As usual Professor Cochrane is spot on. Let the markets work; inevitably government intervention makes adverse conditions worse. Still, count on it happening; modern western societies have no patience and no fortitude to withstand even minor disruptions even for a just cause
Colleagues? They're a history guy and a military guy venturing ignorantly into economics. That's your field Cochrane. Stick to your guns! Your futures guns.
A forward curve is NEVER a forecast of future prices. It is just the price at you buy or sell Oil at a future delivery TODAY. I am surprised how good and prestigious economist keep getting this so wrongly. Equities have a forward as well, built with rates, repos and dividends, and NO ONE assumes it is a forecast of the share. Regards
The forward market is an expectation of what a commodity, equity or anything else is worth at a specific time in the future and traders bet that they are correct in that the price will be either above or below the current future price. Creating an equilibrium where it is a composite of all actors who have placed bets on what they think the price will be. In that sense it is very much a forecast for prices. It doesn’t mean that it’s correct.
Nice definition. But paraphrasing Wittgenstein about Futures "Don't look at the definition, look at the use". WHY can you TODAY arrange to get oil delivered on that future date at a specific location for nothing more than exchanging pieces of paper ? Therein lies a multitude of forecasts about current supply, future supply, future production, frictions, risk free rates, moronic politicians etc, all to then be translated into reality by people working with the physical world. And as Prof Cochrane has pointed out, currently very few producers seem to be sending their workers out to turn rusty valves to synthesize a long term future/spot commodity package for you to take the other side of. And as others have pointed out, a forecast is just an opinion, most are wrong
Bravos research presented an interesting argument. They said to look at the savings of Americans, arguing that in 2022 Americans had a lot more savings but now we are tapped out.
Nice definition. But paraphrasing Wittgenstein about Futures "Don't look at the definition, look at the use". WHY can you TODAY arrange to get oil delivered on that future date at a specific location for nothing more than exchanging pieces of paper ? Therein lies a multitude of forecasts about current supply, future supply, future production, frictions, risk free rates, moronic politicians etc, all to then be translated into reality by people working with the physical world. And as Prof Cochrane has pointed out, currently very few producers seem to be sending their workers out to turn rusty valves to synthesize a long term future/spot commodity package for you to take the other side of. And as others have pointed out, a forecast is just an opinion, most are wrong.
~25% of US energy comes from renewables. Somehow Prof. Cochrane "forget" about it. Renewable (sun) are faster to build to drilling. Wind was (almost) abolished by the president. Go green quicker and mitigate energy prices faster to any other supply side solution.
It is not instead of oil and oil will dictate the price. Now you have a shortage that you need to close. You reduced sun and wind far too brutally. Open the gate and get what it can give. Efficiency comes with flexibility. The situation changed (the world changed) - change your response
My response is to follow the price signals and use what makes sense. Up to now, in nearly all places and for nearly all applications, solar and wind have been adopted only due to political decisions - either subsidies to make them profitable, or mandates to require their adoption regardless of economics.
If you remove the subsidies and mandates, a regulator might plausibly conclude that renewables are worth some presence in the energy mix, but should do so only after explicitly acknowledging the cost and including them in energy prices, rather than hiding them.
I doubt there are many places where renewables would really merit significant investment.
You seem to believe that there's a link between oil prices and economics of renewable energy. Could you explain that? Renewables are essentially used only for electricity generation, while essentially no electricity is generated from oil.
One of their excuses for linking electricity prices to oil prices is that because solar and wind are unreliable, they must be backed up by enough fossil fuel capacity to run the entire grid, and at peak demand, when neither solar nor wind is producing any power. In other words, solar and wind provide nothing that the traditional grid doesn't already supply, and must continue to supply until the fictional battery storage can provide months of storage.
Yes, dispatchable backup is key to reliability. But oil prices are irrelevant. Gas prices might be - you could argue that renewables reduce demand for gas, lowering prices and decreasing vulnerability to price fluctuations. But oil price fluctuations don't affect cost for electricity, unless you claim that higher oil prices cause higher gas prices. Or maybe that all-electric cars decrease demand for oil, but Mr. Tsiddon didn't mention electric vehicles.
I think there is a general conflating of oil and gas, not just price-wise. Maybe it's because both are fossil fuels. Maybe it's because of pictures I remember of lighting off gas from oil wells, as if it were a nuisance waste product.
That may be why I said "oil" here; I don't know. I know I've seen the linkage recently, but was it oil or gas? did my brain translate it? I don't know.
Quite the opposite. Wind and solar have been forced on customers long before they were ready, and the continued subsidies and rising electric bills are all the proof any rational person would need that solar and wind power are scams and hoaxes.
I don't believe that 25% and I don't believe renewables are cheaper. If they were, my electric bills would be trending downwards and the government wouldn't be raising taxes and borrowing more to subsidize them.
The misstatements are mostly from using theoretical nameplate capacity instead of real life production. Fossil fuel plants actually produce 80-90% of their theoretical capacity, with the difference attributed to maintenance and shutting down during periods of reduced demand. The sun and wind don't shut down when not needed.
Wind turbines only produce power when the wind speed is in its Goldilocks zone; too high or too low, and they produce less than the theoretical capability, or even shut down altogether. If they produce maximum power when the grid doesn't want it, such as at night or on those Goldilocks days which require neither heat nor A/C, that excess power is thrown away, but it still counts as produced power and leads to false ratings, along with continuing to soak up subsidies.
Solar has a different theoretical/actual discrepancy. It produces the most power before the afternoon/evening demand for heat and A/C, and produces nothing at night or on cloudy days, and less in winter.
The offshore projects that Trump canceled are the worst way to generate power. They are triple the cost of onshore turbines, clutter the seaboard, prevent ship traffic, including fishing, and kill whales during planning, construction, and operation. The blades last only 10-15 years and are not recyclable, ending up in landfills. Britain provides plenty of examples of the incredible subsidies the government has to promise before anyone will even bid to build the projects, and those costs are not factored into most price comparisons.
Storing the excess power is so expensive that it doesn't exist in any useful capacity, such as weeks and months to cover winter, or even overnight in the summer. None of the cost comparisons include even theoretical storage technologies which don't exist yet.
None of the cost comparisons include the new distribution power lines because solar and wind farms have to be built where it is sunny and windy, regardless of how distant from the customers, while fossil fuel plants are built near the customers.
Solar and wind electricity are scams, if not downright fraudulent hoaxes. That subsidies continue to grow shows that all claims of being cheaper are lies.
That alone tells the tale: why do subsidies and electric bills continue to rise if renewables are cheaper than fossil fuels?
When the consequences of the proper and correct action for the future of the U.S. and western civilization are relegated to the short term cost of oil, we have become a country of economically illiterate wimps. Allowing Iran to have ballistic missiles and the ability to use a nuclear warhead controlled by a radicle Islamist ideology with the future ability to close the Strait of Hormuz at will seems more of an appropriate discussion, but not a debate.
Oil isn't just oil. It's not perfectly fungible. It can be light or heavy, sweet or sour. A US refinery set up for light sweet might be completely unable to process heavy sour. The mix of supplies is a factor that doesn't yield to simple analysis.
This substack post is argued from the perspective of the representative U.S. household, and the U.S. domestic corporation. It ignores the perspective of the foreign representative household and the foreign corporation which are materially affected by the de facto blockage of the Strait of Hormuz in real time.
When you widen your horizons, the picture presented changes materially. S. Korean semiconductor fabs close for want of elemental helium (He). Electrical generators that rely on imported natural gas stop turning and producing electricity. Cargo vessel journeys are put off by the cost of fuel to run the engines that turn the generator that power the motors that turn the propellers. Aviation fuel becomes scarce and costly. The knock-on effect has to be recognized.
So, the U.S. is largely immune. Canada is largely immune. Europe and East Asia are not.
There is no end-game to the rhomp in the skies over the Islamic Republic of Iran. Primary targets have been hit, secondary targets remain, and tertiary targets are being sought out. Will that change in 2026, or 2027, or ? Flip a fair coin.
The Gulf States and their customers have collectively gambled for the last 50 years that the perennial threats to close the Straits of Hormuz would never happen.They lost and so have their customers.
No matter when (or if) the Straits reopen, the fact remains they can be closed - just like the Houthis closed the Red Sea. This cannot be unlearned. They need to get to a secure place to load the oil and gas and other products such as aluminum and fertilizer. Or close down as the their insecurity will make them unreliable.
Just like the US and EU have discovered that China dependence for critical imports is dangerous, the customers of the Gulf have learnt the same. The markets will look for a reliable supplier.
… and this bet helped oil be too cheap and renewable energy look too expensive. American military presence in the Gulf was not counted as a subsidy to oil, alternative pipelines that existed 80 years ago where all abandoned. That is usually named as “free market”. One should not expect the “market” to get to the right equilibrium when the road to equilibrium is monopolized.
It's actually a very interesting connection to renewables. Some people would argue that the price of renewables does not factor in adequately the grid reliability requirements. Customers of the Gulf have made the same mistake for its products too.
My guess is that there is no big winner but in the decade to come oil will be more expensive relative to all other energy producing forms, and relative quantities will adjust to respond to relative price that take into account political risk. Clearly I have zero prediction about the total cost of energy using the new basket
The irreversibility point is the sharp one. Insurance premiums don't reset after a claim — they reprice permanently. Even if the Straits reopen tomorrow, every LNG contract and refinery investment now carries a "Hormuz discount" that didn't exist last month. The parallel to China decoupling is exact: the reshoring started slow, then became policy orthodoxy almost overnight once the vulnerability was proven rather than theoretical.
Professor Cochrane brings his usual clarity to the oil price question — and stops precisely where the analysis needs to continue. Oil is the headline. The story is the system beneath it. One third of global fertiliser trade transits the Strait of Hormuz, and planting season decisions are being made right now under conditions of extreme input cost uncertainty — consequences that arrive not in the spring but in the autumn harvest, and cannot be undone by any subsequent ceasefire. LNG markets, semiconductor energy inputs, European industrial capacity already damaged by 2022 and now absorbing a second hit, Global South sovereign debt stress meeting a simultaneous food and energy shock — none of this is in the oil price. Cochrane is right about what the oil price will do. He is looking at the warning light, not the engine.
The fertiliser timing point is the sharpest one here — planting decisions are irreversible commitments made under uncertainty, and no futures curve captures that asymmetry. We wrote about a similar hidden cascade when Iranian strikes hit Qatar's helium production: https://thesynthesis.ai/journal/the-noble-gas.html. The pattern is the same — the commodity everyone watches is never the one that breaks the system.
Excuse me, I am trying to grow and get subscribers! If you are interested, check out my work, say hi and tell me what you think! I love the community here, and I want to see what you have to offer as well!
After all I read from you, I would expect that this price change could spark another "real" inflation period in Europe. Less substitutes, maybe even lower GDP growth prospects than before, government budget situation similar or worse than in 2022 (but higher interest rates)... does FTPL give us an expectation for Inflation caused by such shocks?
Several things worth considering: real delivery in oil futures is less than 2%, maybe even lower. So it's really more of a bet market than a real forecast by people who understand something about the oil market. It is better to look at the prices of real deliveries and their dynamics (Platt's etc.).
The closure of the strait of Hormuz is going to do a lot of harm in other ways, one of them - agriculture. A lot of trade in fertilisers depends on this region and this strait. And it is high time the fertilisers get to their destinations (maybe even already late), so we might be looking for global problem of much lower food supply this year. Might be more important than oil.
I notice that you do not suggest that bringing Russia back into global energy markets is a good idea, though it makes more sense than cracking I Europe.
The fertilizer point is the sharpest one here — energy disruptions get headlines, but the agricultural calendar doesn't wait for geopolitics to resolve. A missed planting window compounds in ways oil price spikes don't. On futures vs physical: fair, though the Platts-futures spread itself is informative — when it widens, that's the market pricing exactly the delivery uncertainty you're describing.
As usual Professor Cochrane is spot on. Let the markets work; inevitably government intervention makes adverse conditions worse. Still, count on it happening; modern western societies have no patience and no fortitude to withstand even minor disruptions even for a just cause
Apologies, meant this as reply to OP
> Prices still affect us, but we gain income.
The expenses on the war, the downstream increase in prices (e.g. Plastic we buy from China is now expensive) etc. are worth this income ?
Colleagues? They're a history guy and a military guy venturing ignorantly into economics. That's your field Cochrane. Stick to your guns! Your futures guns.
A forward curve is NEVER a forecast of future prices. It is just the price at you buy or sell Oil at a future delivery TODAY. I am surprised how good and prestigious economist keep getting this so wrongly. Equities have a forward as well, built with rates, repos and dividends, and NO ONE assumes it is a forecast of the share. Regards
The forward market is an expectation of what a commodity, equity or anything else is worth at a specific time in the future and traders bet that they are correct in that the price will be either above or below the current future price. Creating an equilibrium where it is a composite of all actors who have placed bets on what they think the price will be. In that sense it is very much a forecast for prices. It doesn’t mean that it’s correct.
Nice definition. But paraphrasing Wittgenstein about Futures "Don't look at the definition, look at the use". WHY can you TODAY arrange to get oil delivered on that future date at a specific location for nothing more than exchanging pieces of paper ? Therein lies a multitude of forecasts about current supply, future supply, future production, frictions, risk free rates, moronic politicians etc, all to then be translated into reality by people working with the physical world. And as Prof Cochrane has pointed out, currently very few producers seem to be sending their workers out to turn rusty valves to synthesize a long term future/spot commodity package for you to take the other side of. And as others have pointed out, a forecast is just an opinion, most are wrong
Bravos research presented an interesting argument. They said to look at the savings of Americans, arguing that in 2022 Americans had a lot more savings but now we are tapped out.
Nice definition. But paraphrasing Wittgenstein about Futures "Don't look at the definition, look at the use". WHY can you TODAY arrange to get oil delivered on that future date at a specific location for nothing more than exchanging pieces of paper ? Therein lies a multitude of forecasts about current supply, future supply, future production, frictions, risk free rates, moronic politicians etc, all to then be translated into reality by people working with the physical world. And as Prof Cochrane has pointed out, currently very few producers seem to be sending their workers out to turn rusty valves to synthesize a long term future/spot commodity package for you to take the other side of. And as others have pointed out, a forecast is just an opinion, most are wrong.
~25% of US energy comes from renewables. Somehow Prof. Cochrane "forget" about it. Renewable (sun) are faster to build to drilling. Wind was (almost) abolished by the president. Go green quicker and mitigate energy prices faster to any other supply side solution.
"Go green quicker and mitigate energy prices faster"
Yes, you don't have to worry about fossil fuel price fluctuations because you've locked in high prices.
It is not instead of oil and oil will dictate the price. Now you have a shortage that you need to close. You reduced sun and wind far too brutally. Open the gate and get what it can give. Efficiency comes with flexibility. The situation changed (the world changed) - change your response
My response is to follow the price signals and use what makes sense. Up to now, in nearly all places and for nearly all applications, solar and wind have been adopted only due to political decisions - either subsidies to make them profitable, or mandates to require their adoption regardless of economics.
If you remove the subsidies and mandates, a regulator might plausibly conclude that renewables are worth some presence in the energy mix, but should do so only after explicitly acknowledging the cost and including them in energy prices, rather than hiding them.
I doubt there are many places where renewables would really merit significant investment.
You seem to believe that there's a link between oil prices and economics of renewable energy. Could you explain that? Renewables are essentially used only for electricity generation, while essentially no electricity is generated from oil.
One of their excuses for linking electricity prices to oil prices is that because solar and wind are unreliable, they must be backed up by enough fossil fuel capacity to run the entire grid, and at peak demand, when neither solar nor wind is producing any power. In other words, solar and wind provide nothing that the traditional grid doesn't already supply, and must continue to supply until the fictional battery storage can provide months of storage.
Yes, dispatchable backup is key to reliability. But oil prices are irrelevant. Gas prices might be - you could argue that renewables reduce demand for gas, lowering prices and decreasing vulnerability to price fluctuations. But oil price fluctuations don't affect cost for electricity, unless you claim that higher oil prices cause higher gas prices. Or maybe that all-electric cars decrease demand for oil, but Mr. Tsiddon didn't mention electric vehicles.
I think there is a general conflating of oil and gas, not just price-wise. Maybe it's because both are fossil fuels. Maybe it's because of pictures I remember of lighting off gas from oil wells, as if it were a nuisance waste product.
That may be why I said "oil" here; I don't know. I know I've seen the linkage recently, but was it oil or gas? did my brain translate it? I don't know.
Quite the opposite. Wind and solar have been forced on customers long before they were ready, and the continued subsidies and rising electric bills are all the proof any rational person would need that solar and wind power are scams and hoaxes.
I don't believe that 25% and I don't believe renewables are cheaper. If they were, my electric bills would be trending downwards and the government wouldn't be raising taxes and borrowing more to subsidize them.
The misstatements are mostly from using theoretical nameplate capacity instead of real life production. Fossil fuel plants actually produce 80-90% of their theoretical capacity, with the difference attributed to maintenance and shutting down during periods of reduced demand. The sun and wind don't shut down when not needed.
Wind turbines only produce power when the wind speed is in its Goldilocks zone; too high or too low, and they produce less than the theoretical capability, or even shut down altogether. If they produce maximum power when the grid doesn't want it, such as at night or on those Goldilocks days which require neither heat nor A/C, that excess power is thrown away, but it still counts as produced power and leads to false ratings, along with continuing to soak up subsidies.
Wattsupwiththat has an example just from today: https://wattsupwiththat.com/2026/03/14/a-windy-day/
Solar has a different theoretical/actual discrepancy. It produces the most power before the afternoon/evening demand for heat and A/C, and produces nothing at night or on cloudy days, and less in winter.
The offshore projects that Trump canceled are the worst way to generate power. They are triple the cost of onshore turbines, clutter the seaboard, prevent ship traffic, including fishing, and kill whales during planning, construction, and operation. The blades last only 10-15 years and are not recyclable, ending up in landfills. Britain provides plenty of examples of the incredible subsidies the government has to promise before anyone will even bid to build the projects, and those costs are not factored into most price comparisons.
Storing the excess power is so expensive that it doesn't exist in any useful capacity, such as weeks and months to cover winter, or even overnight in the summer. None of the cost comparisons include even theoretical storage technologies which don't exist yet.
None of the cost comparisons include the new distribution power lines because solar and wind farms have to be built where it is sunny and windy, regardless of how distant from the customers, while fossil fuel plants are built near the customers.
Solar and wind electricity are scams, if not downright fraudulent hoaxes. That subsidies continue to grow shows that all claims of being cheaper are lies.
That alone tells the tale: why do subsidies and electric bills continue to rise if renewables are cheaper than fossil fuels?
When the consequences of the proper and correct action for the future of the U.S. and western civilization are relegated to the short term cost of oil, we have become a country of economically illiterate wimps. Allowing Iran to have ballistic missiles and the ability to use a nuclear warhead controlled by a radicle Islamist ideology with the future ability to close the Strait of Hormuz at will seems more of an appropriate discussion, but not a debate.
Oil isn't just oil. It's not perfectly fungible. It can be light or heavy, sweet or sour. A US refinery set up for light sweet might be completely unable to process heavy sour. The mix of supplies is a factor that doesn't yield to simple analysis.
Having driven into the telephone pole, the drunk proceeded to criticize the quality of infrastructure placement in this country.
This substack post is argued from the perspective of the representative U.S. household, and the U.S. domestic corporation. It ignores the perspective of the foreign representative household and the foreign corporation which are materially affected by the de facto blockage of the Strait of Hormuz in real time.
When you widen your horizons, the picture presented changes materially. S. Korean semiconductor fabs close for want of elemental helium (He). Electrical generators that rely on imported natural gas stop turning and producing electricity. Cargo vessel journeys are put off by the cost of fuel to run the engines that turn the generator that power the motors that turn the propellers. Aviation fuel becomes scarce and costly. The knock-on effect has to be recognized.
So, the U.S. is largely immune. Canada is largely immune. Europe and East Asia are not.
There is no end-game to the rhomp in the skies over the Islamic Republic of Iran. Primary targets have been hit, secondary targets remain, and tertiary targets are being sought out. Will that change in 2026, or 2027, or ? Flip a fair coin.
The Gulf States and their customers have collectively gambled for the last 50 years that the perennial threats to close the Straits of Hormuz would never happen.They lost and so have their customers.
No matter when (or if) the Straits reopen, the fact remains they can be closed - just like the Houthis closed the Red Sea. This cannot be unlearned. They need to get to a secure place to load the oil and gas and other products such as aluminum and fertilizer. Or close down as the their insecurity will make them unreliable.
Just like the US and EU have discovered that China dependence for critical imports is dangerous, the customers of the Gulf have learnt the same. The markets will look for a reliable supplier.
… and this bet helped oil be too cheap and renewable energy look too expensive. American military presence in the Gulf was not counted as a subsidy to oil, alternative pipelines that existed 80 years ago where all abandoned. That is usually named as “free market”. One should not expect the “market” to get to the right equilibrium when the road to equilibrium is monopolized.
It's actually a very interesting connection to renewables. Some people would argue that the price of renewables does not factor in adequately the grid reliability requirements. Customers of the Gulf have made the same mistake for its products too.
I wonder if the big winner might be coal?
My guess is that there is no big winner but in the decade to come oil will be more expensive relative to all other energy producing forms, and relative quantities will adjust to respond to relative price that take into account political risk. Clearly I have zero prediction about the total cost of energy using the new basket
The irreversibility point is the sharp one. Insurance premiums don't reset after a claim — they reprice permanently. Even if the Straits reopen tomorrow, every LNG contract and refinery investment now carries a "Hormuz discount" that didn't exist last month. The parallel to China decoupling is exact: the reshoring started slow, then became policy orthodoxy almost overnight once the vulnerability was proven rather than theoretical.
Professor Cochrane brings his usual clarity to the oil price question — and stops precisely where the analysis needs to continue. Oil is the headline. The story is the system beneath it. One third of global fertiliser trade transits the Strait of Hormuz, and planting season decisions are being made right now under conditions of extreme input cost uncertainty — consequences that arrive not in the spring but in the autumn harvest, and cannot be undone by any subsequent ceasefire. LNG markets, semiconductor energy inputs, European industrial capacity already damaged by 2022 and now absorbing a second hit, Global South sovereign debt stress meeting a simultaneous food and energy shock — none of this is in the oil price. Cochrane is right about what the oil price will do. He is looking at the warning light, not the engine.
The fertiliser timing point is the sharpest one here — planting decisions are irreversible commitments made under uncertainty, and no futures curve captures that asymmetry. We wrote about a similar hidden cascade when Iranian strikes hit Qatar's helium production: https://thesynthesis.ai/journal/the-noble-gas.html. The pattern is the same — the commodity everyone watches is never the one that breaks the system.
Excuse me, I am trying to grow and get subscribers! If you are interested, check out my work, say hi and tell me what you think! I love the community here, and I want to see what you have to offer as well!
After all I read from you, I would expect that this price change could spark another "real" inflation period in Europe. Less substitutes, maybe even lower GDP growth prospects than before, government budget situation similar or worse than in 2022 (but higher interest rates)... does FTPL give us an expectation for Inflation caused by such shocks?
Several things worth considering: real delivery in oil futures is less than 2%, maybe even lower. So it's really more of a bet market than a real forecast by people who understand something about the oil market. It is better to look at the prices of real deliveries and their dynamics (Platt's etc.).
The closure of the strait of Hormuz is going to do a lot of harm in other ways, one of them - agriculture. A lot of trade in fertilisers depends on this region and this strait. And it is high time the fertilisers get to their destinations (maybe even already late), so we might be looking for global problem of much lower food supply this year. Might be more important than oil.
I notice that you do not suggest that bringing Russia back into global energy markets is a good idea, though it makes more sense than cracking I Europe.
The fertilizer point is the sharpest one here — energy disruptions get headlines, but the agricultural calendar doesn't wait for geopolitics to resolve. A missed planting window compounds in ways oil price spikes don't. On futures vs physical: fair, though the Platts-futures spread itself is informative — when it widens, that's the market pricing exactly the delivery uncertainty you're describing.