Oil: OPEC+, Shale & Geopolitics
Week of August 25, 2026: China Refuses the Iran Oil Squeeze as Diesel Nears a Record High
The squeeze that only works through China, and China just said no
Last week the White House gave its Iran strategy a name: "economic D-Day." This week the podcasts stopped asking what it means and started asking a harder question, will it actually work? The answer that kept surfacing, from a former national security staffer to a retired Marine intelligence officer to the hosts of business talk shows, was uncomfortable: the plan only bites if it runs through Beijing, and Beijing (backed by Moscow) has publicly refused to play along. Meanwhile the real cost of the crisis stopped hiding in the crude price and showed up where ordinary people feel it, in diesel, now within pennies of an all-time record, and in the freight, food, and even the U.S. government's borrowing bill that diesel quietly drags with it.
Here is a plain-English guide to what this week's podcasts actually said: why the squeeze may not work, why oil is still "only" around $85, why diesel is the emergency nobody's talking about, how the pain reached all the way to East Africa, and how investors are trying to trade the whole thing.
Two clocks, and a bet on who blinks first
The clearest framing of where we are came from Richard Fontaine, CEO of the Center for a New American Security and a former Bush-era National Security Council staffer, on NatSec Matters. He described a standoff of mutual hostage-taking:
"The United States is blockading Iranian ports and continuing to impose sanctions… Iran is blockading the Strait of Hormuz. So in a way, the United States is holding Iranian exports hostage and Iran is holding the world's exports hostage when it comes to energy."
That creates what he called "two clocks." Each side is betting it can bear the economic pain longer than the other. Iran's bet, Fontaine said, is that President Trump has to cave and reopen the strait to bring gasoline prices down before the November midterm elections. Trump's bet is the reverse, that Iran breaks first. And, he noted, "Trump, in a way, has had more staying power than most people predicted. This was supposed to be a five or six week war," and here we are six months in. As for the temptation to simply walk away and let Iran keep the strait, Fontaine was blunt about the history: "simply walking away tends to make things worse rather than better," and would push nervous U.S. allies, he pointed to a new Turkey–Pakistan–Saudi security pact, to cut their own deals with Tehran.
Whether the "economic D-Day" squeeze can work at all drew open skepticism from the pundit side. On Tom Bilyeu's Impact Theory, one of the hosts pushed back on the whole premise of maximum pressure:
"Sanctions sound good, but Russia has been under sanctions. Iran has been under sanctions. China has been under sanctions. And these economies are still moving. They're still making deals. They still have their allies that they're playing with."
The show flagged the plan's central weakness: China had just announced it "will not comply with the economic warfare campaign initiated by President Trump this week." With Europe "dubious," and Russia and China "actively dismissive," Bilyeu argued the squeeze may be theater: "you can choke somebody, make it pretty uncomfortable. But if you're not actually cutting the blood supply off to the point where they pass out, then you just look like you're choking somebody."
The case for why it might still work came from the other direction, from inside Iran's economy. On STRAT, retired Marine intelligence officer Lt. Col. Hal Kempfer walked through just how badly the blockade is biting Iran. Official inflation runs "about 66 percent," he said, and is probably closer to 90 percent; cooking oils and fats are up "over 250 percent," and the currency has cratered to roughly "one point nine five million to one U.S. dollar." The bottom line for ordinary Iranians: "their income buys half as much as it did a year ago." The White House theory, as Kempfer explained it, is that a cash-starved regime eventually can't pay its own security forces, "I think they'll cut the paychecks for the military before they cut the paychecks to the Revolutionary Guard Corps", and that internal collapse, not U.S. troops, ends the standoff. He noted that even Iran's own president, Pezeshkian, has been publicly telling the regime to "stop the war… we're never going to have more leverage than we have now."
Why oil is still "only" ~$85: the plumbing behind the calm
With the strait effectively shut, crude in the mid-$80s still feels too calm. This week produced the most concrete accounting yet of where the oil is actually going.
Kempfer laid out the workaround in barrels. Before the war, "about 20 million barrels of oil a day were getting out of the strait." Now, thanks to a U.S. naval escort program that hugs the Omani coast to avoid Iranian waters, "somewhere between 6 to 10 million barrels a day" are still getting through. Add the Saudi east–west pipeline to the Red Sea port of Yanbu, now "maxed out" at "a good 3 to 4 million barrels a day more" than before the war, plus another "half a million to a million" through the UAE's Fujairah pipeline, and you reach "14, 15 million barrels a day… almost 65, 75" percent of the pre-war total. That's why prices haven't spiked as feared. The trade-off is that shippers "run dark", turning off the transponders (the AIS signals that broadcast a ship's location) or spoofing fake positions, because Iran uses those signals to target vessels.
The bigger single reason, again, is China. On The Derivative, commodity fund manager Josh Blanchfield of Avos Capital gave the most vivid version of the story. Had you known in advance the strait would be blocked for six months, he said, people would have guessed "$300, $400" oil, and instead got nothing of the sort. Why? "It was basically China. China cut their imports on a daily basis by the total amount that Germany, Spain and Italy use." He titled a piece about it "Searching for D.B. Cooper," after the unsolved hijacking mystery, because when you try to add up exactly how Beijing pulled it off, "you just don't get close to getting there… how did they fill that last gap? We don't know. We don't think anyone will know." On Big Digital Energy, the hosts put the lesson more bluntly: "holy cow, who knew China had that much storage?" They also blamed the International Energy Agency for years of "peak demand by 2030" forecasts that discouraged anyone from building the refining capacity the world now desperately needs.
Diesel is the emergency, and crude being calm is exactly why
If crude is oddly quiet, the fuel it becomes is screaming. The single loudest theme across this week's podcasts was diesel, and the "crack spread", the profit a refiner makes turning a barrel of crude into fuel, that measures how tight it is.
On Big Digital Energy, the hosts flagged a fresh record in the NYMEX "3-2-1" crack (a standard blend of gasoline and diesel profit), which hit "an all time high of $72 a barrel" versus a long-term normal "right around 20, so it's more than triple." The diesel-specific crack was running "just shy of 100 bucks," which a Bank of America analyst called "a perfect summer storm," with diesel "materially disrupted in three of four major regions globally." Newsletter analyst Chris Temple, on The KE Report, put the diesel crack at "$102 a barrel now, an all-time record," adding that pump prices are "within a sliver of the all-time high price for diesel fuel in the U.S.," while "gasoline prices in the U.S. are at a record for the last part of August", unusual, because prices normally fall once summer driving ends.
Two shows brought it down to the pump. On The Financial Exchange Show, host Chuck Zotta warned that diesel is "moving back towards all-time highs", at "$5.50 a gallon, according to AAA," it's "just 31 cents away from a new all-time high" (the $5.81 record set after Russia invaded Ukraine in 2022). And, he stressed, the worst may be ahead, because "peak diesel season is the fall", harvest machinery plus the Christmas shipping rush both run on it. On FTR's State of Freight, trucking analyst Avery Weiss reported that on-highway diesel "jumped 19.7 cents to $5.45… during the week ended August 17," with the Midwest, a major buyer, up "more than 25 cents," even as WTI crude sat at just "$84.50 a barrel." That gap between calm crude and surging diesel is the whole story.
Why is crude capped while products soar? Because the world's problem isn't a shortage of oil in the ground, it's a shortage of working refineries. On The KE Report's weekend show, energy investor Dan Steffens estimated "maybe 14% of global refineries is offline", Middle Eastern plants that can't sell their products, facilities damaged by Iranian drones, a refinery hit in Libya, and above all Ukraine's relentless strikes on Russian refineries. His reminder is one the market keeps forgetting: "if peace suddenly broke out in the Middle East, you've still got all that Russian oil and Russian refined products taken off the market, and that's a big deal all by itself." Blanchfield on The Derivative put the mechanism perfectly: with "the 12 biggest refineries on fire, they're not buying any crude," so "crack spreads have blown out to the highest level ever because refineries around the world are burning, but it's put a lid on crude demand." The pain, he said, is arriving "through crack spreads, not through the price of a barrel of crude." And because Russia now exports crude while importing finished products, a stunning reversal, the effect is doubled.
The bill lands in East Africa
The most striking new second-order story this week showed exactly who pays when the plumbing gets rerouted. On the Next Africa podcast, Bloomberg's chief commodities correspondent Jack Farchi explained that the war "is creating the largest supply disruption in the history of the global oil market", and that East Africa, which has almost no refineries of its own and historically leaned on Middle Eastern supply, got hit hard.
Into that panic stepped Vitol, the world's largest oil trader, which locked up exclusive multi-month supply deals with a string of countries, Zambia, Namibia, and Tanzania (through an intermediary and the state oil company), on top of existing arrangements in Mozambique and Uganda, covering "more than 180 million people." By July, Farchi said, Vitol's "share of shipments to the region has gone up to as much as 40-45%." The cost of that security of supply was steep. In Tanzania, which used to run transparent monthly tenders where the lowest bid won, the government replaced the open process with an exclusive deal, and the premium buyers paid on top of the global diesel price jumped from a pre-war "$80 to $100 per tonne" to "more than $260 a tonne." Fuel got not just more expensive but less transparent, exactly when these countries could least afford either.
Diesel becomes inflation, through the freight system
Because almost everything you buy spends time on a diesel-powered truck, train, or ship, the diesel spike is quietly feeding back into inflation. On FreightCasts, analysts described an ocean-shipping market "on fire" because dislocations around the Suez Canal and Strait of Hormuz are eating up spare capacity: shipping giant Maersk just raised its full-year operating profit guidance to "$4.5 to $6.5 billion" from "$2 to $4 billion." The catch, they cautioned, is that this is scarcity, not strength, absent the war-driven detours, "supply would definitely be outpacing demand almost by a two to one ratio." Notably, about a third of Maersk's ships are now venturing back through the Suez, a bet that makes insurers nervous while the Houthis remain a threat to high-value container cargo. Higher diesel and truck rates are also pushing shippers toward the railroads, where intermodal rates run sharply cheaper.
Back on FTR, Weiss made the measurement problem explicit: official freight-price indexes are being distorted by fuel surcharges, so "until diesel prices are stable again, the changes month-over-month and year-over-year will be a bit squirrely." Translation: the true inflation signal is getting harder to read precisely because diesel is so volatile. Zotta on The Financial Exchange Show drove the point home, diesel "factors into… shipping costs, cost of producing food, cost of producing industrial equipment", which is why a fuel most people never buy directly can still push up the price of nearly everything.
The pundit tail: a "second war" in the bond market
The most dramatic, and most speculative, thread of the week tied the oil crisis to the U.S. government's borrowing costs. On The Jay Martin Show, host Jay Martin (an investor and promoter, so treat this as a provocative pundit thesis, not established fact) argued America is fighting "two wars at once, one you can see" in the Gulf, "and one you can't" in the bond market.
His chain of logic: with tanker traffic "collapsed from a normal range of 60 to 70 transits per day to near zero," oil prices are high, so energy-short countries need dollars to buy fuel, and to raise those dollars they sell the most liquid thing they own, U.S. Treasury bonds. Foreign governments hold "roughly $9.4 trillion" of them, he said, and foreign holdings at the New York Fed have "dropped to their lowest level since 2012." When many sellers dump bonds at once, prices fall and yields (interest rates) rise, and Martin claimed "4.4%" on the 10-year Treasury is the line at which servicing America's debt "starts spiraling out of control," pointing out that every time yields approach it, Trump "suddenly dials back military action to calm the market." His grim conclusion is a "quagmire" of "two doors, both bad": stay in Iran and pay through high oil, or leave and risk the "petro-yuan", oil trade shifting to Chinese currency, which he noted Deutsche Bank has floated as a real possibility.
The mainstream version of the same anxiety showed up on The Financial Exchange Show: the U.S. Treasury is "doubling the size of its buyback program for 10- to 30-year Treasuries beginning on September 6th" and running through early November, an effort to hold down long-term yields. Zotta's verdict was skeptical, "it's a gimmick. Gimmicks typically have a short half-life", and a "band-aid that doesn't deal with any of the underlying issues." Either way, the message is the same: the oil crisis and the government's borrowing costs are increasingly hard to separate.
For a related, low-tech mechanism, the Rich Dad Radio Show, another pundit source, made one worthwhile point amid a lot of opinion: much of the strait's paralysis is really an insurance problem. "It was Lloyds of London that closed the strait because none of the ship's captains could get insurance to move their vessels… you cannot do business in a war zone." And on the popular idea that America's own oil abundance insulates it, the guest was right on the economics: "oil is a fungible commodity, just because you think you've got more of it than other people do doesn't mean it's going to get cheaper." (His forecast of "seven or eight dollars a gallon" U.S. gasoline, versus "$11 a gallon" in Germany, is his own projection, not a consensus number.)
The quiet counter-story: demand is restructuring
While the supply drama dominates, the demand side is being reshaped in ways that help explain China's ability to simply buy less. On Bloomberg's Switched On, analysts laid out how fast electric vehicles are eating into oil demand: EVs already "displaced roughly 3.2 million barrels a day of oil demand in 2025," a figure projected to reach "20 million barrels per day by 2040." The war accelerated it, "gaining independence from oil imports was always on the agenda, and what happened in Iran just sort of brought it forward even faster."
The surprise is where the growth is: not the U.S., but price-sensitive emerging markets buying cheap Chinese EVs. "Nearly half of all cars sold in Singapore in 2025 were electric," followed by "Vietnam at 39%, Thailand at 27%," and Turkey, where EV sales "more than doubled" to 22% of the market. Chinese automakers dominate, "96% of EV sales in Brazil came from Chinese automakers, 88% of sales in Thailand." The U.S., meanwhile, is going the other way: with the EV tax credit gone, analysts expect American EV sales "to drop by 19% this year," leaving the country lagging the global adoption curve. The strategic point: countries electrifying today are "hardwiring" their way out of dependence on Gulf oil, a slow but permanent erosion of the very leverage this crisis is built on.
How investors are actually trading it
Across the week, the professional-investor consensus was remarkably consistent: own the refiners, and own long-duration oil producers, because the tightness is real and lasting.
The refining trade is the clearest. On Big Digital Energy, the hosts noted refiners like Phillips 66 and Valero have "led the subsectors in energy" this year, thanks to a decade of capital discipline that left the industry lean into exactly this shortage. Blanchfield on The Derivative trades the crack spreads directly and has been positioned for their strength. On Zacks Market Edge, host Tracy Reinick pivoted from her early-war call (buy pure U.S. producers) to favoring integrated "big oil," singling out ExxonMobil, which "owns 21 refineries globally" and refines "about 5 million barrels per day," with EPS expected up "68% this year." Her important caveat: it's cyclical, so earnings "drop off a cliff again for next year" if the conflict resolves and cracks normalize, which is why the stocks trade on deceptively low price-to-earnings ratios. On InvestTalk, host Justin Klein made the same cyclical point about Chevron, a "price taker" he'd trim "right around 230, 235", while preferring refining-heavy names like Marathon Petroleum and Phillips 66, on the view that "the problems in the Middle East… drag on into the midterms."
For producers, Steffens on The KE Report argued the stocks are running ahead of a crude price that's about to catch up: "just wait a few weeks… it's getting tight." He noted the U.S. drained "5.3 million barrels out of the SPR last week" and that the key Cushing, Oklahoma hub has fallen to "21 million barrels" against roughly 80 million of capacity, a genuine shortage signal. Every company he follows, he said, is "extremely profitable at $80" oil, and he sees a rebalancing that takes "a good year to 18 months," pointing to small-caps trading below book value with clean balance sheets. Chris Temple on the same network stayed "energetic" on energy stocks, citing analysts like Jeff Currie and economist Steve Hanke, and warned that the market is missing the danger: "we are in way more trouble than even an oil price rebound in $90 suggests." His macro worry is stagflation, slow growth plus rising prices, which he said Walmart's latest results spelled out "in capital letters."
One bright spot with a familiar catch: Venezuela
The week's clearest supply-side positive was Venezuela's slow reopening. On The Acquirers Podcast, investor Francisco Amador described oil-sector reform as the interim government's "priority number one", logical, given Venezuela sits on "the largest oil reserves in the world." Smaller independent energy companies are "starting to come back," he said, while the big integrated majors "are still negotiating." He pointed to deals that were "unimaginable a year ago", a large Colombian consumer company buying into Venezuela's top ice-cream brand, and a local fintech raising $100 million, as early evidence that capital's appetite is returning to a country where an estimated 80–90% of the population wants change. The catch is the same one that has haunted Venezuela for years: the recovery hinges on credible elections and durable political stability, and there's a great deal of capital-starved infrastructure to rebuild before it's truly investable.
The bottom line
This was the week the "economic D-Day" plan met its central obstacle. The squeeze is designed to choke off Iran's last dollars, but as Richard Fontaine framed it, this is a contest of two clocks and mutual hostage-taking, and it only works if the world's largest oil buyer cooperates. China said it won't, Russia is dismissive, and Europe is unconvinced. The White House's counter-bet, laid out by Hal Kempfer, is that Iran's collapsing economy breaks the regime from the inside before the U.S. runs out of political patience ahead of the midterms.
Oil stays near $85 for reasons now well understood: a naval-escort program and maxed-out bypass pipelines keep two-thirds of pre-war volumes flowing, and China quietly deleted the equivalent of three European economies' worth of demand. But the calm is only in the crude. The real crisis has moved into the fuel, diesel is within pennies of an all-time record and about to enter its peak-demand season, with the world short roughly 14% of its refining capacity thanks to Ukraine's strikes on Russia and damage across the Middle East. That single fact is rippling outward: into East Africa, where a supply panic handed one trader 45% of the market and tripled the premium buyers pay; into freight and food prices everywhere a diesel truck runs; and, if the pundits are even half right, into the U.S. Treasury market itself.
The professionals aren't waiting for the headline to resolve. They're buying the refiners and the long-lived oil producers, betting the tightness lasts 12 to 18 months. And in the background, the demand side is quietly rewriting itself, every emerging market that puts a cheap Chinese EV in a first-time driver's garage is chipping, permanently, at the leverage this whole crisis is built on.