Is the Oil Crisis About to Break Global Supply Chains?

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Welcome to Profty Markets.

I'm Ed Elson.

It is March 25th.

Let's check in on yesterday's market vitals.

The S&P and the Dow declined marginally

as investors looked for clarity on negotiations with Iran.

Meanwhile, the Trump administration deployed more troops to the Middle East

and oil resumed its climb.

And finally, the Nasdaq dropped as software stocks took yet another dive

more on that later.

Okay, what else is happening?

The Strait of Hormuz, which carries a fifth of global energy exports,

has now been effectively closed for 25 days.

And the ripple effects are being felt across the globe.

Third-lyzer prices are up 25%.

Since the war began, gas is up 30%.

Diesel is up 40%.

Meanwhile, shipping disruptions are raising global freight costs

and extending delivery times.

War risk insurance premiums for vessels have increased by about 50%.

And oil tanker shipping costs have exploded by as much as 200%.

So here to break down what all of this means for global supply chains,

we're joined by Ryan Peterson, CEO of Flexport,

one of the world's leading freight and logistics platforms.

Ryan, I always love having you on whenever something is happening

with supply chains because you're one of the few people

who is actually in this business

and you're seeing what is happening on the ground.

I have been reading about what is happening to prices, specifically diesel prices.

I've been seeing what's happening to diesel prices and fuel.

And I've been seeing that this is just exploding prices for all forms of freight,

basically anything that ships anything.

I would just be interested to hear what you're seeing on the ground right now.

Yeah, great. Thanks for having me on.

Especially we're seeing an air freight market,

which obviously is a very jet fuel driven,

but also the Middle Eastern air carriers,

I think Emirates and Qatar and Etihad.

And I guess Saudi, which is the Saudi one,

they represent 18% of all air cargo capacity in the world.

Emirates is the one's biggest airline I think

and Dubai's the biggest air cargo airport in the world.

So it's just a huge end.

There's basically been taking off line.

They started to eat their way back up.

I didn't see the latest today,

but they were trying to bring flights back

and then new attacks at the airport.

They've more or less ramped that way, way down.

So especially Asia to Europe,

the air cargo prices are double.

In fact, we have Flexport have built this service to ship going from Asia to Europe.

We ship in cargo across the Pacific Ocean, bringing it to LAX,

and then flying it to Europe from Los Angeles,

which is not suboptimal to say the least,

but same people moneyed it by doing that way and getting it there.

The alternative, actually the biggest impact on ocean freight

is the Persian Gulf is not that big of a deal

from a container shipping standpoint.

The bigger story obviously by far is oil.

You mentioned fertilizer or some of these other downstream

kind of things that come off of the petroleum products.

But the bigger story from container shipping is the Red Sea,

which we have not been using container ships

have effectively not been going through the Red Sea

since December of 2023,

with the Houthi attacks, these terrorist attacks in the Red Sea.

And in February, the carriers,

three of them had just started to return service via the Suez Canal,

and they immediately pulled out for too much.

It was too risky.

So that actually the big impact here is it was about to get a lot better.

Like supply chains were about to sort of normalize,

and now we've gone back to going around the tip of Africa.

So that's going to add, right now it's increased the price of ocean

rate about 50%.

And that's a much longer transit time going around.

So we've got oil prices going up,

which means that it's more expensive to fuel all of these vessels

and all of these aircraft carriers, basically,

anything that carries anything.

We've got the fact that it's almost impossible

for any of these ships to go through the straight-off

almost, and now you're also pointing out

that we've got these issues at the Red Sea.

So multiple different issues here.

How difficult is it right now to be in the supply chain business

compared to other times in history?

I think, for example, maybe COVID as an example

where it was obviously like a real supply chain problem.

Like how bad is it out there?

I think it obviously depends very much on what you're trying to do.

Like if you're trying to ship to the Middle East as a disaster,

I mean, you can't get into the Persian Gulf.

There's no container ships going through.

Like I think oil and gas,

I think we're seeing about three ships

went out yesterday.

Normally it's over 100.

So it's a huge reduction in that supply chain.

If you're on a global basis,

like the ocean freight story here

is a pretty small scale.

If COVID was at eight out of 10

and the Red Sea disruption has been like a six out of 10,

this container shipping story of the straight-off

or Moose is only like a three.

It's because, yes,

and I'm not saying it's only a three for the global economy,

I just mean four container shipping specifically.

For the global economy,

this is probably the worst thing in our lifetime

if they can't get a result soon.

Because how energy is upstream of everything

and more importantly food,

the fertilizer production coming out of that region

and it's planting season.

So it's a very bad timing

for the world's agricultural supply chains.

But the Persian Gulf from a container shipping standpoint

is a cul-de-sac.

You don't need to go in there

unless you're delivering to there.

Yep.

And there's only the stat that we're looking at

is 0.6% of the world's containerships

are currently stuck inside the straight.

So it's not a,

it's kind of a round doing error.

It's not a big deal for container shipping.

Now, fuel prices have gone up 87%

for ocean bunker fuel,

the fuel that powers the ship.

So that's,

you know, there's definitely,

it's an energy story is what I would say

rather than a container shipping story.

Ultimately, that energy story is going to affect

people like you, right?

I mean, if it's more expensive to get the fuel,

to put the fuel in the ship,

or to put the fuel in the aircraft to go somewhere,

is that not also an issue on your end

or is it less of an issue?

Yeah, it is.

As I said, the prices have gone up about 50%.

And the United Airlines CEO said earlier this week

or end of last week,

he said that this is their model was,

they're modeling this,

the jet fuel price increases

is going to cost them $11 billion.

Wow.

And he said that in their best year ever at United,

they made $5 billion in profit.

Wow.

Which tells you they're going to,

the model basically says they have to increase

plane ticket prices by 30%

to just to pay the fuel.

So just to give you a sense of like how this is upstream

of everything else.

And that's really everything.

I mean, we don't think about it,

but plastic is all made from petroleum products,

like huge percent pharmaceuticals

and health care cosmetics, consumer goods, paint.

It's in everything.

And the US will be okay relative to other markets

because we're self-sufficient energy and fuel.

You're going to see a lot of markets,

a lot of countries where it's not about prices.

It's like actual shortages.

Like you can't get stuff like any price.

And yeah, of course the price will go parabolic

at that point.

But that's the real danger

that I think the economy is facing right now.

And hopefully, we'll be taking for granted

that supply chains and modern civilization actually,

just like it's all built on a foundation

of kind of peaceful coexistence here

that if you upset that apple card,

it can get really bad.

Yeah, give us a sense of how this could trickle down

to the consumer because it seems like

all that we're really seeing right now,

if you're paying for gas at the pump,

you're immediately feeling this right now,

you're immediately seeing how this is impacting your life.

But I think the thing that is probably less understood

is how the disruptions in the supply chain

could also affect your life in some way.

It could translate to the price increases in,

I don't know what.

So penance a picture of how this could translate for consumers.

The one that we nearly avoided is on the West Coast.

So California shut down all

of our most of its refineries in an effort to go green.

But of course, we still consume a lot of oil

in California, a lot of oil-based petroleum gasoline,

and whatever.

And so we've been importing refined oil,

refined petroleum from Korea and other Asian markets

because we shut down the refineries in California.

Well, those markets are now out of crude to process

because they're getting their crude from the Middle East.

And so the president had to last week suspend

a temporary provision but waived the Jones Act.

And the Jones Act is what prevents the reason

that they have to get refined petroleum from Asia

is because under the Jones Act, which is a hundred-year-old law,

if you want to move oil by ship from Texas to California,

it has to be under US-made tanker with a US crew.

American citizens as the crew and those don't exist.

So it's not possible for American that we don't have it.

California is not connected to the Texas energy market.

And they actually did it not to save California

but to save Alaska because Anchorage is the world's,

I said Dubai is the biggest cargo airport.

Dubai, Anchorage is right up there.

It's a massively important air cargo market

because you can't fly a 747 loaded with cargo.

Can't make it from Asia to the United States without refueling.

They all stop in Anchorage to refuel.

And so Anchorage is, and they were about to not have any jet fuel

if they hadn't waived the Jones Act.

So there's these things that are,

you know, we just kind of take from granted.

Yeah, of course you can get jet fuel at the airport

but it's very interconnected now.

And actually, I should have looked this up before I came on.

I don't know how long they actually can suspend the Jones Act

for but it's not permanent.

It's an act of Congress.

The president has some emergency powers

but it's not a permanent waiver of that.

So let's see how that plays out.

When I think about the global supply chain at this point,

it feels like we've had these immense shocks.

I mean, first it was COVID

and suddenly everyone realized, okay, supply chain's matter.

And that's when you became, honestly,

you really burst into the scene in that moment

because everyone was like, oh my gosh,

we need to understand this stuff.

Then we see obviously what's happened in the Middle East

and how that's disrupted the Red Sea.

As you mentioned, something that's less talked about.

Also tariffs and what that has done to the supply chain.

And now here we are again with this war in Iran.

I guess my question to you,

do you think that this is a temporary shock

that we will kind of move through

over the maybe short to medium term

or have supply chains just structurally become more difficult?

Is this kind of issue something that's here to stay?

That's the right question.

I think there's a, let's hope that it's temporary.

You got to plan as if it's not though.

And we really take this for granted.

I mean, it didn't used to be like this.

It used to be worse.

Before World War II,

if you wanted to do trade anywhere,

you sort of countries just traded with their own colonies.

And like you most remember like,

before during the British Empire and prior,

in centuries prior, like if you wanted to do trade,

you put a bunch of cannons on your merchant,

you sailed around the world ready to blast anybody.

And it was like way worse.

And we got to the world order that we have today

after World War II with the US Navy,

basically providing protection and freedom of navigation

and saying, hey, no, you can say anyone can sail anywhere.

US Navy will protect the sea lanes

and you could open up trade.

And so that's why this is such a fundamental challenge.

The Red Sea first and now the Persian Gulf,

because it's a challenge to that global order.

It's like, is the US Navy capable of opening

the straight-of-formers?

And we've already seen,

they're not capable of opening the Red Sea.

They tried, they could carry your task force

and the small group of rebels and Yemen prevailed

and have continued to made it

so that the contingent ships have to go around.

So it's a massive question for globalization,

the way that our economies are structured,

our companies are all built around these globalized supply chains.

And I think people need to start thinking about plan B

of more regional supply chains that are not as exposed.

Countries need to think hard about who their strategic partners are.

More countries are going to arm up

and create, you know, have to invest in their own navies.

Probably see this from Japan.

Starting to see a lot of European companies start to,

European countries, I should say,

start to build up military force for the first time,

say maybe we can't count on just America, to defend us.

And there's a lot of bad guys in the world

and you can't just sit around and expect

that everything's going to be fine.

It's a really interesting point.

I guess I'm wondering as the CEO of one of the biggest companies

that works exactly in this space,

what does that mean for you?

Like how do you change your strategy in a world

where you can't take globalization

and free and unfettered trade for granted?

And you do have to start thinking about geopolitics,

about violence, about war.

I mean, if we're talking about cannons on ships

and you're saying that Europe needs to think about that again

for the first time since before the war,

before the World War I or World War II,

like what does that mean for you?

Yeah.

You know, and actually going through the Red Sea,

like the one ocean carrier that was providing service

last couple of years was CMA

because the French Navy was providing escorts

to the French container shipping line.

So you're starting to see a little bit of that.

Yes, of course it's not good.

Like we want to live in a world of open free trade.

Like our mission is to make global trade easy

for everybody.

So these things make it harder.

We've found, and you want to be in a growing market.

Like every entrepreneur wants to be in a growing market.

We like to say, you know, we like to think like,

I'll say our market is so big, it is.

It's vast.

And so flexible can be successful

even if the market shrinks.

But we've already learned like,

man, it's way better if your market's growing

and you don't have to fight.

It hasn't had to be such a knife fight

for every incremental customer.

So yeah, it's bad for business.

We have found ways to stand out.

You know, technology becomes a big piece of this puzzle

of like our visibility tech has been more important than ever

for helping people figure out where's my stuff.

What is it going to arrive?

What container ships are having to be rerouted?

Where are these containers getting dropped?

Like some of the core value props

that Flexport offers are like actually more valuable

and more differentiated in that environment.

Same on the tariff front.

Like we built all this tech to help companies manage

their tariffs and figure out how much do they owe?

Cause it used to be simple to calculate.

But now you need to know on what date did this cast,

this did container clear customs.

You know, the tariff rate on one day

is way different than it was a week earlier or a week later.

And at what refund am I going to get?

And how do I help people get refunds from tariffs

now that the Supreme Court kind of overturn the tariffs?

So we've seen, we've seen that we can definitely stand out

with tech in this volatility

and turn it to our advantage.

That said, like, you know,

I'd much rather have a growing market

where everything's Goldilocks.

It's very interesting.

Okay, Ryan Peterson CEO of Flexport.

Ryan, really appreciate it.

Thank you.

My pleasure.

Off to the break.

Round two of the SaaS pocket lips hits the markets.

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We're back with Profty Markets.

Anthropic is yet again moving markets.

On Monday night, the company released a new

Claude co-work feature which allows its AI model

to autonomously access apps, navigate browsers,

and edit files.

This news immediately spooked the markets.

Major software companies like Microsoft Salesforce

and Palantir all ended the day in the red

as a whole, the IGV software ETF closed down roughly 4%.

It's now off more than 30% from its peak last fall.

Here to break down what is happening in software,

we're speaking with Gil Luria, head of technology research

at DA Davidson.

Gil, this is the SaaS Parkleps Part II,

probably less intense than the first one,

but it is striking that we're seeing the same thing,

a new AI tool released by the same company.

And again, investors are very concerned about this.

What do you make of the new tool for Anthropic

and are you as concerned as other investors appear to be?

So computer use by AI is actually a really big milestone.

So it is a big leap forward for the capabilities

for artificial intelligence within the workplace,

within the business context.

And these days, as has been the case for the last few months,

the market is associating good for AI

with bad for software.

That's where we probably diverge in our opinion.

So we do think it's a very big deal for AI,

it's very good for AI,

but to take from that,

that it's really bad for software

is probably a little too much.

Now, mind you, there are software companies

that are particularly exposed to this.

UI Path is the most one.

You can see their stock decline the most dramatically today

because UI Path has the last generation

of automated computer use,

which is robotic process automation.

Think of it as macros in Excel

for anything on your desktop.

And that used pre-AI technology.

So now the fact that AI can do that

and use your computer without you interfering

is a big leap forward.

And it's a really big problem for companies like that.

The same that it's a big problem

for all other software companies

goes back to the same debate that's being

had for the last three to six months

around software.

And as our opinion that winners in software

will continue to win

and companies that are vulnerable,

a disruption is always a bigger deal for.

Walk us through what anthropic has actually released here.

Like, we had that first slate of new tools

like Claude co-work.

And that was what Royal The Markets the first time.

And now we're seeing this new development.

Like, what is so striking

about what they have announced here

and how does it differ from the first round?

Yeah, so computer use is literally what it sounds like,

which is to say you can now ask an agent

to do things on your desktop or your laptop

that previously only you were able to do.

So not just interact with a single piece of software

or write a little bit of code,

rather press buttons on your screen

to start an application to make progress

and application to make choices within an application,

jump to another application

and move information to that one.

So the possibilities are endless

because it's really anything that you can do

on your computer, you can now ask an agent to do for you.

That is a leap forward from just having automated tasks

happening in your applications.

For instance, you can now use, if you're away from home,

but you have cloud installed on your phone,

you can now instruct your home computer

to execute tasks from your phone

because cloud can now control your desktop.

That is actually a pretty big leap forward in AI.

And again, I want to put this in context.

This is a milestone towards AGI.

This is something that a year ago,

we thought may or may not happen, and now it's happened.

One thing that's not totally clear to me,

we've have seen this before in the form of this AI agent

that went viral recently called OpenClore.

And it was very exciting to a lot of people,

a lot of people were using it.

And it was doing the things that we're describing.

It was this agent going in and just executing tasks

once you tell it what to execute.

It'll go in and clear inbox and send emails

and manage a calendar, et cetera.

So we've seen it before and we know that it's possible,

but now anthropic is jumping on

and they're releasing the tools of their own.

And that seems to spark a very different reaction

from investors.

Why is that?

If we knew that this was possible,

or at least that it was in the pipeline,

why is it suddenly so rattling to investors now?

No, it's a good point.

The OpenClore's open source,

it was a little bit of a lab experiment.

It didn't have any guardrails.

It was actually quite dangerous because it was open source.

So you probably read about many instances

where it did things that were highly unpredictable

and counterproductive to the user.

And now we're talking about something else.

Now we're talking about an actual product

from an actual frontier lab that is much better secured,

much more under control and shows

that you can actually use this in a workplace.

I don't think a lot of companies would install OpenClore,

but there are as many companies

that already have other instances of Clod

and other uses of Clod that this is now

a natural extension for.

So it does take it to another level.

Yeah, just going back to your point

that some software companies might get hurt,

but not all of them.

And it appears that we're sort of again,

throwing the baby out with the bathroom to here.

But just to go through some names here,

like Adobe got hurt.

Service now, Palantir, Microsoft got clobbered on this news.

What are the companies that you believe

are actually insulated from the concerns here?

And are there perhaps any software companies

that might actually benefit from this right now?

So it's a range.

I would say that first and foremost,

the companies that provide infrastructure software

are the ones that appear to be more secure.

So security software, infrastructure software

like snowflake, data, dog, Microsoft

are probably more benefiting from any growth in AI

because you need infrastructure

in order to deliver AI.

And so those are more insulated

and more positively impacted by AI.

Then there's a whole range of companies

that are probably more secure, companies that control

a large part of the enterprise, data schema,

how data is organized.

And so then you're talking about your Palantir's,

your service now's, even your Salesforce

and Adobe and Oracle to some extent.

Those are a little safer and the ones that have been,

have had the most concern and probably justified.

We saw our companies that deliver either customer center

software or again, workflow software.

Those are the companies that are most exposed

to your nice, your five, nine, your UI path.

Those are the companies that are most at risk.

And this just exacerbates the risk.

But again, the reaction is so strong

that you have to step back and say,

we are going to be using software humans

or going to be using software for a very long time.

And as long as that's the case,

you need the same software,

even if agents will be using the software as well.

The analogy to me is a lot like the internet.

Just because Chagy PT can go shopping for me online,

doesn't mean I don't also want to go shopping

on these human websites as well.

I think the same thing is going to happen for software,

at least for the foreseeable future,

where there's both a human and an agent user,

which means the software still has a lot of value.

In fact, I'd argue the some extent even more value.

You mentioned the point that a year ago,

we said that this might not be possible,

or it was very much just a concept in the ether.

Having covered the tech sector for a number of years,

what are your reflections on what we're seeing here

in terms of this technological transformation?

Like in what sense have the rules of your game changed?

And how has this changed your perception

of technology in general?

The rate of change has become exponential.

If this technology disruption used to be

happen over time, over months, over years,

then disruption now is happening over weeks and days.

The level of progress being made is incredible.

And it's for a variety of reasons.

One is that we're putting so much capital into this.

So all those hundreds of billions of dollars

and data centers spend are making it possible for us

to run these models that are increasing,

that their quality is going up so substantially every year

that they are able to accomplish things

that we wouldn't have imagined.

If you showed somebody four years ago

what these models are doing,

they wouldn't have called it AGI.

We have now become desensitized to it

because the rate of change is so fast,

but we are so far past the touring test.

We blew past the touring test a while ago.

And again, in the mindset of five years ago,

the touring test was artificial intelligence, was AGI.

And now we're just blowing past that

and doing things that we never imagined

that we'd be able to do.

So the rate of change has become exponential,

which makes my life a lot more interesting.

All right, Gail Larry,

ahead of technology research at DA Davidson Gail.

Thank you very much.

Thank you.

Okay, let's talk about insider trading,

specifically in relation to Iran,

first a review of the facts.

On Sunday morning, about 15 minutes before Trump

announced he was engaging in talks with Iran,

we saw gigantic spikes in trading volumes

across multiple different markets.

So in the oil markets at around 650 AM,

more than half a billion dollars in oil futures changed hands.

This is an unusually large number

for such a short amount of time.

Over in the stock market, we saw similar moves.

Roughly one and a half billion dollars worth of S&P futures

were purchased again at around 650 AM.

We also saw similar things in the prediction markets.

One user made nearly $1 million

betting on the war with 93% accuracy

and multiple traders have now been flagged

for making what appeared to be insider trades,

which leaves us with two conclusions.

Either a handful of individuals are getting extraordinarily lucky

with their extraordinarily large and well timed bets

or a handful of individuals knew something

and they decided to trade on it in the belief

that one, they'd get very rich, which they did,

and two, that they wouldn't be punished,

which they probably won't.

Now if we agree that the second option is more likely,

that they knew something probably

because of a connection to the president,

then the next question becomes,

isn't that illegal?

Shouldn't they be in jail?

And the answer to that question is a resounding yes.

If someone knew what Trump was going to do

ahead of time, then that is material non-public information

that meets the SEC's definition

of what constitutes illegal insider trading.

But, and here is the most important part.

The SEC, under this administration,

has very little interest in prosecuting

and investigating cases of insider trading.

In fact, last year, SEC enforcement actions decline

by about 30% after Trump had taken office.

It also settled only $800 million worth of cases,

which is the lowest number ever

in which we've seen an administration change.

And here is the kicker.

Last week, the SEC's enforcement director resigned.

Why?

Because she was reportedly plashing with her bosses

over her attempts to investigate cases

involving, wait for it, the Trump family.

In other words, not only have our markets been compromised,

but our regulators have been compromised as well.

Criminal activity and financial fraud

can now run completely unfettered

because there is now no one left to punish it,

not the SEC, not the FBI,

and certainly not the president

who seems to be involved in these activities,

which means that there's nothing much

that you or I could do here.

I mean, I can talk about it on this podcast.

I can keep looking at the markets

and I can keep trying to understand what's happening here,

but beyond detecting that it happened,

there is literally nothing else we can do.

And there is nothing to disincentivize this behavior.

We don't know who they are,

we don't know what they know,

we don't know who they've bribed

or with whom they've spoken.

We really don't know anything.

And so not to be overly dramatic here,

but this is the moment where democracy

does have to play a role.

This is the kind of thing where you actually have no choice

but to use your vote.

You have to get rid of these people

if you want to see any justice whatsoever.

This is the most corrupt administration of all time.

There is no question about it

and people are increasingly agreeing on that point.

But if we don't do anything about this,

well then, let's just be realistic.

This is only going to get worse.

Okay, that's it for today.

This episode was produced by Claire Miller and Alison Weiss

edited by Joel Passon and engineered by Benjamin Spencer.

Our video editor is Brad Williams,

our research team is Dan Shalon, is Valakinsel,

Chris Nodonahue, and Measel Vario.

And our social producer is Jake McPherson.

Thank you for listening to Prokgy Markets

from Prokgy Media.

If you liked what you heard, give us a follow.

I'm Ed Elson.

I will see you tomorrow.