MacroVoices: Energy Outlook Advisors' Alhajji Says the Diesel Shortage Outlasts the War, While Gavekal's Gave Calls France an Emerging-Market Debt Crisis Inside the Euro
Episode 555, recorded October 22, 2026, with Dr. Anas Alhajji and Louis-Vincent Gave
MacroVoices Episode 555 carried two interviews. Energy Outlook Advisors founder Dr. Anas Alhajji, back from the Riyadh Energy Week conferences, argued that the "three seas" crisis (the Gulf, the Red Sea and the Black Sea) has permanently changed energy markets. His central point is that damage to refining capacity, not crude supply, is now the binding constraint. Gavekal founder Louis-Vincent Gave then described France as a textbook emerging-market debt crisis occurring inside a currency union, with limited room for policy repair. Both guests said the policy cushions that have kept Western economies functioning are close to exhausted.
Refining Is the Constraint, and the Diesel Gap Will Not Close Quickly
Alhajji's main message is that the crude flow data is more reassuring than the products data. He cited US Energy Secretary Chris Wright, who told the Riyadh conference that 80% to 90% of pre-conflict oil flows, roughly 13 million to 14 million barrels a day, are moving through Hormuz. Alhajji doubts parts of that figure, noting "there is double counting there and we don't know what's in this oil whether it's crude, products, NGLs." He also said some of the statements reflect single-night readings rather than weekly or monthly averages. The more important detail, in his view, was Wright's acknowledgment that only 25% to 35% of pre-crisis product volumes are moving. "That's where the problem is when we talk about the diesel crisis," he said. "We are not able to recover the diesel we lost from the Gulf until today."
Alhajji described the diesel shortage as the result of several overlapping problems rather than a single event. These include lost Gulf refinery output, product export bans imposed in a panic, ships rerouted so that more product is at sea than arriving, and hoarding by traders. He added the Black Sea, where he estimates a loss of 800,000 barrels a day of diesel alongside 3 million barrels a day of crude. He said the media largely ignored this for months while focusing on the Houthi attack on the Jazan refinery, which "does not affect the flow of crude." He credited President Trump with forcing the Black Sea into the news by blaming Ukraine's refinery strikes for diesel shortages. Alhajji described the diesel crisis as multi-dimensional and said ending the Gulf war would not by itself resolve the Red Sea or Black Sea problems. "Ending one dimension is not going to end the other dimensions," he said. "That diesel crisis is going to stay with us for a while."
Host Erik Townsend added the structural concern. Crude has no end user other than refineries, so continued attacks on Russian and Gulf plants, on top of closures in California and Europe, argue for crack spreads that widen rather than for a spike in flat crude prices. Townsend also noted that spare refining capacity sits mostly in China, which has signaled a "China first" approach to product exports. Alhajji agreed that spare capacity is in China. He added that Chinese refiners lose money domestically because Beijing sets product prices below world levels, so they must export to profit, and Beijing is rationing those exports. In October, he said, some refiners were told they could not export at all. In his view China was "enabled" by European leaders and by California's refinery closures rather than having planned this outcome.
Biofuels and Weather Compound the Shortage
Alhajji said that two items in that morning's news show the problem extends beyond refineries. India's sugar cane crop is the weakest in about 11 years after a poor monsoon, linked to El Nino, and higher sugar prices would pull cane away from ethanol in India and Brazil. In Indonesia, falling water levels on the largest river are blocking barge deliveries of palm oil, a biodiesel feedstock. Alhajji noted that low river levels in Europe had already disrupted barge-delivered petroleum products and idled nuclear plants, which raised diesel use in France. "We lost ethanol, we lost biodiesel, and both of them have nothing to do with refineries," he said, adding that these supply streams were built up through climate-policy subsidies.
On demand, Alhajji said the data show a decline. Before the war, in December 2025, the IEA expected 2026 US oil demand to grow by 160,000 barrels a day and OPEC expected 110,000. Year-over-year US demand averaged "virtually zero" over the first seven months of the year. He attributed the absence of a recession so far to AI and data center spending, which amounts to hundreds of billions of dollars, and to roughly $16 billion in additional EU fuel subsidies in the second quarter. He expects a recession "no matter what the moment that AI spending is going to stop and those subsidies decline," and noted that airline profits are coming only from cargo, which he links to AI-related shipments.
Saudi Arabia Plans to Route Exports Around Hormuz
From Riyadh, Alhajji reported that Saudi Arabia intends to build far more capacity that bypasses the strait. The East-West pipeline has been expanded from 5.5 million to 7 million barrels a day, and the stated aim is 10 million barrels a day of total bypass capacity. That would include a new pipeline through the Empty Quarter to Oman, delivering directly to the Arabian Sea. Saudi officials believe they could finish it in two to three years if permitting and studies go quickly. Other Gulf producers, including Iraq and Kuwait, could tie into the line. Alhajji said the concept is that "there will be no pipelines to the Red Sea. They will all be going south to Oman." Separately, Saudi officials said the East-West gas pipeline could be converted to carry about 1.2 million barrels a day of oil until May, then switched back for summer gas demand. Alhajji noted the UAE has already started its second pipeline despite the war, and argued that spending a rocket on an early-stage construction site makes little sense for an attacker.
Townsend raised the obvious risk that any construction project would become a target if the conflict persists. The risk is real, but the conference did not address it directly, as the program was designed years ago around traditional topics. Alhajji also noted that Riyadh's airport was closed the day before the conferences began after attacks. Organizers rerouted delegates, flew ministers into other airports by private jet and brought them in by road, and registration for the World Petroleum Congress was still a record. Alhajji called it "a masterclass in logistics" and said Riyadh itself carried on normally.
Policy Shifts and the Energy Addition Narrative
Alhajji said several policy statements at the conferences were notable. Germany's economy minister said Berlin plans to bring closed refineries back online, which Alhajji called remarkable given earlier closures driven by climate policy. Turkey's energy minister attributed rising electricity demand partly to desalination plants as well as to AI and data centers. Saudi and OPEC officials, and Aramco CEO Amin Nasser, framed the situation as "energy addition" rather than transition, with "net zero means zero energy security" as the message. Alhajji said countries are shifting inward and building redundancy and diversification. He argued this comes at a cost, since redundancy is expensive and diversification increases volatility as buyers switch between domestic supply and imports on price. "None of that is incorporated in any energy markets outlook yet," he said.
China, Russia and the Arctic Route
Alhajji argued that China is using the disruption to advance its Belt and Road Initiative, and that Beijing "wants Hormuz to stay closed or semi-closed" because blockages at Hormuz and Bab el-Mandeb support alternative routes. He cited reports of China and Russia advancing Arctic maritime cooperation, including linking the Maritime Silk Road with Russia's Transarctic corridor, and said oil flows along the northern route are near record highs. He read this as the logic behind US interest in Greenland, which he said is about Arctic transport routes rather than the island's resources.
On Vladimir Putin's proposal for a summit with Trump and Xi without Volodymyr Zelensky, Alhajji was skeptical that anything can advance without Europe. He said that when Trump blamed Zelensky for higher diesel prices and demanded an end to strikes on Russian refineries, Zelensky publicly disclosed a new refinery strike within 12 hours. He argued that Zelensky could not do this without EU backing. He also said that each time Trump pressured Kyiv, European states such as France and the UK boarded tankers carrying Russian oil, even as Trump renewed a monthly sanctions exemption for Russian crude. "Without Europe, it is very hard to see any agreement," he said.
Gavekal: France Is an Emerging-Market Crisis Inside the Euro
Gave said France's crisis was "one of the most telegraphed things out there." He listed three differences from other deficit-running countries, such as the US at about 7% of GDP. First, France's total tax take is about 44% of GDP, compared with 24% to 25% in the US, so he argued the country is "on the wrong side of the Laffer curve" and more taxes would raise less revenue. Second, most of France's debt is held by foreigners, and he said clients on the road asked at what yield to buy Treasuries and, in the same breath, "who's stupid enough to own French bonds," as holding French debt has become a career risk. Third, France has borrowed in a currency it cannot print, like an emerging market. He noted the market is still pricing three ECB rate hikes while France is under stress, and said "that's never going to happen."
Gave described a confluence of fiscal, energy, economic, social and political crises under a president whose polls are in the low teens. His political explanation drew on the geographer Christophe Guilluy. France is split into three zones: the globalized, EU-flag city cores, the largely immigrant outer suburbs, and rural France that votes for Marine Le Pen. He argues the first zone is running out of money to pay for the second, unrest follows, and urban voters then seek protection from the third. Le Pen is polling in the mid-40s, but Gave warned she would take office with "absolutely zero money in the till." He said the arithmetic requires a retirement age of 70 or a 50% currency devaluation, which is impossible inside the euro. No presidential candidate proposes either option, while a far-left candidate advocates default, which he said "is actually not completely stupid" when a majority of the debt is foreign-held. Even a default would not be enough, he added.
Contagion Channels and Trade Ideas
Gave said a French exit from the euro would hit European and global insurers, which hold large amounts of French debt (France has issued more than the entire African continent), and would hurt three systemically important French banks with euro liabilities and franc-denominated assets that could lose 40%. If France defaults, restructures or leaves, he said, "it's very hard to see the euro surviving as it is today." He noted the backdrop differs from 2012 because Germany is no longer an industrial powerhouse, being outcompeted by China, and because the AfD openly favors leaving the euro. He added that he cannot recall so many simultaneous tail risks in his 52-year-old career, citing France, energy, and the AI capex cycle, with US equities about 50% tech and communication services.
Gave rejected shorting French debt against German debt, because of roughly 150 basis points of negative carry and the risk that the ECB monetizes the debt. He prefers selling the euro against peripheral European currencies such as the Norwegian krone, Icelandic krona, Hungarian forint and British pound, which carry positive yield of 150 to 500 basis points. The Norwegian krone offers an extra energy hedge. More adventurous investors can buy volatility on euro/yen or euro/renminbi, the latter close to record lows, or go long Asian currencies against the euro, which he expects to benefit from repatriation by Japanese pension funds and Asian sovereign wealth funds. On energy, he said Western governments spent nine months telling consumers to carry on as usual, while China and India tightened. He believes governments are reaching the limit of that cushioning, citing China's return to oil buying and rising crack spreads. If the crisis extends into 2027, he said, investors who expected only Sri Lanka, Ethiopia and Pakistan to be cut off may find "it's the European Union" that is breaking apart.
Market Desk: Defensive Rotation and Credit Strain
In the market segment, Patrick Ceresna noted the S&P 500 is near 7,700, testing its 50-day moving average and about 1% above the 7,600 level where some estimate CTA selling would be triggered. He said Meta's earnings gains faded despite positive results and that equity breadth fell to about 20% a few weeks ago, with the Magnificent 7, at about 35% of the index, holding up the market. The SMH semiconductor ETF is down 16% from its peak and memory stocks are at six-month lows. Large speculators were at the 100th percentile of Nasdaq positioning two weeks ago. Microsoft, Google and Amazon report next week, ahead of the October 28 Fed decision, Apple and the midterms.
On credit, he said Treasuries have bounced, with the 30-year yield down about 35 basis points in recent weeks, but high-yield spreads have broken out and private equity credit proxies are at fresh lows. In currencies, the euro has bounced only weakly while the pound and Canadian dollar retrace, leaving open a possible dollar index move toward 103. WTI is near $100 and Brent near $112, with the back of the curve rising, while speculative positioning in crude sits at only the 23rd percentile. Gold is near $4,000 with support at $3,600 to $3,800, silver is at 2026 lows, uranium equities are weak, and copper is testing support near 640 after a 10-year high in net positioning. The week's trade idea is a pair of long JPMorgan against short Deutsche Bank in equal dollar amounts, reflecting that European financials are up about 57% from the Liberation Day lows against 27% for US financials, with an optional April 2027 $36 Deutsche Bank call to cap the short leg.