Collapse Has Begun. NOW Global Recession Is Unavoidable | Cdre. Steve Jermy

The conversation captured a stark premise: energy — and oil in particular — is not merely a commodity but the circulatory system of the global economy. When that system is choked, entire societies slow, and policymakers face painful trade-offs between war aims and economic survival. What emerges is a portrait of a world in which strategic brinkmanship over chokepoints like the Strait of Hormuz, the fragility of refined-fuel logistics, and the political consequences of recession are converging into a single, combustible crisis. The claims made in the exchange argue that a lagged but unavoidable global recession is now baked in, and that this may be the lever that forces strategic recalibration among states otherwise committed to prolonged contestation. ## More Gallows and the war economy The conversation introduced "macroenergetics" as a conceptual lens: the idea that energy flows and GDP are tightly coupled. Drawing on a decades-long professional career at sea and in energy, Cdre. Steve Jermy frames a mathematical intimacy between oil consumption and economic output that is both precise and politically consequential. When oil throughput is constrained, GDP follows — almost in lockstep. This is not a metaphor but a forecasting mechanism. The implication is unsettling: tactical disruptions at sea translate into strategic economic contractions on land with a delay that blunts policymakers’ ability to respond. Equally important is the reminder that modern warfare and geopolitics are as much about logistics as about firepower. Naval chokepoints, refinery capacity, and inventories shape the tempo of conflict and civilian hardship alike. The war economy of the 21st century runs on refined products — diesel for agriculture and industry, fuel oil for shipping, gasoline for commuting — and when those inputs become scarce or exorbitantly priced, the economic fabric frays quickly. The conversation stresses that the global system’s slowness is a force multiplier for disruption: inventories can cushion a shock for weeks or months, but once they are drawn down the downstream consequences accelerate. ## MOU, Israel, and US pressure The exchange treated recent diplomatic moves — characterized as memorandum-of-understanding steps rather than definitive peace — as symptomatic rather than curative. The MOU, while de-escalatory in form, leaves several contentious items unresolved, and its very existence speaks to the limits of coercive diplomacy when energy scarcity looms. The dynamics between regional actors and their great-power patrons are central here: when a major consumer like the United States feels acute economic pain, its tolerance for proxies’ strategic adventurism evaporates. A key thread in the discussion was the shifting calculus in Washington. If disruptions in maritime energy flows are producing a recession on American soil, domestic politics will constrain foreign policy. The midterms and the political cost of sustained shortages were cited as potential brakes on U.S. willingness to underwrite allies’ unilateral actions. The conversation suggests that the United States faces a choice between sustaining an ally’s military ambitions and stabilizing global energy markets — and that the latter may prevail if economic pain deepens. In short, an energy shock can reorder alliances and compel patrons to apply pressure in ways they might have previously resisted. ## Oil, diesel, and real shortages Beyond headline crude prices, the transcript draws attention to the often-overlooked anatomy of fuel supply: the distinction between crude, refined products, and the specific grades economies need. The United States, for example, while an exporter of certain refined products, remains a net importer of heavier crudes required for blending. Strategic petroleum reserves and inventories have been used to arrest price spikes, but such buffers are finite. Once drawn down, the system’s latency means refilling and rebalancing take months. The conversation emphatically singled out diesel and shipping fuel as critical vulnerabilities. Diesel is the workhorse of agriculture, heavy industry, and logistics; shortages or price surges in diesel ripple through food prices, manufacturing costs, and the functioning of markets. The maritime logistics explanation — tankers that move at bicycle-like speeds, pipeline flows that take days to traverse distances — underlines why a temporary closure of a chokepoint generates protracted global shortages. Even when passage resumes, the lagged replenishment of tanker queues and refinery runs means that the population feels the pain well after politics ostensibly resolves the crisis. ## Ukraine war and budget strain The dialogue connected the Gulf shock to another active theater: the war in Ukraine. The economic stretch caused by energy disruptions compounds fiscal constraints for Western supporters of Kyiv. Defense budgets, like all public spending, are subject to political realities; a deep recession will squeeze revenues and sharpen public scrutiny of overseas commitments. The conversation posited that sustained economic downturn will force democratic governments to reassess the scale and tempo of their military assistance. This is not merely a budgetary arithmetic argument but one about political will. Popular tolerance for high levels of external aid or prolonged conflict depends on domestic stability and perceived national interest. In a scenario where inflation, unemployment, and supply-chain breakdowns intensify, the political capital for underwriting foreign wars diminishes. The exchange implies a grim feedback loop: energy-induced recession limits support for Ukraine, which could embolden adversaries and prolong regional instability, which in turn sustains energy market anxiety. ## How Russia may respond A recurring observation was that states are not equally vulnerable to an energy squeeze. Russia, as a major hydrocarbon exporter with substantial industrial base and manageable sovereign debt levels, emerges in the discussion as comparatively insulated. That insulation alters incentives: Moscow may gain relative economic and strategic advantage even as the Collective West stumbles. China also appears better shielded, with sizable strategic reserves and domestic industrial capacity that can blunt immediate shocks. But the transcript also framed Russian calculations as conditional rather than deterministic. The Kremlin’s response will depend on how prolonged and damaging the global slowdown becomes, and on the diplomatic moves made by other great powers. The conversation suggested that Russia’s strategic options could include exploiting Europe’s vulnerability, recalibrating energy sales, or leveraging its geopolitical relationships to shape outcomes in ways that consolidate its position. In sum, asymmetric exposure to the shock will reconfigure power balances, and Moscow stands to be a central beneficiary insofar as the crisis deepens. ## Drone war and reciprocity The discussion highlighted an increasingly salient feature of modern conflict: the proliferation of low-cost, high-impact technologies such as drones. Drone campaigns complicate classic deterrence models because they enable deniable, scalable, and asymmetric effects on both military and civilian infrastructure, including energy systems. Reciprocity — the tit-for-tat use of such tools — raises the risk that critical nodes of energy logistics become targets, thereby intensifying scarcity. Reciprocal drone attacks can also produce psychological and operational cascades. Even small, persistent strikes against ports, refineries, or shipping lanes have outsized effects on market perceptions and insurance costs. The conversation stressed that reciprocity in the drone age shortens the threshold at which economic pain becomes unbearable: it is cheaper and simpler to inflict supply disruptions now than in prior eras of high-capability platforms. That reality makes the main

Collapse Has Begun. NOW Global Recession Is Unavoidable | Cdre. Steve Jermy The global economy is about to tank really, really bad. The US surrender to Iran foreshadows a much larger pain yet to come, especially for the Collective West. Only the delayed nature of oil markets has prevented all-out pain in the first months, but that grace period is now over. Today I speak with retired Royal Navy Commodore Steve Jermy, who now writes the Mor Gallos Substack, about how oil, diesel, and shipping delays could hit the world economy hard. They also discuss the Strait of Hormuz, pressure on Israel, the Ukraine war, drone attacks, and why a bigger economic shock may force leaders to change course. Links: Steve Jermy Substack: https://stevejermy.substack. com/ Neutrality Studies substack: https://pascallottaz.substack.com Merch: https://neutralitystudies. com/shop Donation: https://neutralitystudies.com/donate Timestamps: 00:00:00 Intro and Steve Jermy return 00:01:18 More Gallows and the war economy 00:12:46 MOU, Israel, and US pressure 00:22:22 Oil, diesel, and real shortages 00:27:34 Ukraine war and budget strain 00:31:52 How Russia may respond 00:42:51 Drone war and reciprocity 00:48:29 Economic crisis as the off-ramp 00:52:17 Closing remarks #Pascal Welcome back, everybody, to Neutrality Studies, today again with Commodore Steve Jermy. Steve, welcome back. #Steve Jermy Very nice to see you, Pascal, and also to have the chance to meet you in person in Tbilisi. #Pascal Yeah, that was great. We were together at the forum in Tbilisi just two weeks ago, and it was great chatting. And now it's great to have you back also online on the channel. And today we want to discuss actually something that also came up in the forum, of course, which is the geopolitics and geoeconomics, actually, of the current wars that we are seeing. But before that, let me just very quickly do a shout-out to your new Substack. Why don't you tell us about it, Steve? It's called "More Gallows," huh? #Steve Jermy Yeah, fantastic. Well, I live in a county in the southwest of Britain called Cornwall, and we have a Celtic language. So "Mor Gallos" is Celtic for sea power. And I'm very interested in the power of the -- 1 of 20 -- sea and how it sort of plays into all of the things that are going on in the world. Not the only thing, but I've reinvigorated it, so a bit more time to actually run it now. #Pascal Makes good sense, especially for you as a former Commodore and captain of the Royal Navy. So I'm looking forward to this news Substack of yours and reading all of your updates. But now let's go into the topic. The two wars that we are seeing, the Ukraine war and the Iran war, I mean, both of them are going through these ups and downs. And Iran currently seems to be in a... I think it's a pause. I don't think it's an end, but at least something happened with the MOU. #Pascal But you're also looking at the economics of it, right? #Pascal And the way in which the closure of the Strait of Hormuz impacted not only the war itself, but the long array of what we are looking at for the next year or two. What's your take? #Steve Jermy Yeah, my take is based on a theory that I'm developing, which I call macroenergetics, Pascal, which is the use of energy analysis to do macroeconomic forecasting. And having worked for the last 15 years in the energy sector, but also having studied macroeconomics at postgraduate level, I can sort of see how it all fits together. But the most fundamental and the most important thing, Pascal, is that there is an incredibly close mathematical relationship between the use of oil and GDP. And so as oil use goes up, so global GDP goes up, and vice versa. And this relationship is mathematically close to one. It's about 0.95. So what the simple deduction from this is that actually, if you take 20% of the world's oil out, or even 13%, which is the 13 million barrels per day out of the Strait of Hormuz, then if that reduction continues over time, it will have an order of magnitude impact on the global economy, which is similar to 13%. So when you start to model that, and I've done this, then you start to look at a very, very significant consequence for the global economy. If the strait were to open tomorrow, then we might be able to reduce, might be less impact tomorrow. But I see no sign of that. So I'm looking at, baked in already because of the time that the Strait of Hormuz has been closed, a global recession in the order of 5%. That's a severe recession. To be honest, I wouldn't be surprised at all if it stays open a little bit longer, or even for an extended period, that we'll be seeing something which looks more like 10%. Ten percent is a depression. The height of the global depression in 1929, I think, was in the States at about 15%. But it gives you a -- 2 of 20 -- sense of the economic consequences. I think as well, a lot of people say, well, actually, don't worry, the Strait of Hormuz has opened. The problem with maritime logistics is that everything's slow, and the lag is incredibly long. A tanker travels about the same speed as a bicycle, and oil in the pipelines travels at about, at the most, 10 kilometers per hour, eight miles an hour. So what you can see is that the system is very, very slow. Furthermore, it's mediated by the market, so nobody's in charge. And for all of these reasons, then, it takes a long time with the straits opening before we actually see any recovery. When the Ever Given tanker went aground in the Suez Canal, remember that about five years ago, Pascal, for every one day the Suez Canal was closed, it was about six days for the whole of the maritime logistics system to recover. Right. So, you know, for three months, let's even assume that it's half of that, just three days to one. So if it's three months that the Strait of Hormuz is closed, we're looking at nine months' recovery on the other side. So I would be surprised if we don't see significant consequences starting to play out in July, August, in terms of further increases in our energy costs and reductions in the supply of those energy costs. And I would also not be surprised if we don't see the consequences of those running on well through into next year. I'm quite friendly with a guy called Art Berman. Art's a brilliant oil geophysicist, but also an energy commentator. He takes the view, which I intuitively agree with, that we won't see a full recovery ever, so that the consequences will be so profound that actually we're looking at a significant notch down in global GDP, which is bound to have impacts in different ways in different locations. I mean, I don't know what it's like in the Far East where you're located, but in Europe, we are critically dependent on oil imports to the tune of 12 million barrels per day. And those impacts are being felt across the economy. But I'd be curious to hear what it's like in Japan, Pascal. I was talking to a colleague at a conference only the day before yesterday, from Singapore. He said that oil at the petrol pump has actually doubled in price. And I don't know what it's like in Japan. You will know better, Pascal. #Pascal It hasn't doubled yet to my knowledge, but since I don't drive a car, I don't keep the pump in my eyes all the time. But it went up significantly, and it is something that actually worries a lot of Japanese politicians very gravely. The Japanese, although at least publicly, have said that since they have the largest petroleum reserves in the world—250 days, that's the number that they're giving everybody—and they've released some of that. But you can clearly feel the nervousness in Japan, and also the fact that they went as far as to agree to ask Russia to buy oil. First, at the price cap, when the Russians left them out of the room, they came back and said, like, okay, fine, we're going to buy at market value. And funnily enough, the Russians were willing to sell them oil. So I don't exactly know what the measures are that the government is taking at the -- 3 of 20 -- moment. But since Japan is so oil-dependent, just like Europe actually, and it is nowhere close to any kind of oil well, I wouldn't be surprised if they were trying to revive right now the Sakhalin project that they never exited completely, but that was kind of put on hold. But I have no firsthand information about that. #Steve Jermy Of the regions in the world and the key players in the world, the country that's by far the best insulated from this is Russia. So Russia is a major oil and gas exporter. It is an autarkic nation with big industrial capacity. So it's the one that will be most insulated. Also, economically, although people talk about its impending doom, which they've been talking about for the last four years, it has a very low debt-to-GDP ratio. Things aren't perfect in the Russian economy, but blimey, look at some of the economies in the West, actually. So Russia is the best insulated. I would say China is pretty well insulated as well—1.3 billion barrels of oil in a strategic petroleum reserve. So I would guess that in terms of their overall usage, they're pretty much the same as Japan, much less so here and also in the United States. People assume that the United States is an oil exporter. It's an exporter of refined oil products and the lighter oils, but it's a net importer of about 6.5 million barrels per day of heavier oils, which it needs to blend with the lighter oils to actually produce the refined products. So that's why we're seeing—and of course, oil is very much a fungible product sold around the world—so as prices go up, they'll go up in the States as well. Because I think this is baked in, the recession. And I think the midterms are lost. I think that the consequences are still arriving. And as they get worse and the midterms are lost, that in turn will bear on how the Americans play the Iranian situation. I can see why they're desperate to get the Straits open, because I imagine that they're now seeing it coming down the track at them. But to be honest, I think even if the Straits are open tomorrow and reliably, then it's too late. The midterms are lost in America, with all the consequences that means. #Pascal Hey, just a very quick note: the best way to support this channel is by signing up for my free Substack. You can also help with a paid subscription there, or you can get some of our new merch on neutralitystudies.com—links below, see you there. So, is your interpretation of why the Americans were willing to sign this surrender document, for all intents and purposes, that it got very, very clear to the Americans just how devastating the closure of the Strait of Hormuz is? And the whole thing about, oh no, we managed to have 70 ships pass on the side of Oman and whatnot—I mean, that's a lot of nonsense, or at least nothing that would actually have the impact that you need it to have. So it's basically the recognition that if this continues, it's going to be devastating for everybody, right? #Steve Jermy -- 4 of 20 -- Yeah, it's exactly that. I would imagine the Energy Secretary has talked to Trump and said, look, we're in deep trouble. The critical oil refinery place in the States is Cushing. And the sort of feedback is that they're down to about 20%. Of course, most of the inventories are gone as well because we've been drawing down on those. So the reason that we haven't seen the impact so acutely—and we have seen them—and if Singapore have been paying twice as much at the pump, then they're clearly there. But the reason we haven't seen them is that people have been using inventories. People have been using strategic petroleum reserves. And last but by no means least, China has not been importing nearly as much. Difficult to say why that is, but one thing's for sure: China's not impervious to this—not so much because China hasn't got great reserves, but rather because China is an economic exporter. And of course, if its key markets in the Far