Moody's Talks - Inside Economics - 100 Oil...and Counting

Episode Date: March 13, 2026

Mark and Marisa are joined once again by colleagues Chris Lafakis and Juan Pablo Fuentes to discuss the past week’s developments in the Middle East and whether the forecast has changed as a result. Matt Colyar joins to review the week’s release of inflation data, which show stickiness in inflation prior to the $40 jump in oil prices since the start of the year. After a review of weak reports on GDP, spending and confidence, Chris and Juan Pablo discuss how the jump in oil prices and the unprecedented supply shock will affect consumer spending and growth. The group posits their forecasts for how and when the conflict may end.  Guests: Matt Colyar, Chris Lafakis and Juan Pablo Fuentes For a deeper dive on AI and the macroeconomy, see our new paper, The Macroeconomic Consequences of Artificial Intelligence, where we model four potential economic paths over the next decade. We also walk through the scenarios in a companion webinar available now on-demand. Read the paper: https://www.economy.com/getfile?q=2B555C90-1118-4A49-BDAA-5C0A99F83A9E&app=download Watch the webinar: https://bit.ly/3OF6dn9 Email us at [e-mail] for more info about the Moody's Summit '26 Conference in San Diego Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s Analytics Follow Mark Zandi on 'X' and BlueSky @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by one of my trusty co-host, Marissa D. Natalee. Hey, Marissa. Hi, Mark. How you doing? You know, rough start. Rough start to this podcast. A lot of technical difficulties. We're on Zoom. So that explains the weird kind of camera angle and the sound. But we'll make our way through this. I'm here in Sea Island, Georgia at a function. So beautiful. weather here in sea island lots of beautiful azaleas out it's really pretty time of year in georgia i've never been there but i hear it's beautiful yeah it's very nice and you're in uh uh safely in sconsed in southern california i am yep we we have a heat advisory these past two days so it's been in the

mid 80s here by the beach which is about as hot as it gets ever summertime wow what does that mean for the summer I shudder to think because I don't have air conditioning so oh is that right you don't have air conditioning no like most people around here don't if you live really close to the the ocean because you get a ocean breeze and it never gets it never gets much above 85 and even that maybe a week or two in September it's really hot but yeah so hopefully it doesn't portend a very very hot summer but I think it may well I think there's an L. or something kicking in this year. I think so.

Yeah. Wow. Okay, well, buckle up. And we've got a few guests. We've got Matt Collier. Hey, Matt. How are you? I'm doing well.

How are you, Mark? And when Matt's on, that means inflation. We've got a bunch of inflation readings this week. I was just commenting. Has there ever been a case when the consumer price index has been released the same week as the consumer expenditure? deflator release? I don't.

It would have to be shut down. I can't venture a guess, but it would have to be shut down related if it ever did. I would say no. But it's been a busy week. Interesting. Anyway. Yeah. So we've got a lot of inflation news.

We'll cover that. And of course, the war in the Middle East with Iran, a lot going on there. And we were bringing back Chris Lafacchus and Juan Pablo Fuentes. Hi, guys. Hey, guys. We're back for more. Back for more. Yeah.

A lot to talk. about. So you're on last week. I was listening to that podcast. That was very informative. Just bottom line, has the forecast changed, Chris? I would say I've grown a lot more pessimistic over the past week. Right. I was kind of thinking this time last week this would all be over by now. It's kind of fingers crossed. You know, the markets are down. You'd think the president would step back, but he hasn't. So, okay. Well, we'll come back to that. Let's, um, We're going to keep this podcast short because I am away, and I am having technical difficulties, and who knows what else is going to happen here.

So let's dive right in. Let's talk about GDP, because that was a bit of a shocker, wasn't it, Marissa, the GDP number for Q425? This is the second print, so this is a revision to the release that we got a few weeks ago. That's right. Yeah, it was, so we're still talking about the fourth quarter of 2020. 25 here. So the first print had showed annualized growth of 1.4% in fourth quarter GDP. This revision took that down by half. So now we're looking at growth in the fourth quarter of 0.7% annualized, 2% exactly year over year from the fourth quarter of 2024. And the revisions mostly came in

consumer spending, investment, government. It was kind of all over the place. One thing we learned is how big of a drag the government shutdown was in the fourth quarter, it took a full percentage point off of GDP growth in the fourth quarter. So let's say you add that back in, 1.7%, that's still below potential. That's still much weaker growth. For a reminder, we had 4.4% growth in the third quarter. So we went from 4.4% in Q3 to now 0.7 in Q4. So yeah, this was a big, big downward surprise and revisions. So 2025 is in the books. There will be more revisions, obviously. So it's going to play out over a while. But let's just take the numbers as as it. You're saying 2025 calendar year was 2% real GDP was 2% on the nose? Or was that Q4 to Q4?

Q4 to Q4 is 2%. That's right. Got it. Okay. And that is below the economy, the economy's potential. which is probably at least a half a point higher than that. And that would be consistent with the run-up in unemployment we observed in 2025. Yeah. And you said the revisions were downward across pretty much the board, across all the components. Yeah, the biggest downward revisions were to consumer spending and investment.

Yeah. So Christmas wasn't the greatest. It was not. And we have separate spending data to show us that. Right. You know, the last few months of 25 and now it's looking like the beginning of 26 showed a marked slowdown in spending as well. So we got real consumer spending for the month of January 2026. And you're saying that, what was that? It was up 0.1% over the month and that is on a real basis. So nominal was up 0.4% month over month. It's been 0.1% since October. So it's been 0.1% percent.

for the past three months that have been reported. Again, we're talking about January. Good spending is falling in real terms for two consecutive months, and that decline accelerated in January. So good spending was down 0.4% in January over the month, mostly led by durable goods, which were down 1.1% over the month, very big. A big decline in spending on motor vehicles. Non-durable goods spending was flat, followed by a decline in December.

So really nothing going on just outright declines in good spending. So this is any spending that's happening is being propped up by services spending. But what I find interesting about that is the mix of services spending. So it's kind of essential services spending that's happening. It's medical care, insurance, housing. The sort of discretionary stuff is falling. So recreation, food services, restaurants. hotels, that kind of stuff is actually negative in January, if not in January and December.

So a real weakening here in consumer spending. And what about income? Because that also came out for the month of January, the personal income report. Yes. So personal incomes rose 0.4%. That was a little bit of, that was actually an acceleration. Now, some of this income stuff is juiced by the tax cuts, though, that went into effect in January and by all these outlays, cost of living adjustments like Social Security living adjustment.

So you have to take that with a grain of salt. So we're looking at 0.4%. We are looking at 4.4% increase in income on a year-over-year basis. Again, this is for January. That's significantly weaker, though, than what we've seen. seen, if we look at it year over year, then we've seen in the past few months. So it was 4.6% year over year in December, 4.7 in November. So we're seeing a bit of a slowing there in income. The savings rate popped up. I did. It did. So that went from 4% in December to

4.5% in January. But again, there's some adjustments there because of the income being juiced in the month of January. That kind of explains that. Got it. Got it. In one more big economic statistic came out today, and that was durable goods. That's a window into business investment.

And I believe that we got that, didn't we? I'm away, so I wasn't able to watch. We did. And that's also for the month of January. January. Yeah. Right. Yeah.

So core, we look at core, right? because typically durable good spending is very impacted by spending on transportation equipment, basically planes and whether military or civilian really whipsaws that data. Actually, the aerospace spending was down. If you take that out and you just look at core, so this is real business investment spending X aircraft. New orders were flat over the month, zero. shipments actually fell for core capital goods, non-defense core capital goods fell over the months. And that's sort of a window into what's happening right now. The new orders is sort of a

preview of what's to come, right? So that also looks pretty weak. And on a year-over-year basis, both have weakened quite a bit from where they were at the end of last year. So it seems like the overarching message here is, we ended last year 2025 on a soft note and we're starting 2026 on an equally soft note. Yeah, looks like that's continuing. Right. Right. And of course, business investment, again, durable goods is a read on business investment,

had been quite strong at the end of 2025. So we'll have to see if this. One would think that this would rebound given the tax cuts to corporations, the expensing that they got under the One Big Beautiful Bill Act and everything related to AI, all that investment. Right. So something to watch. Okay.

Definitely. Okay. So soft. I think. Soft. Just one more data point I'd like to mention is the University of Michigan Consumer Confidence Survey, which we kind of tend to write off, I think, a bit, right? Because of how whipsod it is by people's political beliefs.

But what I want to say about it is that this was for the, month of March. And Michigan said about half the surveys that came in came in after the war with Iran started. So there is some measure of sentiment about very current events. And confidence fell quite a bit. It fell by over a point compared to February. And interestingly, it wasn't the present conditions index that fell. It was the expectations index that fell. And also the inflation expectations. held steady, despite what you might think, given the war and the increase in gasoline prices. But this survey sort of straddled the time period when the war started. So I think would have to see what happens when we see April data and we get a full accounting of people's perceptions.

Because we know Michigan very much tracks sort of inflation expectations and prices at the pump and what people are paying in real time for gas and groceries and that kind of thing. okay all right well very good um and we also as i we're going to come back to the war obviously and you know what's going on uh overseas but before we do that let's talk about the inflation statistics that came out uh for the month of january today and this week i should say uh and matt you want to give us your sense of both the cpi the consumer price index and the pce the consumer expenditure later yeah so wednesday we got the more recent data point, that's the February consumer price index report. And then this morning, Friday,

we received the BA released January's PCE deflator, the inflation metric that the feds target. So I'll start with the CPI on Wednesday. But frankly, I have couched both of these reports this week. Because they're always a snapshot of the past. But as we allude to, it seems particularly the case now, given all this data was gathered before everything that's happened in the Middle East over the past few weeks, but there still is a ton to glean from both reports. So headline CPI rose 0.3% in February. That was modest acceleration from the month before about what we expected year over year rate. And remember, this is downward bias from the federal government shutdown, but 2.4% same as the month before for headline CPI. Core CPI,

so looking, just taking food and energy prices away, 0.2% increase in February. a little bit slower than the month before. And there we have year-over-year core CPI inflation at 2.5. Since the shutdown, every time I'm on, I carry on about the downward bias that's, I think we address well, if not conservatively. Shelter inflation, the way that the government had to address data gaps from October, really introduced a downward bias. So really, what's our estimation, if that didn't happen, if a different methodology was used, we're at 2.7% for both headline and core CPI inflation.

I think now that we've gotten a few months away, we can look at three, six month moving average, a little bit of interpolation still needed, but we have enough data from the government shutdown that we can say, take those year over year wonkiness out of it and just what is inflation running now? And there, so the mouthful, but the annualized three-month moving average means a lot right now,

in my opinion, and we're at 3% for both core and headline CPI. Oh, is that right? Interesting. Yeah. There's enough data in hand now that we can ignore what was happening prior. So the, you know, I know it's a, it's a comparison, or a comment you make off than that we're closer to 3% than 2%. I think that's becoming increasingly clear. So within, just to reiterate, too, within this report, we got a modest increase from energy.

Again, doesn't tell us a whole lot about what energy. is likely to look like in the coming months, 0.6% increase in CPI for energy. It's still the middle of the month now. We'll see where that ends up over the average, but pretty clearly going to be a big positive contribution to the headline CPI in March. Food prices, 0.4% in the CPI for food at home, grocery store prices. That's an acceleration. I think that's something to flag.

And again, fertilizer, diesel, all these are inputs that are going to cost more in the coming months that feed into the agriculture and food industries. So this isn't just an energy shock. It's an energy shock that's going to show up in a lot of different ways. And we're at 2.4% year-over-year inflation for grocery prices increased 2.1%. A good story, shelter inflation continues to come down. So we got the tenants rent and OER, owners equivalent rent, but just broadly together, they're both trending in the right direction.

They both OER 0.2% from January to February. It's the same as the month before. 3.1% year-over-year growth in the CPI for owner's equivalent rent. It's the biggest component in the CPI. And that's the lowest rate since 2021. So encouraging relatively predictable. It's a slow-moving component. And it's certainly bringing overall inflation down.

Healthcare opposite. Yeah. Rising quickly. And I'm kind of leading into why the story is less encouraging. We look at the PC deflator, but medical services. inflation, health care inflation, 0.6% increase in February. That's big year over year, 4.1%. This is another component that moves slowly. So month-to-month readings and year-over-year comparisons are informative in a way that others might not be, that we consider noisier. Three-month moving

average there for health care costs, 5.3% higher. A lot of different components underneath that are all kind of rising similarly, whether it's physician services, inpatient services, hospital services, So that's a big source or a growing source of inflationary pressure and kind of offsetting some of the improvement we're seeing with lower shelter costs. And then finally, I think the point worth flagging is the basket of things that we pull out of the CPI that to us look and there's rigorous quantitative backing for this, but the things that we look at and say are vulnerable to tariffs. So trade dependent goods. And there we saw a 0.5% increase in February. That's an acceleration. And that's even with new vehicles, which is in that basket.

A lot of cars are imported. New vehicle prices didn't really change in February. It's perplexing, but they didn't again. And even with that flat growth in February, we see a half a percentage point increase in our tariff index that we created. So I think it's a lot going on there, some predictable and some things. are heading into a much different price environment, given everything it's happening in energy markets,

that we're likely to see some further acceleration. And to just reinforce the point that it feels like inflation is at 3%, the PCE deflator, both top line and core excluding fluid and energy, they're also around three. I think the core is actually 3.1%. That's right. In January. In January.

And, of course, as you say, just to reinforce it, The PCE deflator is the measure of inflation the Fed uses to set its 2% inflation target. So we're at 3 and it feels like it's accelerating and target is at 2. That's right. Yeah, that's right. So if I take all of this together, what Mertha said and what you're saying, it feels stagflation-esque, doesn't it? I mean, slower growth coming, end of last year coming into this and high, uncomfortably high, and accelerating inflation.

I mean, it's not stagflation like circa 1979. I'm not arguing that, but it does feel like we're moving in that direction. So these, we've been long saying this, the policies such as tariffs, such as heavy-handed immigration policy,

they would be stagflationary and it feels like we got that. And just to reinforce the point, this is all before the fallout from another shock, stack-flationary shock, and that's the runoff. in oil prices related to what's going on in the Middle East.

Is that fair characterization? Yeah, three supply shocks, as you outlined, and it push prices higher and slow growth all simultaneously happening. Okay, let me ask you one more thing before we bring in Chris and Juan Pablo. Inflation expectations, because this is really important. This is one reason often given that I've often given for why kind of the stagflationary environment that we're in will result in a kind of a stack inflation circa in 1979, and that is inflation expectations. What investors and consumers and business people think inflation will be still remains low and stable,

that they're an anchor on overall inflation. So this inflation we're observing ultimately will recede. Do you have any sense of the numbers there? Have you taken a look? Yeah, I don't think markets are disagreeing with you entirely, but I would also, I would couch that majorly in the many of the series that are most reliable and that we look at just have not fully absorbed what's happened over the past few weeks. But if we look financial markets, liquid, see things quickly. Five-year break even. So what do investors think inflation is going to average over the next five years is essentially what this measure is telling us?

That's risen about point, about 20 basis points. So 2.4 for most of 20, 25, or for this year. 2026 and last year, you know, hovering around 2.4%. There's the average inflation that investors are looking at. Now we're at 2.6. That's not cataclysmic, but that's an increase there that is a reaction to what we're seeing and how much we don't know about where energy prices and kind of the broader shock spills into. So it's there in the five-year break, even I think most clearly. University of Michigan survey, Marissa mentioned. Half of those responses came before the conflict began, don't see any change in one-year inflation expectations. I don't think that's,

retail gas prices are already up about 60, 65 cents per gallon, as I understand it. What we know about that survey, what we know how salient gasoline prices are to what respondents say, no way to expect that that stays the same in the revised survey we get later this month from University of Michigan. Two-year treasury yield, that's more of the little more abstract. It's what investors think inflation is going to do and how the Fed's going to respond. There you have 15, 20 basis point increase over the past few weeks in the two year in the, I'm sorry, 30 basis points for the two year yield, about 15 to 20 basis points in the one year yield. So fewer cuts, why inflation is going to be higher if it's going to have their hands tied a bit. So markets are

reacting, but my overarching opinion or evaluation is that it's still too early to have a good sense of the impact. Okay. All right. So can't conclude that inflation. expectations are picking up, but you can't conclude that they're going to stay down either. Yeah, you can't say they're looking through it for sure. Yeah, yeah. They're kind of on high alert, I guess, you know, which I guess makes sense in the context of everything. Okay, anything else on the inflation front before we move on, Matt?

No, nothing jumps up. Okay. So, Chris, give us an update. What's going on in the Middle East? Open-ended question, take it wherever you want it. I know there's a lot going on. Just give us a sense of things and how they're playing out. All right.

So there's been a lot that's happened over the past week. It feels like, you know, it's more than a week. It feels like it's been a month or two since we last talked. But there's six new developments that I want to specifically point out. Six new developments. Six. Yes. Okay.

Yes. All righty. And I'll try to go quickly. The first is that Iran has rejected a ceasefire. This was put forth by Foreign Minister Abbas Araghi and also the parliamentary speaker, Mohamed Bagger Khali Baf. And also the president of Iran put forth three conditions for which would need to be met in order for a ceasefire to be met from the Iranian perspective. And those would be respecting the country's,

rights, paying reparations, and guaranteeing that there is no attack in the future. So needless to say, those are a pretty good bit away from the Trump administration's conditions, which are an unconditional surrender. So that's development number one. The second relating to the oil market was a report on Sunday night by Reuters, citing Iraqi oil. oil officials, that the country's production at its three main oil fields was down roughly three million barrels per day, equivalent to 64% of total Iraqi production. That was seismic for the oil market and a good reason why on Monday we opened up significantly higher.

Also, the Bloomberg, there was another, the third development was a Bloomberg report that said, not only are we down three million in Iraq, but we're down 6.7 million barrels per day. in the region, if you include cuts by Saudi Arabia, the UAE in Kuwait. That was on Monday, Sunday Monday as well. And then an IEA report came out on Wednesday. The IEA, the International Energy Agency, is the foremost arbiter of oil news and information and data for Western oil countries. It's Paris-based.

It's an international organization. It has immense credibility across the oil industry. They said not only were we down 6.7, we're actually down 10 million barrels per day. If you take into consideration all of the countries in the region, 10 million perils per day. At that point, oil started to rocket up near 90. And then on Thursday, we had successful. attacks in the Strait of Hormuz, images of supposed American oil tanker set on fire that was shared by the Iranian government and a successful attack of a Thai-linked tanker as well.

And if you look at the IMF's port watch, they do a great job of measuring the number of port calls in the Strait of Hormuz. that is down by over 90%. Remains down, has been down since the start of the conflict. If you look at the UK Maritime Trade Organization, they measure the number of attacks that vessels, both tankers and merchant vessels, have reported their estimate is that since February 28 until March 12th, that's yesterday,

that there have been 16 attacks again, to vessels that have been reported. And that is development number five. And development number six happened today when U.S. officials told the New York Times that Iran had begun to mine the Strait of Hormuz. We've seen this movie before after the in the conflict between Iraq and Iran in 1991, Iraq, put 1,000 sea mines in the Strait of Hormuz. U.S. ships had to go in and clear them. It took U.S. ships roughly two months to clear all of the mines.

So that's informative on the timeline, and I'm sure we'll come back to that. But this would be a significant escalation in the conflict, and it was one of the catalyst for pushing Brent crude oil to $100 per barrel. So as of Friday afternoon, we're looking at 103 for Brent. So those are the six developments that have happened. They explain the run-up in energy prices. I didn't even mention another development, which was intended to be offsetting, a coordinated release of oil inventory from

the Strategic Petroleum Reserves of not just the United States, but other countries, Germany, Japan, et cetera. The announced release of SPR Strategic Petroleum Reserves was 400 million barrels. That's equivalent to about four days of what the global economy needs to run because we consume about 100 million barrels per day. Of the 400 million, the U.S. is 170 million of that. That took prices down a little bit on Tuesday. There was also a since-deleted tweet made by the Secretary of Energy, U.S. Secretary of Energy that the U.S. had successfully escorted a tanker. Through the state of Hormuz, the U.S. government walked back that claim,

and the tweet has since been deleted. Those were temporary reasons for oil prices to go back. on Tuesday from where they had opened up on Monday. But as I mentioned, because of the developments on Wednesday, Thursday, Friday, we're now sitting at $100 a barrel. Okay, so a lot there. But just to summarize, before all this started, Brent Price was sitting, what, $65 a barrel? Around that, around that.

Around there. I would say, you know, we were close to 60 at the beginning of the year before we started a price in the risk of a Middle Eastern conflict. Okay. So let's just say 60. and now we're at 100. That's the increase in price. And that has resulted from this disruption to supplies

and expectation for further disruption. And in terms of supplies, just taking all the numbers you said because there was a lot of moving parts there, it feels like what you said is that, you know, I have the 100 million barrels a day of oil that was being produced and consumed before this mess.

About 10 million has been taken offline, roughly 10 million. So a 10% reduction in production has occurred up to this point in time. Is that right? Is that roughly right? That is right. And the reason that that is occurring is because oil production is being shut in.

Because oil can't be exported. It's being stored and best storage is in the ground. So just stop producing. You can't, 20% of the world's oil goes through the Strait of Harmuz. Nothing's going through. The producers produced until they filled up the storage the facilities that they had, they filled those all up.

Now they have to cut production, and they've cut production by about 10 million barrels. And that's kind of sort of where we are. Okay. That's where we are. Okay. If we stayed at $100 a barrel for the foreseeable future, what would that mean for U.S. gasoline prices and just kind of more broadly the economy? What do you think?

Could we digest that if it stayed at $100 a barrel? could the economy avoid a recession um i first let me ask and let's just to give context so if i go from 60 to a hundred that's a 40 dollar increase that feels like that would raise the price of a gallon this is now zandis kind of rules of thumb

that i've ultimately gotten from you over the years that would add about a buck to a gallon of regular and let it right you go from we were at three dollars for a gallon Allen before this, this would now send it. We're not quite there yet because it takes a little bit of time. We're at 360, 370, but we're headed to four. That's where we're headed. Absolutely.

Absolutely right. Okay. And then that doesn't, that, of course, cuts right into purchasing power, consumers purchasing power. People have to put more of their hard-earned money in their gas tank. They have less to spend on everything else. And then, of course, the higher oil prices has all kinds of other impacts on diesel prices, which goes into anything that's put on a truck,

so groceries and Amazon packages, whatever it is. It goes to jet fuel and therefore airline tickets and that kind of thing. So when you add it all up, if I go from 60 to 100 on a barrel of oil, roughly speaking, how much does that add to inflation, say CPI inflation? So that would add about six-tenths. Six-ten. And it would take out about $120 billion from the economy.

And to put that in the context, Mark, I would just compare it to the amount of fiscal stimulus that we were expecting to get coming into 2026. You know, remember, that was one of the big reasons why we thought that 2026 was shaping up to be pretty good. Another year of economic expansion, I believe it was five-tenths of GDP, five-tenths of one percent. half a percent of extra GDP growth that we would expect to see in 2026 because of the fiscal stimulus measures, you know, things that were passed in the one big beautiful bill, the no tax on tips, the extra pay for overtime work, tax reductions, salt tax, etc. That was supposed to be around 0.5% on GDP. And so we're going to lose all that and then some, you know, if we stay at 100 bucks for the entire year.

Got it. Got it. Okay. JP, Juan Pablo, anything that Chris gave us, he said six, but he gave us seven developments in all. Anything he missed, I can't imagine he did, but anything he missed that you want to call out on what's going on overseas?

Well, yeah, I would try to, you know, put us a positive pain on all this. I think the seven things, about six of the seven were pretty negative. The ESPR release was a positive. But I will go back to that an IEA report that came out on Wednesday. And one thing that surprised me a little bit is that they expect oil supply to be fully restored by June, which is kind of consistent with our baseline at the beginning. beginning of this conflict, no? We're saying this can not go on for too long. It's just

it's unthinkable. So the IA is saying yes, by June we basically go back, we recover those 10 million barrels that we lost in March. So they don't explain how and why, you know, how this this happens in the sense of, you know, what are the the signs that are there to think that the conflict is going to end or that the straight is going to open. But the implication is that once that happens, the resumption of supply is going to be relatively fast. That's your optimistic spin?

Yes. You know, that June's a long time, right? But, I mean, prices will respond before that, you know, because if we're saying June we're fully restored, like we are back to pre-war. Like, prices will go down before June, no? It would be like we will start as soon as there is a clear picture that that could happen, that we're going to, this is only going to be a two-month disruption. Then prices are going to respond to that. Got it, got it. Well, I think you mentioned our baseline. That's kind of like the most likely scenario in the middle of the distribution of possible outcomes. And goodness knows there's a pretty wide distribution of possible outcomes here. We're thinking is that President Trump will take in all of the economic consequences of what's going on. So the cost of a gallon of regular unlighting going from three bucks to four bucks. The fact that the stock market is, has got a lot of red on, putting a lot of red on everyone's screen.

You know, we're down four or five percent from the peak, so it's not that much, but that seems every day, it seems to be going down another notch. Interest rates are up, long-term interest rates are up. So the 30-year fixed-rate mortgage, before all this was 6%, maybe even a little bit below that. Now we're at 6.3, 6.4%. It's starting to rise. So taking all that in, the president will say,

say, okay, this isn't really working. I'll declare victory and we'll move forward. And that's how you get to that. Everything's back to normal in the straight of her moves. Everything's flowing by by June, early June. That's the kind of the narrative, the logic behind that. The IEA didn't, that's not what they didn't tell it. They didn't say that. That's not something they would do. But I suspect they got a pretty similar perspective that we do. That's kind of what's going on. If that's the case, you know, if that baseline comes to pass and, you know, we go from $100 a barrel back down to something, you know, closer to, presumably when it's, when

everything kind of winds down, we're not going back to 60, 65 because there'll be some kind of risk premium there. But let's say we go back down to 70. That's our baseline. That's what, that's kind of sort of what you're thinking. Yes. I mean, that's our, that was our baseline for March. We go back to basically our, you know, February baseline for oil prices by the end of the year.

So it's going to be a gradual adjustment, but we won't, we will be, you know, March, April would be the peak in terms of oil prices. And then we see prices declining. Of course, for that to happen, you know, we have to see, we have to have some positive news in terms of potential ceasefire and reopening of the street. Right, right. Chris, anything to add on the baseline scenario, the narrative I just laid out and how that plays out in terms of oil prices. Is that a fair way of presenting it? Yeah, absolutely. The baseline forecast that we have maintains that this.

within President Trump's power to draw to a swift conclusion. We have alternative scenarios in which that is not the case, and the conflict drags on for quite a bit longer. Right. Okay. And you alluded to this earlier, or maybe just point blank said it, feels like that baseline outlook, it's still the outlook that we had a week ago,

but you don't feel nearly as confident in that outlook today as you did a week ago. Yeah, and in fact, I wasn't too confident about it a week ago. Right, right. Even like to know now. For the careful listener listening to the podcast, but yes, I am less confident in it now. Okay. I will say another reason for that to happen or for that kind of optimistic scenario is that this is very painful for the Middle East.

countries, Saudi Arabia, all of them are going to be the biggest losers in this conflict, even more than Iran right now, because Iran is the only country that's still exporting oil, while everybody else is stuck with no revenues. So I think they do have a lot of loving power with, you know, the U.S. and other Western countries. So that is in everybody's interest for this to end as soon as possible. Including the Iranians, including Iran? Well, Iranians, yeah, I don't know about them because, you know, again, they are the only ones that are still exporting. They haven't have to cut supply.

But that's not a guarantee because it thinks, I mean, one development that I think would be devastating would be if the Israel or the U.S. bomb this little line of the coast of Iran that is exposed 90% of their oil. If they decide that to take that away, then we will see Iranian production losses, maybe 90% of their production will be gone. And that would be like a point of no return for them. Yeah. You make, this is a really interesting. a point that, you know, up to this point in time, Iran has been able to continue to export because they have control in their exporting. How much is that? Is that as much as three million barrels? They produce about 3.5. I think exports are like around around 2 million barrels.

And so far, the U.S. and Israel have not disrupted that supply. presumably because if they did, that's another two, three million barrels off the market, another 10, 15, 20 bucks on price of oil. That presumably is why. Yes. And then they, you know, they could also retaliate and really target production facilities in Iraq and Kuwait and Saudi Arabia. So far, they have avoided, you know, too much damage in the oil infrastructure of those countries. right right yeah so that would be Rubicon that would that would be yeah yeah yeah i mean they've lifted russian sanctions on oil right the u.s has lifted russian sanctions on oil so obviously

they're very concerned about the impact on oil prices yeah by the way Russia is the only happy country yeah right well i mean listening to the conversation i i get a little even more worried about our baseline that because if the Iranians are able to continue to pump and export oil and generate oil revenue

you know that that feels like that there's less pressure on them to actually come to the to end this thing that they'll continue to push here feels like no it does I think that the pressure

on Iran comes from the the geopolitical cost, you know, I think Juan Pablo was alluding to this because, you know, they've upset many, many, many countries in the Persian Gulf. And also through the degradation of their conventional military arsenal, a number of, you know, missile launchers have been taken out, drone carriers have been taken out, naval vessels have been sunk, etc. But I would note that Iran still maintains an arsenal of thousands of missiles,

thousands of drones, thousands of sea mine. So, you know, that's why the U.S. has not deemed it safe for U.S. vessels to escort merchant commercial shipping vessels through the strait right now. If the U.S. thought that it would be safe to do so without the risk of a U.S. vessel getting sunk, then they would do so. But they deem that that's not realistic right now and that Iran's military continues to need to be degraded before that's safe to do. Yeah.

Okay. All right. So that does leave, all this conversation does leave a high probability, an uncomfortably high probability that we're going to go down a darker path here. And I know we have constructed a number. alternative scenario that we've designed to be on the 10th percentiles of the distribution. So not all the way on the tail, but kind of out there a little bit in terms of where it is in the distribution.

Chris, do you want to describe that scenario? Yeah, absolutely. So that is, that Mark is referring to the S6 scenario for all of the people that are familiar with our alternative scenarios. we release our baseline forecasts every month. We also construct a set of standard alternative scenarios. Those are updated every month as well. And S6 is the most severe scenario in terms of oil prices.

In that scenario, we reach a peak price of $125 per barrel on Brent, averaging for Q2. And that assumes that the straight of Hormuz is closed until early to make. mid-June. And after that, the straight begins to reopen. It takes a while for us to be fully back online with 20 million barrels per day of oil and product moving through the straight. But we start to resume normal activity in early to mid-June. Prices start falling in Q3 and beyond. Yeah. Yes. And by the way, good time to advertise our webinar. You know, we have a webinar this coming Wednesday, and that's where folks that are deep into these scenarios can come and listen and we'll give you a good clear sense of things. But just to keep it a little higher level, so just to make it clear, just to make sure I have it right, in our baseline, we're assuming that by early June, the Strait of Hermuz is up and running, oil is flowing.

the world's consuming, producing 100 million barrels a day, that the world is back to where it was in early June. In this alternative scenario, we're assuming that the Strait of Hermuz is completely closed all the way through June of this year, and it's not until after that that it starts to reopen and it takes some time to get back to normal. So it's a lengthier period of closure. Is that roughly right? So I'm not sure if I heard you right,

but our baseline assumes that the straight begins to reopen by the end of March. Yeah. It's back to normal by early June. Yes. And our alternative scenario 125 for Q2 assumes that we're completely closed until early to mid-June, with normalization just after that. And just to be clear, in both the baseline and this alternative scenario, 10 million barrels is still offline until the straight is reopened.

So the only assumption that is changing, that is varying here, is the amount of time that the straight remains shut. Got it, got it. And in the base, we're at $100 a barrel for Q2 roughly. in the scenario, the alternative scenario, we're at 125, you know, something to that effect, roughly speaking. Well, our baseline has a much lower crude oil price for Q2. It does, okay. Right now.

But, you know, as you said, that was before the developments of the past week. So, you know, we do our baseline forecast every month. So our next opportunity to incorporate. developments would be for the April forecast. Okay, got it. Okay. Needless to say, there's a lot of moving parts here and things are changing very rapidly. But no matter how you cut it, it feels like this is a meaningful, what's going on here is a meaningful and growing threat to the economy.

And as we began the conversation, the economy already feels like it's on the soft side of things coming in. into 2026. Yeah, I mean, and just to expand on that, I'm not sure if we've had, certainly not while I've been covering energy and I've been an economy, this will be my 20th year as a professional economist and cover energy for most of that, have never seen a supply disruption of this magnitude. We saw a demand disruption with COVID that was along the scale or more. but have we ever had 10 million barrels per day just go offline in a matter of weeks? I certainly haven't seen it.

Yeah. Okay. All right. We're going to keep the podcast relatively short. As I mentioned, we do have a webinar on Wednesday. Anything else to add to the conversation before we call it a podcast? Chris, Pablo, Marissa, Matt, anything? No.

I don't think so. Yeah, let's see what the geopolitical development is. are. Yeah, a lot going on. And I do want to advertise another one more advertisement. I've done this for the last couple weeks. I'll do a couple more. We've got our banking summit, the summit in San Diego in early May. The economics day is May the 6th. So we hope to see you there. Please join us in San Diego in a couple of months. And with that, I think we're going to call this a podcast. Thank you for listening to your listener talk to you next week