The Cartel Is Cracking and Nobody Knows What Comes Next
The Cartel Is Cracking and Nobody Knows What Comes Next
Brent is at $110 and change. WTI just crossed $103. The Strait of Hormuz — the skinny corridor through which roughly a fifth of the world's oil and gas moves every single day — is functionally closed. Iran attacked the UAE's Fujairah terminal this week. Two ships got hit in the strait. One made it through under a U.S. naval escort on Tuesday morning and the entire market exhaled for approximately four hours.
This is the new normal. A single cargo vessel threading through a contested chokepoint is now a market-moving event.
Meanwhile, the organization that was supposedly built to manage exactly this kind of chaos just lost its second-largest producer. The UAE exited OPEC effective May 1st. Quietly, almost politely, after decades of simmering frustration over quotas that kept Abu Dhabi producing 2.37 million barrels a day while ADNOC had capacity for nearly twice that. The math was never going to work forever. The Iran war just made the timing obvious.
Here's the thing about the UAE exit that the neat geopolitical takes keep missing: this isn't primarily about the war. It's about the period after the war. Abu Dhabi has committed something in the range of $145–150 billion to hit 5 million barrels per day of capacity by 2027. They have been sitting on a coiled spring for years, constrained by a cartel whose biggest decisions get made in Riyadh and Moscow. Now, the moment Hormuz reopens — whenever that is — the UAE can flood the market without asking anyone's permission. They are pre-positioning. The exit is a statement about what kind of energy power they intend to be when the dust settles.
OPEC, for its part, is in an increasingly awkward spot. Saudi Arabia now stands as essentially the only swing producer with enough spare capacity to matter. That sounds powerful, but it isn't: being the last one with leverage in a weakening coalition mostly means you're the one who pays the cost when everyone else defects. Russia over-produces. Iraq over-produces. Kazakhstan has been blowing past its targets for over a year. And now the UAE — one of the few members that had actually been compliant — has walked out the door.
The cartel currently controls about 33% of global oil market supply, down from 50% in its heyday. Wednesday's OPEC+ meeting agreed to a modest output hike of 188,000 barrels per day for June — a number that is largely theoretical while half the Gulf is inaccessible. They're adjusting deck chairs. The real question isn't what OPEC decides to produce. The real question is whether OPEC, as a price-coordination mechanism, will survive the next two years intact.
Into this environment walks Warren Buffett — sitting in the audience for the first time in sixty years at the Berkshire annual meeting last weekend, jersey retired to the rafters, watching Greg Abel run the show — and what does he say?
"We've never had people in a more gambling mood than now."
$397.4 billion in cash. Up from $373 billion just three months earlier. Operating earnings of $11.35 billion, up 18% year over year. And still not deploying. Not because there's nothing to buy — but because the prices don't justify it, the uncertainty doesn't justify it, and Buffett has now apparently decided the most useful thing he can do is occasionally surface from the audience to remind everyone that one-day options are gambling and that runaway inflation has destroyed more countries than most people can name.
He said he'd feel better with a strong Fed chair in the building. He invoked Volcker. The current environment — oil above $100, war premium baked into every energy-linked asset, a new Fed chair who hasn't chaired a single meeting yet — does not remind anyone of the Volcker era, which is either reassuring or terrifying depending on your positioning.
The $397 billion sits in Treasuries. It earns around 4.4%. It waits.
Back to oil, because oil is the story right now whether the equity desks want to admit it or not.
Brent at $110 is not a war-risk premium you trade around. It's a structural supply shock running through every import-heavy economy simultaneously. Euro-zone forecasters just revised their 2026 inflation estimate up from 1.8% to 2.7%. The ECB's own quarterly survey. Japan spent an estimated ¥5 trillion last Thursday propping up the yen after it weakened past 160 against the dollar — Goldman's analysts figure Tokyo has the reserves to do that about thirty more times, which sounds like a lot until you realize they're describing a slow bleed. The dollar is flat, but the divergence underneath is anything but.
Emerging markets are quietly getting destroyed. Energy-importing countries with dollar-denominated debt are experiencing two simultaneous compressions: their import bills are spiking in dollar terms and their currencies are softening against the dollar. It's the 2022 playbook, but with a military conflict running underneath it.
Spirit Airlines — bankrupt, now ceased operations entirely, the first airline closure directly attributed to the Iran war per industry reports — is the most visible consumer-facing casualty so far. It won't be the last. Gasoline is at $4.33 a gallon nationally and climbing. Trump has midterms in November. The pressure on whoever is running the Fed to cut rates is going to become operationally insane by August.
And here's the grim irony at the center of everything: the one event that would relieve the oil-driven inflation — a ceasefire that reopens the Strait — is the same event that would unleash the UAE's suppressed production capacity onto a market that would then immediately begin pricing in oversupply. Oil spikes on war. Oil could crater on peace. The commodity is being asked to do two contradictory things at the same time, which is why the term structure looks like it was drawn by someone having a breakdown.
Buffett compared the market to a church with a casino attached. More people in the church than the casino, he said — but the casino has gotten very attractive.
At $103 WTI and a Strait of Hormuz that opens and closes based on whether a ceasefire holds through a Tuesday, it might be worth asking: which building are you in right now?
Published May 6, 2026