MacroVoices #542 Luke Gromen: As The Conflict Turns

Luke Gromen opened with a mea culpa, acknowledging he was wrong on the oil price response even though his conviction that the Hormuz closure would last into May, June, and possibly through July 4th proved correct. Crude was trading near 88.43 dollars at the time of recording, up roughly 1,300 basis points week over week, but prices never sustained above roughly 150 dollars despite the prolonged closure. China absorbed the disruption far better than anticipated, shifting 1.4 million barrels a day of demand to EVs in the first half of 2026 alone and reducing overall oil demand by 3 to 4 million barrels a day during the closure, likely aided by strategic petroleum reserve drawdowns. Chinese exports were up 27 percent year over year in May and corporate profits were up 19 to 20 percent year to date, suggesting limited economic damage.

Gromen argued China was effectively shorting itself oil to prevent a larger supply catastrophe across Southeast Asia and the global south, and in doing so demonstrated to potential trading partners that Chinese solar panels, EVs, and battery arrays can meaningfully reduce oil consumption and dollar demand. CIPS yuan trade volumes hit an all-time record in May at approximately 2 trillion dollars equivalent, and China holds yuan swap lines with essentially every country except the United States. The MOVE Treasury volatility index hit near-dysfunctional levels on March 27, reaching 120, and within 12 hours both equity and bond volatility peaked and fell precipitously, which Gromen interpreted as evidence of intervention and as proof that China could sustain pain well beyond the point at which the US Treasury market would dysfunction.

Gromen described China's stated strategic goal since 2009 as replacing the Treasury bond with gold as the global reserve settlement asset, not replacing the dollar with the yuan. He noted that US Trade Representative Greer and Treasury Secretary Bessant have both publicly linked Trump's economic agenda to Hamiltonian economics, and that Trump's stated desire to return to the 1870 to 1913 model of high tariffs aligns with that framing. Gromen's conclusion is that China's strategic victory condition, buying oil and gas in yuan settled in gold that floats in all currencies, is now directionally aligned with where US officials say they are heading. He was sharply critical of Bessant's execution, calling his claim that the US had all the leverage over China false or knowingly false, and noting that Bessant's three-arrows plan including 50 to 60 dollar oil and three million barrels per day of new production has failed across all components.

On structural inflation, Gromen argued there has never been a deflationary war in history. In a three-week period the US, UK, Germany, South Korea, and Japan all simultaneously decided to borrow and build out defense industrial bases. Japan, Germany, and South Korea have historically been creditors of the global economy and are now turning into borrowers. Because China will be excluded from Western defense supply chains, Gromen said this spending is structurally inflationary and will eventually force Western nations into yield curve control. He predicted Western equity markets will rise sharply in local currency terms but fall in gold terms, and said Bitcoin would also perform well in that scenario. He noted that for eight of the last ten months gold has been the United States' number one export, and that the longer the current conflict continues the more countries make alternative payment arrangements in yuan settled in gold, which he characterized as strongly bullish for gold. He prefers gold over oil because it offers similar upside with less volatility, and said an argument can be made for 50 dollars or for 200 dollars on oil given current uncertainty.

China's helium export ban was identified as a significant signal, given helium's critical role in semiconductor production and the fact that the top two global producers are the United States and Qatar. Gromen argued the ban suggests China believes Qatar may go offline again and is preparing for a longer conflict. On AI, Gromen argued Chinese AI development is following the same trajectory as Chinese industrials, moving from cheaper but worse to cheaper and better, and that US tech has not faced serious competition of this kind for roughly 40 years. He predicted Chinese semiconductors will likely achieve a cheaper and better moment within five years, and noted China has already built a one gigawatt data center running entirely on domestic chips with no Nvidia.

Patrick Suresna noted that gold rising alongside oil and interest rates during geopolitical escalation may signal markets pricing longer-term consequences of war spending and financial repression. Gold corrected roughly 30 percent over six months with key support near 4,000 dollars and a potential retest of 3,800 if that breaks, yet small speculators did not sell a single contract during the correction, indicating unusually sticky positioning. Suresna structured a three-leg GLD options trade around a 376 dollar entry with downside protection from 370 to 350 and upside capped at 415 through September 18 expiration at a total cost of 1.75 dollars per share. Crude oil advanced 35 percent off its lows in three weeks, returning to the 90 handle on WTI, with large speculators selling into the rally and their positioning score falling to just 12 points, indicating the move is fundamentals-driven with a large crowd still on the sidelines.