Mixed Messages on Iran

A lot has happened in the week since my last update on the Iranian conflict, so I wanted to provide a brief update on where things stand now and my approach.

Strait of Hormuz Status

As of writing this, the Strait of Hormuz is still closed. Official tracking shows no ships passing through the strait over the past 24 hours, although it appears a handful of ships have been turning off transponders before navigating their way through.

The US announced a $20BN insurance backstop almost a week ago, but it’s made no difference to the number of ships willing to risk the journey. The reason for this is simple: The backstop only kicks in after a loss, it doesn’t cover for less tangible losses - the crew and their experience, reputational damage, hostage situations, environmental damage, etc.

None of the major shipping companies are willing to take the gamble, and I don’t expect this to change until Iran declares it safe.

While it appears Iranian drone and missile attacks are decreasing, they could still very easily mine the strait to prevent vessels taking the journey.

“The War is Very Complete”

A couple of days ago Trump soothed market fears, resulting in falling Oil/Gas prices and rallying markets around the world. Trump’s remarks have since been contradicted by other senior US figures. US Defense Secretary Pete Hegseth who said “This is only just the beginning”, and the Pentagon provided more cautious messaging and timelines.

We’ve also been given a broad range of stated objectives and goals for this conflict, from regime change to taking out nuclear facilities. It still remains unclear what the true objective is, or if there even is a plan at all.

Oil Reserves

Yesterday the International Energy Agency (IEA) agreed to release an additional 400M barrels of oil from strategic reserves around the world. It’s unclear over what timeline they will be released, but it’s unlikely to be enough to make up for the global shortfall, especially if the disruption continues for more than a month.

Global Response

The impact of global shortages has already started hitting some of the countries more exposed to the region. Thailand, Vietnam and India have all issued guidance on saving fuel, asking people to work from home, and rationing LPG in India’s case. China has banned exports of oil, and some countries such as the Philippines have seen fuel prices double in some areas.

My Thoughts & Approach

For me, it appears that the risks of a prolonged conflict and significant disruption is being under-estimated by markets. I mentioned in my previous post that eventually we will see knock-on effects for a broad range of other products. This would lead to significant inflationary pressures.

I’m monitoring various commodity markets closely, and will try to adjust exposure to minimize downside risk where possible. I’ve already taken some money off the table while I monitor the situation.

I’ll make sure to keep you all updated with any developments or changes in my strategy.

Closing Comments

Let me know what you think, feel free to share your own insights and discuss it in the comments. Questions are welcome as always. Thanks for reading, following and copying.