How To Position During an Oil Price Shock

Summary

• The base case: this war is a fade. Avi puts a 90% probability on the crisis resolving “within a few weeks” and only 10% on the prolonged Strait of Hormuz closure that would deliver true stagflation — because “commodities are mean reverting assets. High oil prices solve high oil prices,” and every war of Jonah’s professional oil-trading career, Ukraine included, “was an excellent fade” if expressed properly. The capitulator this time won’t be India buying sanctioned barrels — it’s Trump, who “can’t stomach a 1979-style gas crisis” and will find an off-ramp.
• Oil’s wild tape is a positioning story, not a fundamental one. The spike to a $120 wick probably came from consensus shorts — hedge funds, “the Vitols… the Glencores… the Goldmans,” plus “billions and billions” in retail short-oil ETFs — getting blown out at once. The July straddle is pricing a $6.50 daily move versus ~$1 normal, roughly 6x normal vol, because nobody is left willing to hold risk.
• The force majeure unwind is the episode’s alpha. Physical traders, who normally get paid in chaos via free embedded optionality, are “getting carted out on stretchers” for the first time in Avi’s lifetime: force majeure vaporizes their physical leg, leaving naked financial hedges they’re forced to buy back in a $6–10/day market. When contracts snap back they must re-hedge — which “will accelerate the pace at which oil tanks” once this resolves. Jonah’s translation: “the biggest form of auto-deleveraging that’s ever existed.”
• Supply math caps the upside once shooting stops. Saudi’s Red Sea pipeline (~4mbd) is maxed but total export capacity is 10–12mbd, they were producing ~2mbd below max pre-war, and they’ve said they’ll open the taps the moment the war ends. Meanwhile “what should be a $50 barrel has stabilized at around $110 for a month” — more stable than Jonah expected, and evidence Hormuz “is not as shut as it looks.”
• Avi’s portfolio is built for two scenarios: core long US tech in spot (war ends, oil comes in, “those guys are going to rip like a no-brainer”) plus 6-month gold calls as the stagflation hedge — if the Fed must cut into bad employment data with oil still elevated, “this is the rally that takes us to 6–7,000” gold. He’s watching employment and inflation numbers “like a hawk”; Avi is dip-buying SPY as “a better hedged version of Mag 7” and explicitly refuses to short oil futures: “the market can remain irrational longer than you can remain solvent.”
• War panic is a shopping window for mega trends — the GBTC-after-FTX playbook of entering a long-term trend on exogenous weakness. Compute spend: Micron is the simple discounted expression; Jonah has “been banging the drum on Intel,” which has performed well off the lows. Stablecoin rails: Stripe at a $90bn private valuation is Avi’s Amazon-circa-2000s analogy — API-based payment is ~5% of payments, Stripe is ~90% of that slice, and it’s crypto-native “three different ways” via Tempo and Bridge.
• Crypto’s tell: who’s left to sell? A major war broke out and Bitcoin barely fell, Ethereum is up, Solana steady — after six months where “every piece of bad news is flushing people out” from the 125 top. Jonah says it rhymes with October 2020, when BitMEX investigation news couldn’t push Bitcoin down; he expects a crypto resurgence over the next month or two.

Deep dive

1. Trump’s red-line problem hangs over the tape

• Avi’s read on the threat to “end civilizations”: separate what Trump says from what he does — “he comes out with a crazy statement and then ends up settling for something far more normal” — but the rolling deadlines are the real danger. It’s Obama’s 2014 Syria red line: “if the red line is crossed and nothing happens, that gives the other side all of the power in the world to keep doing whatever the hell they want.”
• Markets are simply ranging while they wait — Nasdaq down ~1.2%, S&P down 0.8% on the day. The fork: war ends without more infrastructure damage → “we’re probably resuming the bull market.” Continued bombardment of refineries and power plants → stagflation, with growth already narrow (Mag 7, which is itself cutting jobs).
• The Fed corner, in Avi’s words: “the Fed’s supposed to cut rates in the face of job loss and raise rates in the face of inflation. What do you do when you get both?”

2. Every war is a fade — but everyone thought this was Venezuela

• Jonah’s confessed bias: “during my professional oil trading career, pretty much every single war was an excellent fade” — Ukraine minted the brave, and the 2024 Iran–Israel standoff took oil briefly above $90 then straight down to the low 60s. “Commodities are mean-reverting assets. High oil prices solve high oil prices.” Russia-Ukraine proved it: the world swore off Russian barrels until 140-147, then India capitulated — “sorry, I’m not sorry.”
• The miscalculation — Avi’s framing: “everybody from Donald Trump all the way down to little old me” expected a Venezuela-style surgical win. Instead, Iran absorbed the loss of 40 top leaders and held together, and — having supplied drones to Russia — learned to fight asymmetric warfare where dinghies, sea mines, and the odd cruise missile can constrain this chokepoint. Jonah’s puzzle, verbatim: “how is it possible that a few dinghies… can keep the strait shut?”
• His answer, echoing the Citrini article both flag: it isn’t as shut as it looks — “if this chokepoint were actually 100% shut off, oil would already be trading $200 a barrel.” The shortages are real but local: stories about the Philippines, Mediterranean jet fuel, and European airlines cutting unprofitable flights. The true nightmare scenario remains an Abqaiq-2019-style strike on Saudi oil fields, Qatari gas fields, Basra in Iraq, or the terminal where all the boats load — “you could see $200 oil.”
• Jonah doesn’t dodge the politics: he calls it “a just war” — the risks of inaction (a nuclear-armed “apocalypse-worshipping death cult” holding Hormuz hostage “potentially forever”) outweigh the risks of action, even if timing and execution are debatable.

3. The force majeure unwind: why oil is six times too volatile

• The move to the wick Jonah believes was on March 9, up to $120, was, Avi argues, “solely due to positioning”: consensus shorts — hedge funds, physical majors’ trading desks, and “billions and billions” of retail dollars in short-oil ETFs — all blown out at once. Jonah: you get orderly moves when everybody’s winning and “super disorderly wild moves when most people are losing and panicking.” Everybody got carted except one winner they name, heard as “Andrew Ross.”
• The structural novelty: physical traders are the ones who normally dampen this. They’re “long volatility for free” via embedded contract optionality — “rooting for society to collapse while they simultaneously get rich… the antifragile nature of trading.” This is “probably the first time in my lifetime the physical community is getting nuked,” because force majeure cancels the physical leg while the financial hedge survives. Avi lived it once: a pipeline destroyed and then mined, leaving him holding only the hedge. “Your hedge isn’t a hedge if there’s no underlying position — it’s just a spec position you don’t want.”
• So risk desks tap traders on the shoulder and force them out into a market moving $6–10 a day (July straddle: ~$6.50/day implied vs ~$1 normal). The kicker: they’ll re-hedge the moment contracts revive, “which will accelerate the pace at which oil tanks when this eventually resolves.” Jonah: crypto users complain about auto-deleveraging — “this is the biggest form of auto-deleveraging that’s ever existed.”

4. The endgame: Saudi taps and a Trump off-ramp inside three weeks

• Jonah’s supply correction to Avi, worth keeping: Saudi isn’t holding back by choice right now — the East-West pipeline to the Red Sea is maxed at ~4mbd against total export capacity of 10–12mbd. But pre-war they were producing ~2mbd below max, and they said they’ll max out production to re-stabilize markets the moment the war ends.
• Avi sees “zero political will for elongated boots-on-the-ground conflict” but standing will to “bomb them back to the Stone Age”: hit power plants and critical infrastructure within the 2–3 weeks of political capital remaining, force Iran to the table, then “oil probably comes in a ton. Everything else rips.” His side-thesis: Europe’s forced neutrality between the US and China has made it “irrelevant on the world stage,” and that gets worse over 5–10 years.
• Avi’s probabilities: 90% this resolves within weeks, 10% prolonged crisis — and stagflation requires the prolonged version. The capitulating party this cycle is Trump himself, who “can’t stomach a 1979-style gas crisis. He will find an off-ramp that makes him look less bad than a gas crisis.” The trader’s corollary: “if you can stay solvent until then, you’re good.”

5. Two-scenario portfolio: tech in spot, gold calls for the tail

• Avi’s construction, explicitly probability-weighted: core long US tech in spot for the base case (war ends, oil retraces from ~115 toward 80, “tech stocks absolutely rip — like a no-brainer”), plus gold calls on a six-month horizon for the tail where oil stays up, employment rolls over, and the Fed must cut anyway — “potentially this is the rally that takes us to 6–7,000” if central banks and retail resume buying against dollar decline. If three months pass without the data, he rolls the calls to 12 months. He’s watching employment and inflation prints “like a hawk.”
• Jonah notes that central banks are not hoovering up gold on this dip. Avi says some are selling gold to shore up balance sheets; Jonah responds, “Precisely.” Avi says that is what’s keeping it down and confirms his thesis that gold flipped from risk-off to risk-on asset mid-Ukraine-war: governments sell it when they fear subsidizing gas prices against civil unrest, and chase it on highs on a de-dollarization narrative “that may or may not play out over a 50-year time frame.” Retail’s edge is dip-buying and pop-selling — not going all-in “in the eighth inning of a rally.”
• Avi’s own book: dip-buying SPY as “a better hedged version of Mag 7” with slightly less volatility. And a categorical no on shorting crude despite the fade thesis: “I would not want to sell oil futures… the market can remain irrational longer than you can remain solvent.”

6. War panic is when you shop for mega trends

• Avi’s filter for moments like this: “the best trades I’ve ever done” were entries into long-term mega trends for exogenous reasons — “like GBTC in late ‘22 after FTX.” If the trend is “humanity is just going to spend more on compute than before,” the simplest discounted expression is Micron stock, with “a thousand private investments” beyond it. Jonah: “I’ve been banging the drum on Intel for a long time” — which has performed extremely well off the lows.
• The second mega trend both converge on: stablecoin payment rails. The Western Union CEO’s Davos point, as Jonah retells it: stablecoins let him dissolve the billions tied up in currency matching pools — “I can go take that pool of billions of dollars and buy my own stock” — meaning stablecoins make incumbents more efficient, and exposure runs through Circle, Western Union, or Stripe.
• Avi’s conviction pick is Stripe at a $90bn private valuation: “the Irish kids who run it are the smartest,” they bought Bridge and incubated Tempo, and the analogy is Amazon in the early 2000s — e-commerce was 5% of commerce and Amazon was 100% of it; today “efficient API-based payment is like 5% of payment… and Stripe is like 90% of” it. “You have an amazon.com-like play that’s not just crypto-hedged but crypto-native three different ways.”

7. Crypto’s tell: a war broke out and nobody sold

• Jonah keeps “coming back to crypto” as the overlooked asset: six months of drawdown from the 125 top where “every piece of bad news is flushing people out,” and now “literally nobody is paying attention” outside the niche. Yet through an actual war, Bitcoin has barely gone down, Ethereum is actually up, Solana is holding steady — and Lighter is up 5% “on Bridge Day, no less” (Plasma +6%, with a nod to their friend Zahir).
• Jonah’s closing pattern-match — hedged as a rhyme, not a certainty: it “reminds me a ton of October 2020,” when BitMEX was under CFTC/SEC investigation “and Bitcoin just refused to go down.” The question that decides it: “if you get a war and Bitcoin can barely go down, who’s left to sell? Doesn’t seem like there’re that many people.” He expects a resurgence over the next month or two — while admitting he’s been calling it “for like 2 weeks now.” Jonah signs off: “Don’t snooze on Hormuz.”