by Larry Johnson on Sonar21.com
[US Treasury Secretary] Scott Bessent says he doesn’t understand why oil is going up. On Thursday, hours after announcing that Washington would keep its naval blockade and hit Iran with the toughest sanctions in history, the Treasury Secretary watched crude climb and told CNBC, “I’m not sure why oil has popped up on this.” He called it a spike he doesn’t understand, and waved it off as noise. Buried in the bafflement is a remarkable assumption: that slapping draconian sanctions on a major oil producer should make oil cheaper. By Friday Brent was near $94, a second straight weekly gain above 5 percent, with Trump promising an “economic D-Day” on Monday.
There is no mystery. This is a Treasury Secretary watching the wrong gauge. Oil is not priced off sanctions announcements; it is priced off barrels reaching refineries. And the barrels stopped arriving in the quantities the world needs — not this week, but as the inevitable result of a strait that has been shut since February. The only puzzle is why it took until August to bite. The answer is that for five months, the shortage was hidden. Break the supply picture since the February 28 attack into three phases and the “mystery” dissolves.
Phase 1 — the oil already at sea (February 28 to early April)
When Hormuz seized up, the oil that fed the world for the next five weeks was already floating toward it. Tankers loaded before the attack kept discharging on schedule, and the in-transit pipeline — millions of barrels between the Gulf and its buyers — emptied onto docks as if nothing had happened. Futures traders saw what was coming and panicked early: WTI leapt from about $67 on February 27 to nearly $99 by March 13, a 47 percent spike in two weeks. But the barrels on the water kept landing, the feared scarcity didn’t show up at the refinery gate, and by early April the last pre-war cargoes had delivered. Then a second cushion arrived.
Phase 2 — the great drawdown (April to late July)
This is the phase that lulled Bessent, and evidently still governs his instincts. Staring at a Hormuz closure that removed an estimated 11 to 16 million barrels a day of Gulf supply, governments did exactly what strategic reserves exist for: they opened the tanks.
The scale was unprecedented. The IEA launched the largest coordinated emergency release in its history — more than 400 million barrels across 32 countries — with the United States alone committing 172 million barrels over a 120-day period out of the Strategic Petroleum Reserve. Together the releases fed roughly 2.5 million barrels a day into the market for about four months. It worked, exactly as long as it could. Prices sagged from the March highs back into the high $70s and low $80s, and the crisis took on the appearance of something survivable. To a casual eye at the Treasury, the war had been absorbed.
It hadn’t. It had been financed out of a tank with a bottom. The entire 400-million-barrel release amounted to roughly four days of global consumption thrown against a disruption running for months, and the American drawdown ran on a 120-day clock that started in mid-March — set to expire, by arithmetic, right at the end of July. The cushion was never a fix. It was a sedative with a printed expiration date.
Phase 3 — the bill arrives (August)
In early August the sedative wore off, and the market felt the shortage for the first time.
The reserve gauge tells it plainly. The US SPR held about 415 million barrels before the war; it fell to 305 million by the end of July and then under 300 million in August — 298.7 million barrels, the lowest since 1983 — bound for roughly 243 million once the ordered release finishes. And the paper figure flatters it: the GAO found more than a quarter of the reserve can’t even be drawn on account of decayed infrastructure, and what’s gone won’t be replaced until around 2028. The largest tool the world had for hiding the Hormuz hole is spent, with no comparable barrel behind it. Strip away the cushion and price does the only thing left to do — converge on what a shut strait actually implies. That is why crude is surging now, in August, and not in March. Bessent’s sanctions didn’t cause it. They merely arrived at the same moment the reserves stopped covering for them.