The Sicario War
“What the fuck are we doing here?” is one of the memorable quotes from the Denis Villeneuve movie Sicario. It applies well to the War (or “Excursion” as Trump described it) with Iran. I could easily have titled this post “No One Wants This”, but Israel clearly wanted this, plus that title is already taken, albeit for the Big PoS Beautiful Bill, which now seems downright quaint in comparison to Iran.
Before you think that you’ve accessed a political blog, I’ll try to write this post with a markets perspective. And that perspective is “what the actual fuck are we doing here??!!!” There is no upside to the markets of this Excursion, and a review of the headlines in the FT or Bloomberg would give no one a warm fuzzy feeling, but Mr. Market seems to be in denial about the impact of oil and natural gas refinery shutdowns on energy supply, food production and global supply chains. It’s as though active managers are saying to each other “it can’t be that bad, can it?” or “ok, but Trump’s not going to [insert the thing he does next]”. The sudden risk off trading that occurred when the Energy Secretary sent out an incorrect tweet about escorting tanker through the Strait of Hormuz, and again when Trump simply said the “war may be over soon”, prompted one observer to correctly state that the entire US economy is now a meme stock.
David Sacks, who normally I would tune out in a second, has advised Trump publicly to declare Victory in Iraq Iran and leave. Sage advice, but I don’t think Trump will listen to it, unless and until the impact is felt in the stock market. So prices for fuel of all kinds, aluminum, helium (used in the fabrication of superconducting magnets and silicon wafers), and fertilizer will increase, and not fall until production re-starts and shipping is considered to be safe. Increased prices will put the brakes on Trump’s desired interest rate cuts, and reduce discretionary spending, curbing economic growth.
In the end, Trump will indeed declare mission accomplished, but there won’t be any regime change in Iran, inflation and rates will remain elevated and demand depressed in the developed world. In emerging markets, especially those countries that aren’t oil exporters, there will be even higher inflation, risk of food scarcity, and increased poverty as demand for primary products is slowed by supply chain disruptions.
Apart from Russia benefiting from lifted exported restrictions and the higher price of crude, I don’t see anyone winning. So what the fuck are we doing here?