Oil prices are generally sinking this week despite the U.S. seizure of a tanker off Venezuela's coast, saber rattling about doing it again, and Ukraine hitting a Russian tanker in the Black Sea.

Why it matters: Geopolitical strife historically shoves prices upward, especially when oil and oil producers are involved. So what's going on? A few overlapping things...

🖼️ The soft macro picture: The big story in oil markets right now is the global supply surplus as production growth outpaces demand increases.

• In a tight market, the latest action and prospect of more seizures would be a bigger deal.
• Plus, the confiscated oil looks slated to eventually reenter the market.

📉 Venezuela's reduced stature: It's now a fairly minor exporter following years of sanctions and decline of its oil sector.

• The country's shipments are in the 700,000 to 900,000 barrels per day range.
• For context, the Saudis export over 6 million bpd and the U.S. supplies several million, too.

🧠 A psychological shift: Big geopolitical risk premium — that is, market willingness to preemptively price in risk — is a little passé.

• One feature of last summer's Israel-Iran conflict was the absence of huge spikes despite Iranian threats to disrupt maritime supply and the wider prospect of damage to Mideast oil sites.
• Yes, part of that response was about the soft market I noted above, but there's more to it.
• The trader hive-mind increasingly needs to see evidence of actual and continued disruption — not just vague potential — to send prices soaring.

State of play: Eurasia Group analyst Gregory Brew points out that Venezuela competes with also-sanctioned barrels from Russia and Iran.

• "Should Venezuelan crude vanish from the market, the impact would be to the sanctioned oil trade ... the impact to the non-sanctioned, legal oil market could be fairly small, as it would be sanctioned cargoes that would fill the gap," he said via email.

The intrigue: Brew coined the term "Houthi paradox," a reference to Houthi attacks on ships in the Red Sea in recent years.

• He notes the market absorbed the disruption over time.

"This resilience has, in turn, made it more likely for actors (such as the U.S.) to take actions against oil flows, since there is now a presumption that such actions are less likely to affect prices," he said.

• "That helps explain why the U.S. is seizing tankers, why the U.S. has given a green light to Ukraine to attack Russian tankers, and could be why the U.S. decided to sanction Russian oil companies in October after resisting that move for ten months," he said.

The bottom line: As RBC Capital Markets analysts said in a note today, "There aren't a lot of market participants, us included, that would have predicted oil in the $50s if we saw a year with 4 sanctioned Russian oil producers, a direct U.S. strike on Iran, and more geopolitical risk building in Latin America."

One thing to watch now that President Trump signed an order seeking to override state AI laws: whether it hits policies on data centers' energy, emissions, and water usage.

Why it matters: States are increasingly weighing law and policies around data centers' environmental and energy price effects.

Driving the news: Trump's new order says there should be a "minimally burdensome national policy framework for AI."

• It envisions legal challenges to state laws and conditioning federal grants on compliance.

Friction point: The Sierra Club, in a statement, said the order seeks to jettison "state standards that protect Americans from toxic fossil fuel pollution at data centers."

What we're watching: I asked the White House about whether it sees state data center energy and emissions policies within the order's scope, but haven't heard back yet. Stay tuned!

A House bill seeking to strengthen electricity grid reliability passed easily yesterday with the help of 51 Democratic votes.

Why it matters: The 267-159 vote for the Electric Supply Chain Act indicates many Democrats are eager to show support for ensuring the grid's reliability in the face of soaring electricity prices and demand from AI.

Driving the news: The bill, sponsored by Rep. Bob Latta (R-Ohio), would require the Energy Department to provide assessments of supply chain trends, risks, and vulnerabilities affecting generation and transmission.

• Supporters say supply chain constraints have stemmed from long lead times for transformers and backlogs of natural gas turbines, which have been driven in part by AI data center demand.
• The National Electrical Manufacturers Association said the legislation would allow grid-component manufacturers and supply chain vendors to provide "greater clarity around their current and future capacity."

The intrigue: Of the 51 Democrats who voted "yes," nine were from California, which has some of the country's highest electricity rates.

The House passed two other bills largely along party lines.

• One would require state utility regulators to ensure "reliable availability of electric energy" over a 10-year horizon, moving utilities toward natural gas, coal and other "dispatchable" resources.
• The other would ease permitting requirements under the Clean Water Act.

What's next: The show of Democratic backing for Latta's bill could boost its Senate chances.

🛢️ Environmental groups sued to overturn the Interior Department's approval of a ConocoPhillips drilling plan in the Alaskan Arctic. The NYT has more.

🇪🇺 Via Reuters, the EU will make it easier to comply with methane emissions laws on oil and gas imports, which "could benefit U.S. gas exports."

🌀 A Massachusetts federal judge ordered Trump officials "to restore billions of dollars in canceled FEMA disaster mitigation funding," siding with 22 states, AP reports.

This chart is a stark reminder of how new U.S. construction came to a pretty crashing halt decades ago, partly thanks to the 1979 Three Mile Island crisis.

The big picture: The question now is how much the combo of rising demand, AI, and rising prices will truly turn the tide.

What we're watching: The Rhodium Group dropped new analysis on what's needed to realize hopes for a big scale-up. It includes...

• "Orderbooks" — that is, repeated builds of the same design — to drive down costs.
• Direct federal financial intervention to backstop risks and perhaps provide power purchase deals. (The recent agreement with Westinghouse et. al. is a step in this direction.)
• A permitting overhaul, and narrowing the number of designs because the "current proliferation ... dilutes available public and private funding and focus."

Full analysis

EU closes deal to slash green rules in major win for von der Leyen's deregulation drive (Politico Europe)

Amy says: This is another sign of the world's shifting zeitgeist on energy and climate. I wonder how this affects California, one of the last major economies to require aggressive and expansive disclosure.

Inside the failed green revolutions at BP and Shell (Financial Times)

Ben says: Come for a lucid look at why these giants walked back their low-carbon transformations. Stay for the inside info, like McKinsey's role in BP's 2020 green plan.

• And while macro forces explain some of the headwinds, it's clear there was plenty of internal doubt at the giants, too.

America is Losing Power Projects When It Needs Them Most (Cleanview Newsletter)

Chuck says: Some eye-popping stats in this piece, including the main one: Because of Trump administration moves, local opposition and other factors, nearly 1,900 projects with a combined 266 GW of generation capacity have been canceled in 2025.

• That's equal to about one-fourth of the country's entire current electricity generation capacity.

Europe's world-first carbon tariff is coming. Here's what to know. (Canary Media)

Amy says: I'll be watching this closely next year, including how it could prompt reactionary measures. But, I was surprised at how narrow the law actually is.

That's the global cost of adaptation to developed economy standards by 2050 in a world that's 2°C warmer than preindustrial levels, per new McKinsey estimates (h/t Semafor).

• More than half would be needed for heat protection.