Oil Expert: We Can’t Predict Iran Anymore

SUMMARY

Ed Elson hosts a discussion with Matt Smith, Director of Commodity Research at Kpler, and Jonathan Cohen, Policy Lead at the American Institute for Boys and Men, to analyze the unpredictability of oil markets amid geopolitical tensions and the evolving landscape of sports betting regulation. The episode concludes with a critical examination of the ongoing AI extinction debate, emphasizing the need for evidence-based discourse.

MAIN POINTS

• Matt Smith discusses the unpredictability of oil markets due to escalating tensions between the US, Iran, and Saudi Arabia following President Trump's remarks at the UN. [2:00]
• The conversation highlights the persistent risk premium in oil prices, driven by uncertainty in the Strait of Hormuz and the impact on global diesel supplies. [6:01]
• Smith explains how commodity traders are adapting to market volatility, with supply disruptions and policy changes compounding the complexity of forecasting. [11:00]
• Jonathan Cohen analyzes the New York Times report on DraftKings' use of AI to target vulnerable gamblers and the broader implications for the sports betting industry. [15:00]
• Cohen details the social and economic harms linked to the expansion of online sports betting, including increases in bankruptcies and loan delinquencies. [21:00]
• The discussion turns to the regulatory outlook for sports betting and prediction markets, with potential Supreme Court and legislative actions on the horizon. [26:00]
• Ed Elson critiques the AI extinction debate, arguing that the conversation is dominated by opinions rather than evidence or data. [29:00]

DETAILED ANALYSIS

The episode opens with a focus on the unprecedented volatility in oil markets, underscored by JP Morgan's decision to abandon its baseline forecast due to the unpredictable nature of geopolitical developments in the Middle East. Matt Smith, Director of Commodity Research at Kpler, explains that the interplay between US political cycles, particularly the midterm elections, and President Trump's conflicting statements regarding Iran have created an environment where forecasting is nearly impossible. The market's reaction to Trump's remarks at the United Nations—oscillating between hopes for diplomacy and threats of escalation—demonstrates the sensitivity of oil prices to geopolitical rhetoric.

Brent crude's swings, settling at $98 per barrel after significant intraday volatility, reflect not only supply and demand fundamentals but also a substantial risk premium tied to the potential for conflict in the Strait of Hormuz.

Smith elaborates on the structural challenges facing the oil market, noting that even as oil flows through the Strait of Hormuz have improved, prices remain elevated due to the persistent threat of disruption. This risk premium is compounded by the possibility of further escalation after the US midterms, with scenarios ranging from diplomatic breakthroughs to military intervention. The discussion also addresses the downstream effects of potential US policy actions, such as a diesel export ban.

With the US, Russia, and the Middle East collectively accounting for a significant share of global diesel exports, any move to restrict US exports would exacerbate global shortages, drive up prices, and trigger widespread demand destruction. These dynamics are already manifesting in record-high diesel prices in the US, with broader inflationary consequences as higher energy costs permeate the economy.

The conversation shifts to the perspective of commodity traders, who have become increasingly cautious amid the ongoing conflict and market complexity. Smith notes that while markets have historically adapted to supply shocks, the current environment is characterized by a high degree of uncertainty and an expanding array of variables, including Chinese demand fluctuations and Russian export bans. The inability to model or predict outcomes with confidence has led major institutions like JP Morgan to publicly acknowledge the limits of their forecasting capabilities, a sentiment echoed across the commodities sector.

Following an ad break, the focus turns to the sports betting industry, where Jonathan Cohen discusses the implications of a New York Times investigation into DraftKings' use of machine learning to identify and target customers most likely to lose money. Cohen points out that while such targeting is not new in the gambling industry, the precision enabled by AI raises ethical concerns, particularly as safeguards for problem gamblers are often sidelined within companies. The rapid growth of online sports betting, fueled by widespread legalization since the 2018 Supreme Court decision, has transformed the industry into a $17 billion market, with the majority of revenue derived from a small subset of high-risk customers.

Cohen cites data showing that 82% of sports betting revenue comes from just 3% of users, highlighting the industry's dependence on vulnerable individuals.

The discussion addresses the negative social impacts associated with the proliferation of online sports betting, including increases in personal bankruptcies, auto loan delinquencies, and child maltreatment cases in states that have legalized the practice. Cohen draws parallels between the current wave of celebrity endorsements for gambling companies and the earlier surge in crypto marketing, suggesting that regulatory intervention is likely imminent. He outlines the potential for significant changes in the regulatory landscape, with the Supreme Court poised to rule on the legality of sports event contracts and Congress or the Commodity Futures Trading Commission also positioned to act.

The outcome of these regulatory efforts could fundamentally reshape the sports betting and prediction market industries.

In the final segment, Ed Elson critiques the ongoing debate over AI safety and the risk of human extinction, sparked by a widely viewed tweet from Anthropic researcher Jacob Coxin. Elson argues that the conversation has been dominated by speculative opinions and lacks substantive evidence or data. He notes that high-profile endorsements of extinction probabilities are not grounded in rigorous analysis, and that the debate has devolved into a cycle of unsubstantiated claims and counterclaims.

While acknowledging the importance of AI safety, Elson calls for a shift toward evidence-based discussion and greater accountability, warning that without these elements, the conversation will remain unproductive and sensationalist.

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