Oil, War, And What Markets Price In

A late‑night strike and a familiar promise: hit hard now, negotiate later, and watch prices fall. We put that theory under the microscope. From Iran’s deep roots as a civilization to the real mechanics of oil and LNG flows, we unpack what force can and can’t do—and how the Strait of Hormuz turns geopolitics into prices at the pump and in your portfolio. Iran isn’t a plug‑and‑play regime; its constitutional machinery and regional networks make quick “head of the snake” solutions unlikely without a major ground commitment. That mismatch between ambition and structure is where policy risk bleeds into markets.

We follow the barrels. About 17 million per day transit Hormuz, plus vital Qatari LNG that now underpins Europe’s post‑Nord Stream energy strategy. You don’t need a literal blockade to jam the system—insurance exclusion and war risk premia can slow traffic and raise costs all the same. We connect those frictions to the Dallas Fed’s rule of thumb on oil’s impact on inflation and growth, then to the Fed’s room to cut rates. If energy stays sticky, the path to easier policy narrows, which hits multiples, especially in corners of the market priced for perfection.

Along the way, we examine split Western responses, from UK defensive postures to Spanish pushback, and why India and China—massive importers—quietly hold leverage to hasten a reopening. We sketch credible off‑ramps that don’t rely on regime change: broadened maritime security operations, calibrated pullbacks, and talks with the same Iranian system that survives the crisis. For investors, we compare hedges and opportunities: energy exposures as shock absorbers, the recent tilt toward value and international, and the role of cash yields while volatility resets expectations. Our base case: negotiations re‑emerge, shipping risk normalizes, and oil gives back panic premia rather than collapsing.

If you care about how power, pride, and petroleum shape your wallet, this is your roadmap. Subscribe, share with a friend who watches crude prices like a hawk, and leave a review with your take: short spike or medium grind—where do you stand?

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Transcript

Why Strike Iran Now?

Steve Davenport 0:26

Hello everyone and welcome. This is Steve Davenport with Skeptics Guide, and I'm here with Clem Miller. And this is a special broadcast because we just think this weekend's activity needed some um rationalization and understanding to try to get a better grip on how it affects us, how it affects our portfolios. And ultimately, is this movement in the government towards these different leaders and re-restocking leadership in different countries? Is that the new um black? Is that what we're gonna do when we get done with Iran? Are we gonna go to Cuba and then go to Panama? And then we'll have all of the countries with governments that we think are better. So, Clem, what was the reason why we we had to do this on late in the night, Friday night or Saturday morning, um, and start this Israeli US action? Is there a US interest here or is it strictly we're doing this for Israel?

Clem Miller 1:31

Well, we didn't have to do it, is the answer to that. We did a lot of damage, so they say, to the nuclear programs, the underground nuclear facilities that Iran was maintaining. It supposedly did a lot of damage to them back in July. Uh, you know, obviously they've wanted to continue them, but you know, how long will it take for them to you know to rebuild those programs is I think a key question. They do have these missile capabilities that they've had for a long time. Uh and , you know, and they use them when Israel attacks them, right? Uh but do they have they used them offensively in the past? Uh not so much. You know, they've kind of relied on Hezbollah and Lebanon to attack Israel in the past. Uh and then, you know, they you know they have occasionally, much less so in recent years, engaged in terrorism. Uh important not to conflate ISIS with Iran, because Iran is in the Shia sect of Islam, whereas ISIS was, you know, sort of very radical Sunni, right? So we can't think, you know, Iran, yeah, it has a history, long-run history of engaging in terrorist incidents, , but it's not like there were terrorist incidents that were about to happen where we had to come in right now. So there was no, in my mind, there was no imminent reason why we had to attack. Uh, my understanding is that, you know, is that there's been a lot of pressure from Netanyahu on the US to engage with Iran and to engage in military conflict with Iran. And you know, Israel has some capabilities, the U.S. has some capabilities, they decided to split the work, and Israel worked on the regime change aspect of it, that is taking out Khamanai, the um the so-called supreme leader. And and the U.S. worked on the you know the bombing of the of different military facilities, including you know naval ships and missile sites and other things in Iran. So, you know, a lot of it was an Israeli push, and um, you know, part of it was, I guess you could say, a desire to do some unfinished business with Iran, , sort of complete what's been what's been started in the past by the um, let's face it, by the neocons, okay, who are , I guess still influencing the Trump administration when you know the the base, the MAGA base is opposed to to wars of this nature. So um I guess the neocons like Lindsey Graham kind of won this you know won this battle against the the MAGA anti-war folks like like Vance, like JD Vance.

Persia As A Civilization

Steve Davenport 5:06

So it it doesn't seem to me to to have an impetus in either our safety or our resources to access to the oil or no and it and to say that you you're gonna push them back to the negotiating table by bombing and and not annihilating their leadership, I'm not sure that's ever been listed as one of the you know ways to negotiate and win friends and influence people. I mean, know that if you twist people's arm, they tend to be more agreeable. But is that really an international a method of international affairs that we we bomb people and then we say, let's go back and talk? I mean, aren't they gonna be less likely to agree as a result of this than they are gonna be likely to agree?

Clem Miller 6:00

So, you know, gunboat diplomacy to bring back a 19th century term, right? Gunboat or early 20th century term, gunboat diplomacy works with small powers, it doesn't necessarily work with larger powers, more established powers. And you know, a lot of folks don't understand Iranian history. I'm not sure that folks in this administration understand Iranian history too much, but Iran is is not a you know, it's not the same thing as Saudi Arabia, which is basically a family with land and oil, right? It's not a Venezuela, which , you know, is largely, you know, it's got a significant population and oil and whatnot, but it's not, it doesn't have it's not a civilization. Iran is a civilization. Persia has been a country and a civilization for thousands and thousands of years, thousands of years. Uh Shia Islam, their particular sect of of Islam has been around since um, I don't know, the 700s, 800s A.D. . So it's been you know it's been well established in in Iran for all this time. And obviously Iranian identity, you know, and Iran does have folks who are not Shia Muslim, but a lot of Iranian identity is caught up in in Shia Islam as well as in the as well as in Persian history as a as a civilization. So when when we strike at Iran, we're not striking at you know any old country, right? We're striking at a country that views itself with a significant degree of pride in their history, their culture, their religion. And that's a very different thing than than striking at a small country.

Steve Davenport 8:12

Right. I was gonna say that when you look at Venezuela, it's about 28 million people, and you look at Iran, and it's closer to 90 to 95 million people.

Regional Influence And Proxies

Clem Miller 8:23

Right. I believe Russia has maybe 150, 160 million. So what is it? It's like two-thirds the size of a little bit less than two, but about two-thirds the size of the Russian population. And we tend to give Russia sort of this outsized um significance, right? But no, Russia's GDP is about the same as Italy's, right? And yet we we tend to give it significance. Iran is is not an insignificant power. Uh over the last few decades, it's exercised a very high degree of influence in Iraq and in Syria and in Lebanon and in Libya and with Hamas. Uh Hamas is not Shia, but the others have significant Shia populations, and and Iran has been able to establish proxies in those areas to basically advance you know Iranian Islamic Republic of Iran interests.

Markets Refocus On Strait Of Hormuz

Steve Davenport 9:45

Yes, when I look at this thing, the first thing I started to do was like you do is to think about well, who's the supporters, who are the who are the allies, who's gonna back each other up. But then I said, wait a minute, this is an investment podcast. So let's get back to the economics. And when we look at this, what we hear today is the Strait of Hormuz, the Strait of Hormuz and the Strait of Hormiz. Those are the you know, A, B, and C on the list of things that you need to be concerned with from an oil price standpoint. And I tried to find out what Iran, you know, uses or how much goes through the straight of hormones every day. And it's about 17 million barrels a day at about $70 a barrel. That's not Iran, that's the whole goal, that's all of the goal. Right. Saudi, Kuwait, I'm not saying Iran, I'm just saying that's what travels through the strait. So when they say that the stream, nothing is going through it, that's what's held up every day, is about 1.2 billion in resources every day. Correct. And so when we look at that 1.2 billion and who it affects, it affects a lot of people. It affects Iran, but it affects Saudis a lot, and it affects um other people in the Gulf. Who is using the oil? India and China are the two biggest economies that are gonna be impacted. And I think that both of them have an interest here in that strait not being blocked for long. So I think that the question I have is is this a short-term blockage of the strait? Is it gonna be two to four weeks and we're gonna be clear again and everybody's gonna be doing business as usual? Is it a medium-term two to four months? Or is it a longer-term problem that's gonna be around for six to 24 months? I believe that this is, as all things are, somewhat politically motivated. My belief is there wasn't a clear and imminent danger to the US. So, therefore, what what drove this? And I believe it has to do with Trump and Israel getting together with Netanyahu and saying, okay, let's do this and try to get it back to normal and get a new regime in here before the midterm elections, so that I can point to Venezuela, Iran, possibly Cuba, all having changes that are going to be beneficial in terms of not having an enemy who's imminently affecting the operations of us or Israel as our ally. That's how I see what he's trying to do and why he would start now in March, until unless, you know, he could have waited. This didn't seem like it needed to be done Saturday. And so my question is if we know what's motivating Trump and his policy, because I still haven't heard an articulation of what our strategy is. I hear about regime change, I hear about the oil, I hear about you know nuclear weapons, but I don't hear, you know, we obliterated the nuclear capability last June. We were told that was it. We didn't need to worry about it anymore. And yet this week we started to believe that you know Iran was imminently going to have nuclear weapons that were going to impact Israel and the entire Middle East. I don't understand how we go from the systems are obliterated or how we believe we can do this. Why don't we just say if we didn't get nuclear, you know, facility A, B, or C, well, we plan to get that, and once we get that, and that facility is put offline, then we've satisfied our objective. What caused us to jump into you know a new government or a change in government here? Why here versus somewhere else? Why don't we do this in Venezuela? Put all of our own people in place.

Clem Miller 14:04

So so you know, the the the play that Trump is trying is, you know, you knock off, you know, it's it's the theory, right? If you cut off the head of the snake, the snake will die. And we don't have that in Venezuela. The snake continues to live in Venezuela. And my my supposition about Iran is that even though they killed Khameni, you know, Iran is a has the Islamic Republic of Iran has a very well-developed constitution. I'm not saying it's democratic, right? I'm saying that they've created all of these institutions that are set up to create stability, right? Even if the leader is killed, this is not a leader, you know, this is not a leader like Saddam Hussein was, where you know, all chaos breaks loose if you kill the leader, right? They there are well-established procedures. I mean, within a day of Khamenii being killed, you had a three-person council take over the presidency in Iran. So this is a country that whose regime, the Islamic Republic, has all these different institutions that are set up to maintain stability. So it's really, it's gonna be really hard for Trump and his people to actually be able to proclaim that the regime is gone. I heard I heard Defense Secretary Heggs say this morning the former regime, well, that to me indicates a complete lack of understanding of how the Islamic Republic works. Complete misunderstanding. So that's not surprising, is it? What that's not surprising, is it? No, it's not surprising. I don't think, you know, there are there are a lot of people, unless they've been fired, right? There are a lot of people in the U.S. government who understand exactly what I'm saying. And , and somehow their advice is not getting to Hegsith and Trump, or their advice is being ignored, and they're feeding the American people, you know, hogwash, in effect.

Steve Davenport 16:27

Yeah, I feel like I'm getting a lot of hogwash. Um, I don't really understand why we couldn't have had even a motion to Congress that says here's our objectives, and we want we want to act, um, but we've we also want to, in parallel, get this approved. Yeah. Because I think that we know that it would probably fail, and that's why they didn't want to do it. But I don't know if that's the way the government's supposed to operate, is if you're supposed to go through Congress, you get approval, and you don't because you don't think you can get approval, and you just go ahead and do it anyway.

Europe’s Energy Exposure And LNG Web

Clem Miller 17:02

Yeah, the only way they're gonna get approval, I think they will get approval now, only because it's happened already, and the Republicans will feel like they have to support Trump on this. So it'll be ratification after the fact, which is you know, obviously not what the constitution intended.

Steve Davenport 17:22

I saw one number from the Dell the Dallas Fed, which said that an increase in ten dollars a barrel leads to inflation increasing 20 to 40 basis points, and it leads to GDP declining by 10 to 40 basis points. So this is going to be a dead loss or something for affordability if the price of oil stays high for longer.

Clem Miller 17:48

Yeah, so that's yeah, if it stays higher for longer, right. And so And that depends that depends entirely on what happens with the Strait of Hormuz. Because the rest of the rest of OPEC has already said that if Iran is offline, that they'll start that they'll that OPEC, which is mainly the Gulf plus Russia, right, that they will increase their oil production. But if they can't get the oil through the Strait of Hormuz, then it doesn't really matter how much more production they do. So yeah, it takes it right back to where you kind of started, Steve, which is the Strait of Hormuz. And and when the Strait of Hormuz opens is kind of a function to some degree as to how long this this effort is going to take place. And I I bet that China and India are putting a lot of pressure on Trump to try to get it over with as quickly as possible so that the Strait of Hormuz opens up.

Steve Davenport 18:52

Well, that's what my next question was. The people who are, we know the people who are going to lose the economies of selling the oil, but what about the people who need it for the production in their economies? Uh that's in India need it more than anyone else, and they are big users of this energy. Right. Therefore, my question is how do we work with China and India? Do we drag our feet because Trump hasn't had a good relationship with them, and he's gonna want them to come to the table and give him something for you know safety in the Strait of Homos? Right. He's gonna want Do we become this the steward of the strait? And therefore we sit there and say, hey, we control the strait.

Clem Miller 19:33

Well, you know, there's you know, there's a little bit of history for that, too. There are maritime operations that various navies have engaged in, including our own, that have dealt with Somali piracy, that have dealt with Houthi attacks in the Red Sea, and that have even dealt with the the Gulf before, right? Especially during the Iran-Iraq War back in the 80s. And so there's a history of the US and and Europeans, US, UK, and and Europeans of of policing these areas. So we could go back to that, you know.

Steve Davenport 20:11

Well, can we look to it? Do we have the relationship with Europe to say, hey, we know we've been arguing about Greenland, but that really wasn't as important as this is, because this involves Israel. Well we're gonna we're gonna ask all of you to come together and depends.

Clem Miller 20:28

It depends on who you're talking to in in Europe. Okay, let's start with France. The UK has already said that we'll engage in defensive only operations, right? Uh to support to support this effort. Oh defensive only, right? No offensive. Uh Spain went further and said went further in the in the anti-war direction and actually kicked out our um our um aircraft from NATO bases in Spain. And they had to fly off to Germany.

Steve Davenport 21:07

Well, that was my next question is where does Germany sit with this? Because they're obviously I I don't know how much of German energy consumption comes from the Gulf, but I gotta imagine they're a pretty big energy user, so they would be a pretty big have a pretty big impact.

Off‑Ramps, Goals, And Negotiation Paths

Clem Miller 21:26

Well, yeah, a lot of , you know, with the end of the Nord Stream pipeline in 2022, they developed a lot of floating LNG regasification facilities off the coast of Germany. Uh, and they bring in a lot of gas from the United States, but also from Qatar. And Qatar is on the other side of the Strait of Hormuz, and so that could be a problem for for the Germans. You know, one of the things that has sort of gradually happened over the last couple of decades that has really changed the energy equation around the world is that the world has moved aggressively toward natural gas. You have this this whole network surround, you know, that's that's that's basically established around LNG. LNG used to be sort of you know random shipments, right? Not big, but now there's a huge network of LNG where you know producers can sell to any consumers around the world. It's still costly technology, but it's a it's a well-established network. And so when something happens like and qatar basically is one of the key nodes in that in that network of natural gas supply and so when you close the strait of hormuz you close the ability of qatar to sell that natural gas um you know to europe to there's no pipelines out of qatar no no okay i mean that's what i'm trying to figure out is is this is this gonna impact the u.s is it gonna be short term medium term or longer term what's your guess you know i don't expect this thing to go on very long right i expect it to go um i don't even expect it to go the four or five weeks that trump is claiming i think he just threw out that four to five weeks as a way to to try to pressure the you know the regime in Iran to sort of surrender in effect right to negotiate on US terms so I think that that's a pressure tactic I think the the Iranians see through that pre pressure tactic um already the um you know the security minister of Iran Ali Larajani came out and said there's no way we're gonna negotiate with the U.S. now so and they're like I said they're a very proud people as well established civilization so they're not they they're not going to um surrender too easily to to what the United States wants well we talked about whether it's you know twisted arm policy or you had another name for it but gunboat diplomacy gunboat diplomacy and and let me say this Steve let me say this that another reason to think this will happen that this will end sooner rather than later is that is that Iran has attacked all of these Arab Gulf states and and even beyond that they even attack Cyprus right the UK bases on cyprus so this has been an extended war and these these countries dub you know ua that is dubai and Abu Dhabi and Qatar and Kuwait and Saudi and Jordan and and of course Israel Lebanon these folks these countries want this thing to end quickly and so they're gonna put pressure on the United States just like India and China are going to to try to end this quickly what will they give Trump to help him to end it because that's what Trump's a traitor he's not an investor so he's not invested in this war anymore that but he wants to get something for right would you say did you say trader or traitor?

Steve Davenport 25:38

Traitor with a D.

Clem Miller 25:42

Yeah okay so just to be clear he's a transactional guy and as a transactional guy if somebody comes and asks you for something you've got to give them something in order to get what is China going to give the US I don't know what is what is India going to give the US yeah the problem is that not that he not that he cares about law too much but this 15% tariff is supposed to apply across the board so he can't you know he can't negotiate on tariffs anymore supposedly right under this under this one section 122 um he can't negotiate on tariffs anymore like he used to he can't use it as a negotiating tool so he can't say to the you know he can't say to the the Chinese oh we're gonna charge you a 20% tariff now he can't do that under section 122 okay but what can he ask of China?

Steve Davenport 26:41

I guess my point is what's the resolution or the off ramp? I've heard people use the term off ramp today about a dozen times. And I think it's like okay once we agree that we've created whatever change we wanted and we've secured the Strait of Harmuz I guess I don't know who stays and and guards it because we don't believe that you know Iran is really going to leave all those boats you know that they don't like going through there. So I I think there is going to be some interesting impact of us putting military there. Maybe not boots on the ground but boots on the boat. And so how do we make sure that um it keeps operating the way we want it to and is there a is there a clear off ramp here that what are they gonna do? They're gonna temporarily suspend nuclear operations or temporarily you know not enrich rain or I I don't know I don't know where the wind how does Trump put a win up on the board I just I don't see I don't think I I don't think that that the absolute goals of this are very clear.

Will Oil Stay Elevated?

Clem Miller 27:56

Okay. I think it's fuzzy and I think they're playing this I don't think I I don't think that they really know what their goals are and because they don't know what their goals are they don't know what a win looks like they'll take whatever win comes as is you know as it happens right if they can spin it as a win right but there's no I don't think that there's an obvious win out there um I I think that what we're gonna see is at a certain point the U.S. is gonna say okay we're done and withdraw I think that's what the U.S. is going to do. And you think Israel's gonna be good with that yeah I think they'll have to be right so I mean you know Trump has turned against Israel at times in the past as well right they've gone along with with Netanyahu Trump has gone along with Netanyahu and Trump has has opposed Netanyahu on certain things Netanyahu is not terribly happy with with what Trump is doing in Gaza so they're you know doing the condos what doing the condos on the coast yeah they're on opposite sides of that issue right but they're on the same side when it comes to Iran but I think I think it'll only be a matter of time before Hegsith and Trump and company come to the understanding that they can't get rid of the they can't get rid of the Islamic Republic regime right leads me to the next question is what's the likelihood in time frame of the the republic falling well I think the likelihood is that it will 50% 60 percent 70 percent that it will that it will or won't fall that it will fall I'd give it 35 percent probability that it that that it it will it will fall 30 to 35 percent that it will fall okay so you're saying that most likely this continues for a long time because well the regime I think that's what that's what Trump is gonna want to if we look at him now we did say what does he really want he's gonna change his mind right when this thing goes beyond four to five weeks and he can't replace the regime with something completely different I think he's going to to pick up his his weapons and go home that's what I think right oh now now if the regime it if um so is that assuming that he can have the strait works perfectly but Iran still has their government Iran wants the strait to work perfectly if we pulled our troops out if we pulled our ships out the strait will operate normally so it's not like Iran the only reason Iran is blocking the straits or is trying to block the straits is because of the U.S. intervention the U.S. isn't intervening anymore it's not like Iran is is gonna keep blocking the straits they're gonna open it up for everybody well from what I understand everybody can go through it's just a question of the no insurance company is gonna want it is is able to ensure these so if we don't which is which is in effect the same thing as blocking as long as the threat is there of Iranian attack right or or of accidental US attack throw that into the equation then then the strait is effectively blocked it's only with the end of war in that area that that the traffic will move easily and without extraordinary cost through the Strait of Hormuz right so if if we if we don't have that extraordinary event where the there is a a a fall of the Iranian government then I don't know how we expect that everything's gonna go back to normal i mean i do i i stuff all the way back after this at a certain I think at a certain point you know trump and and crew are going to realize that they that they can't get rid of the existing regime and that they will they will seek to negotiate with the existing regime and then the question is will the existing regime you know agree to negotiate right and then come to some kind of conclusion so I think at the end of the day there'll probably be a negotiation but it will be with the existing you know regime different different set of individuals but within the structure of the of the Islamic republic and not not something else I mean this whole idea that you know you heard Lindsey Graham talk about and you you see others talking about about bringing back the Shah's son as the as the new Shah of Iran is just ridiculous nonsense.

Steve Davenport 33:08

I don't think that I don't think the protesters have a way of of setting up and establishing the government. So to me there's a big vacuum if you keep saying I want to get rid of the Iranian government but you don't have a filler to come in I don't know how you you know usually you don't ask for something I want to ask for regime change and I'd like the new regime to be you have to have a an answer to the question.

Market Positioning And Fed Cuts

Clem Miller 33:47

The only way the only way that the US and Israel can put in the crown prince as the new Shah or some other situation like that is with boots on the ground. And Israel doesn't have enough of an army and they're preoccupied with other things too like Gaza and the West Bank. So it would have to be U.S. boots on the ground and as as as crazy as this current war seems to be I really don't envision the U.S. putting boots on the ground in Iran now I might be wrong there's a lot been a lot of things that I didn't envision about Trump. But he's surprising us all the time with this and that it could well be that he authorizes boots on the ground to put in the crown prince as the new Shah but I have a lot of time a lot of I have a hard time believing that he'll do that which is why I think I think he won't try to do that and that he'll he'll just negotiate with a um you know a militarily weakened Islamic republic okay I'm gonna give you my impression of what happens and how you invest around this and I'd like to get yours too so my impression is I don't think it is short term I think it's medium term.

Steve Davenport 35:13

I think we're gonna be in here for two to six months and I think it's gonna be more of a problem because they will start to affect the price of oil. It will start to affect the GDPs of India and China and there will be this upheaval and increased volatility because I don't think you can put the genie back in the bottle and get this done the way they got done in you know we killed 32 Cuban guards in Venezuela and then we were done. I don't think that's what's happening here. I think the country is entrenched and has a very large majority that wants some type of religious regime. I don't think there's a clear transition. So if there's no clear transition and your goal is change I think there's going to be confusion around that mission. So therefore I don't think the mission happens in three or four weeks. Yeah I don't think we can get I don't think we get anybody to agree or something in three or four weeks.

Clem Miller 36:11

I don't think we can be done in three or four weeks I I don't I don't think the I think the US I think the Trump administration will give up on the idea of regime change sooner rather than later and and that's my that's my expectation I believe that you know what the Iranians are going to have to do is say as much as they won't want to go back to the negotiating table they're going to have to go back to the negotiating table. So I think we're back to the negotiations between the Trump administration and and the existing Iranian regime and we're not gonna have we're not gonna have two to four weeks well I don't think negotiations will start in within four weeks say an agreement to move forward I think I think I think the US will start pulling back we'll start pulling back troops in like three to four weeks. We'll start pulling back prices.

Steve Davenport 37:13

So we are going to have some time where the war for the strait is closed. It's not likely that they again effectively because of higher higher insurance more risk premiums yeah yeah so the last thing I'd say is that because of this oil will remain higher and our affordability gap will get worse in the United States before it gets better. And in doing that I think it will create what Trump doesn't want which is you know a transition at the midterms you know out of the Republicans and into the Democrats because I don't think I don't think we have a cohesive plan. The next thing he would try to do if he did finish this in two or three months would be Cuba and I also don't think the the Cuba situation is entirely clear. Who's gonna take over running Cuba if you knock out the communist you know I I don't I don't see I don't see a real cohesive plan here Clun and you may you may see differently than I but I don't see cohesion and thoughtfulness and follow through no there's there's no there's no cohesiveness there's not not much planning.

Clem Miller 38:30

I mean yeah the military is planning right but but in terms of overall geopolitical strategy there's not there's not a lot going on um on that score right and so that's my point is that things get more volatile I think we've already seen a pullback in the AI space I think we're gonna see that inflation is going to go up which is going to mean the Fed isn't going to cut rates which is going to mean the markets are going to go down because they were anticipating two or three cuts and with higher inflation from oil they're not going to get those cuts. Yeah so well if you look if you I mean even you know if you look at the last few months of the S P 500 it's essentially been flat you might as well have had your money in cash.

Steve Davenport 39:17

Well I I do disagree with you a little bit because value and international has done very well for us. So Value International has has been the beneficiary of tech going down. So it is a flat market but within the market I think we're seeing value be rewarded and dividend be rewarded but I don't know what happens to those dividend names if rates keep stay the same or go up. If you saw a rate increase in July I I got to imagine that would cause chaos in the White House. And and you would have all of these people arguing that you need to lower rates before the election and there would just it I think we're gonna see more volatility here than a six to seven day or a three week thing. I think there's there's deeper problems that need to be resolved. I think that those things will have to get resolved in some of these countries. I was thinking about what about an international force that was put in the strait to maintain its flow what if we didn't just have we're trying to fight off the Houthis and Britain's trying well that's that's so in terms of just maritime protection yeah that's been done before right um and successfully right correct that's my point is that if we broke this down and we said hey it isn't all about Israel and weapons and nuclear weapons it's really about the continuing flow of oil to the worldwide economy but we could do Iran Iran at the end of the day Iran wants the oil to the oil and gas to flow they do.

Clem Miller 40:55

I want the flow you want the flow everybody wants the flow and so if the US pulls back their forces no big deal right if the oil and gas will flow I think that if the US pulls back its forces and there's still you know animosity going on between Israel and Iran and there's still the the the people in Lebanon and the people you know I think you're assuming that the US comes away and all is forgotten and it goes back to normal and I don't think that's so what are you so Steve what are you saying are you saying that is the Israeli military is going to target the Strait of Hormuz is that what you're saying I'm saying it's going to be I don't think so is Israel to control the strait and make sure that it has Israel Israel has never controlled the state of Strait of Hormuz it never wants to control the State of Hormuz I know but if there are groups who are anti-Israel and anti you know um America they want this insurance premiums to stay high don't they they want the upset of the economies are you saying that it are you saying that Israel wants the no not Israel I'm saying Iran Iran doesn't want Iran doesn't want the premiums to be high because they ship they ship oil outside of you know outs they ship oil through the Strait of Hormuz. They don't want war risk premium to be high they want war risk premium to be down there's a confluence of interest between Iran and the Arab Gulf states with the with respect to keeping insurance costs down and shipping oil and gas out of the Strait of Hormuz the the gate the Gulf states that they've they recently bombed absolutely well that's a confluence of if they both agree that the oil should ship climb water bomb people that are are trying to have the strait be opened why would you fight people who are on the same side as you trying to make the strait open yeah they're on the same side with regard to the Strait of Hormuz right they're on the same side but they're bombing but they're bombing them because they're allies of the United States and they host U.S.

Probabilities, War Scope, And Flow Restored

Steve Davenport 43:11

facilities okay okay that's why they bomb them right all I'm saying is there's a confluence of events here that could cause just like we said it doesn't make sense for them to bomb those because of their connection to the US when they're also allies on how to produce and ship oil. So my point is that this is a confusing region that I don't think will get resolved in three weeks. I think that this event is going to be larger and you might be right it might be all over and we go home and we don't talk about oil the rest of the year. But for now I I think oil and inflation are big issues in the U.S. And I think that Trump ignored them at his risk when he when he made this you know invasion with Israel.

Clem Miller 44:01

Yeah well I I would say I would say Steve that Trump doesn't I mean he's called affordability a hoax a Democrat hoax hoax he calls it right and you know if he I mean I know that he has this theory about tariffs that foreigners pay them right but I can't believe that he's so naive as to not think that tariffs cause inflation to be high to be higher than it would otherwise be so if he's willing to run that risk of tariffs causing or contributing to inflation why would he not run the risk of war in the Gulf Contributing to higher inflation, do so. I don't really think affordability plays that much of a role into his, you know, into his incentives. I can't be in his head the way you can.

Steve Davenport 44:54

You can see through his eyes a lot better. I I look at things really logically, Clem. I say to people, if I know the higher oil prices, and he has realized that he's not going to get re-elected unless the price of oil comes down. I think he needs lower oil prices to contribute to lower inflation, to contribute to right election. And you know what? And he believes, that's when we finish. He believes that this thing in Iran is a two or three-week thing, and he's going to get what he wants, and oil is going to flow, and they're going to take the sanctions off of Iran. And everybody is going to benefit from having Iran back on the market and more oil flowing. And that's going to make his re-election, you know, the election of the midterms positive for him. Well, he's over.

Clem Miller 45:49

The reason why I would disagree with that is because it'll take us back to the oil prices we had just a couple weeks ago, right? So that's it. Right? It's it's not like we're not like we're not like having oil prices, or you know, we're not reducing oil prices by 50%.

Steve Davenport 46:04

All of Iranian oil came back onto the world markets because they were no longer a kariah and they had an agreement in place with the US and Israel. I don't think we would have those prior oil prices. I think we'd have $50 a barrel.

Clem Miller 46:18

Okay, so okay, are you assuming that the US is going to take sanctions off of Iran? The sanctions that have been there, the sanctions that have been there on there for years and years.

Steve Davenport 46:32

Yes, I I think that if you're going to destroy all of their nuclear capability, all of their military capability, I think in order for them to rebuild the country, there's going to have to be some adjustment into whether Iran is in or is out of the world, you know, as a as a as a member in some of these organizations. I don't think we can, I don't think we've been successful in what we've been doing with Iran so far, have we? Uh no. So my only quick thing is something different is going to come out of this. And maybe it's a you you break it down to its lowest, just like Gaza. You break it down so there's nothing there, and then you try to rebuild it. You break it down until there's nothing there, and then you rebuild it and try to use its assets the way they use the Venezuela assets, and and you have controls and influence over how they do things, and therefore, I think there's going to be more oil in the markets in six months than there is today.

Clem Miller 47:39

Because that's what Trump wants. Then there is today, because I mean there's not there's not much flowing through the streets. I think the the key question is before how the the the appropriate baseline is to think about where oil and gas was prior to the attacks on Friday.

Steve Davenport 47:58

Yeah, I'm saying there's gonna be more oil than before Friday.

Clem Miller 48:02

I don't think so. Uh I'm just telling you, that's what I don't Yeah, you think that. I don't we we tend we are we're disagreeing on that point. Okay.

Steve Davenport 48:11

So last call, what's your final recommendation? For individuals and people thinking about the Iran, Israel, US war. Is it is it really not a war because it's simply a conflagration of a few weeks? Is it got potential to be a war? I saw somebody estimate that this could involve 150 to 200,000 deaths because of this effort. Do you think that it could ever get that large and become World War III?

Clem Miller 48:45

Or the last I saw was that there were 500 people who died in Iran. No, I think they were talking about the whole event. I don't think they were talking about personal. No, I I I don't think you know, I don't think this is a Russia-Ukraine situation where you have you know large numbers of people killed, right? I I don't I don't see that at all happening, right? I just I just don't see that. I think I think this is a I think this is a relatively short-term event, few weeks, right? Um and I think it's going to end with the existing regime in place, weakened. And they're gonna there's gonna be renewed negotiations. Uh, but long before those negotiations are concluded, oil and gas out of the Gulf on both sides, Iran and the Arab Gulf states, will be flowing freely with insurance premia back down. And because of that, oil and gas prices will be will be back to where they were more or less before all this happened last Friday.

Investor Takeaways And Program Notes

Steve Davenport 49:56

I'll just tell you that I've seen Exxon go from 115 to 155 in preparation for this Iran event. Today it traded at 152 and didn't move much. Yeah. So to me, part of that big price, you know, you said before the event happened, has already been put into the price of oil. So I think there's a good amount to fall if this if this was to get resolved. So I I don't believe that the prices we had on Friday before this event, I think were still high. They were $20 higher than what they had been, and the premium was in Exxon for almost $40. It went from $115 to $155. And so if oil goes up 20 or 30 because of this event, it in fact it happens, it goes up another 10 or 15. I think there's more like 20 to 30 to come down, not just to 10, it's gone up.

Clem Miller 50:58

So yeah, I yeah, I agree. I agree with that. I mean, you know, I'm sure Exxon in their planning wanted, you know, had had to take into account a scenario like the one we saw. Yeah, I'm sure they have a plan for what you know where it's coming from and what but these are smart companies with smart strategic planners.

Steve Davenport 51:21

Yeah, I think they might have thought of some of these things that maybe some of the governments had them, you know. Right. All right, um, tomorrow we have um Kathy Karlick, and she's gonna be talking about her charity that helps women with their finances, and we'll hopefully have that um released sometime in the afternoon tomorrow, and we'll try to get this released sometime um maybe by the commute today, um, but definitely by your morning commute tomorrow. So thanks everybody for listening. Any last thoughts, Glenn?

Clem Miller 51:57

No, I you know we'll get through this and you know, just stay in there, don't panic. That's all I'd say.

Steve Davenport 52:05

Yeah, I think this is why you own energy at some point in your portfolio, because it does have a very sporadic period where it can go up a lot in a short period of time, and you might want to take advantage of it by owning some. So I think that higher higher gas prices are a part of your life, but higher stock prices can also be part of your life. So thank you everybody for listening to Skeptics Guide, and please let us know what you like and don't like, and we'll try to deliver for you. Thanks everyone. Stay safe.