Iranian / US War - A Geopolitical Expert responds to Trumps De-escalation tweet

Most geopolitical crises seem distant until they aren't — and when a war between the US and Iran suddenly hits the headlines, everything shifts. In this urgent episode, BCA Research's Chief Geopolitical Strategist, Matt Gertken, breaks down the recent developments and reveals the real strategies behind the headlines. From soaring oil prices and regional power plays to the surprising moves of China and Russia, you'll discover how these global tensions could reshape your investments and the world order itself. 

You'll learn why President Trump's recent shift from isolationism to military brinkmanship is more than just politics — it’s a calculated move within a long-term American strategy to control regional influence and access to vital resources. Matt shares key insights on Iran's likely response to US pressure, the impact of the conflict on energy markets, and how geopolitical power balances are realigning in real-time. Plus, he explains why China’s role in the Middle East isn’t as stable as it appears, and how this tension could spark new strategic confrontations in Asia. 

This episode offers a clear framework for understanding the complex dance of diplomacy, military posturing, and economic pressures shaping the global landscape. If you’re an investor, policy-maker, or curious about the unseen forces driving market volatility, you can't afford to miss Matt’s expert analysis on the risks and opportunities ahead. With a deep dive into the long game of US foreign policy, energy geopolitics, and the shifting alliances, you'll leave equipped to anticipate the next moves and protect your assets.Whether you’re managing a portfolio or navigating the broader global economy, understanding the strategic undercurrents in Iran and beyond has never been more critical. This episode is essential listening for anyone seeking insight into the future of geopolitics and energy markets in a world on the brink of change.

Matt Gertken is the Chief Geopolitical Strategist at BCA Research, known for his keen analysis of international conflicts, energy security, and great power rivalries. His insights are informed by years of research and a deep understanding of global strategy, making this conversation a must for investors and policy enthusiasts alike.Prepare for a masterclass on how today’s geopolitical tensions could shape your financial future — and why staying informed could be your best defense in volatile times.

Transcript

SPEAKER_00 0:00

They said, Well, look, China imports ninety percent of Iranian oil exports. And China is the biggest investor in Iran and it's building infrastructure in Iran, has a strategic partnership with Iran. But China also has these great relationships with the Gulf Arab states, and it's one of their biggest, actually, their biggest customer. And so in this case, what China will do is mediate the relationship. And so China played a role, for example, in mediating the normalization of diplomatic ties between Saudi Arabia and Iran. And China was expected to exert coercion or persuasion over Iran to prevent them from seeking a nuclear weapon, and then that would prevent a war.

SPEAKER_02 0:44

I'm absolutely delighted to have VCA Research's chief geopolitical strategist, Matt Gertkin, on the line with me, and how timely is this? I follow Matt closely on LinkedIn and in other places, and I find his commentary really insightful and really useful. And today is the day we all woke up this morning wondering where this was gonna go, uh, but this war between the US and Iran. And then we get this tweet, and it might be instructful just to start with the tweet from the President of the United States where he said that I am pleased to report that the United States of America and the country of Iran have had over the last two days very good and productive conversations regarding a complete and total resolution of our hostilities in the Middle East based on the tenor and the tone of these in-depth, detailed and constructive conversations, which will continue throughout the week. I have instructed the Department of War to postpone any and all military strikes against Iranian power plants and energy infrastructure for a five-day period, subject to the success of the ongoing meetings and discussions. Thank you for your attention to this matter. So that kind of rubbishes my first question, Matt, which was where's the where's the potential off-ramp? But I I'd love to get your initial reaction to that, please.

SPEAKER_00 2:09

Yeah, thank you uh very much for having me, Alan, and for what you said. Uh my initial reaction is uh is uh qualified or or sort of conditional optimism in the sense in a you know in a market sense, everything that I'm trying to do is to interpret geopolitical developments from an investment strategy perspective. And I don't think that this is a green light because I think the Iranians need to ratify what President Trump is offering here, which is, as you say, an off-ramp. Um and and really they haven't done that. The initial statements we've seen from Iranian state press do not refer to the productive negotiations that President Trump is saying exist, but of course they could be uh lying or bluffing. Um there's a fog of war that covers almost everything we're talking about today, and I'm sure there are negotiations behind the scenes, regardless of whether they deny them. So I think this is a sign that President Trump has reached his pain threshold. It was unusual for him to launch a war uh that could affect the energy price ahead of a midterm election, and so it was expected that he would start to backtrack, and some of his rhetoric has already shown that he's trying to keep the war contained because of that domestic political context. But um, but we still need to see that the Iranians will actually reduce their their regional strikes because if they now turn around and hit another uh refinery or oil production or transportation, then President Trump's remarks will simply go in the wastebasket and we'll continue to have this war.

SPEAKER_02 3:45

You would wonder as well, I suppose, how much discipline there is within the Iranian regime. I mean, they don't really know who are they that who are they negotiating with. And let's say, for example, there were no discussions uh with the Iranians, which people are hinting at. And in that scenario, then is there a risk that we could see that ill discipline in inverted commas from the Iranians and leading to you don't know where where does Trump go from there?

SPEAKER_00 4:17

Yeah, I I think that's a very astute point. In in in the usual Trump negotiation, he's talking to a head of state like Xi Jinping. And and if it's someone who is powerful, then they're capable of sort of responding in an executive fashion and changing the implementation of national policies to reciprocate. But in this case, the US and Israel have undertaken an extensive uh uh strategy of assassination and have removed layers of leadership in Iran, including most recently the national security chief sort of whose name is Ali Larajani. And in that case, m many of the interlocutors are gone. Also, as a strategic matter, it's essential for Iran to maintain the dispersion of its forces because it's fighting an asymmetric war. It's far less capable than the US. It doesn't try to rise and challenge the US in a direct confrontation. But that means that Iranian Revolutionary Guard Corps is uh is has separate units who are under who are not necessarily taking centralized direction in their campaign, and they may not cease fire when instructed to by an interim or transitionary authority. So I think that's a good point, and I think another point is that even if there is a centralized, even if the state is still centralized and there is a leader who can emerge here, they don't have much confidence in President Trump's assurances because it's transparent that he's attempting to contain the conflict before the midterm election, which implies that after the midterm election he could renew the assault and assassinate them. Well, in that case, their leverage is actually greater before the election, where the energy price is detrimental to President Trump. And so you could either have a centralized Iranian rump regime that escalates the fight simply to increase the political pressure on President Trump ahead of the midterm, or you could have a lack of a centralized authority. And so in both cases, it would mean that we do not fully de-escalate from the conflict.

SPEAKER_02 6:31

It's interesting you you talk about pain threshold. So there's there's two words that I've kind of used to help describe this, explain this to my clients. It's you know the pain threshold for Trump on one side and then the sufficient deterrent uh that the Iranians have created on the other. So I suppose if we've if we can agree that Trump President Trump's pain threshold has been met, and you can imagine the pressure he's coming from Republicans uh uh in his own party, let alone Democrats, but have the Iranians uh extolled enough deterrent force, do you think, uh, to actually come to the table on this?

SPEAKER_00 7:11

Good question. Um it's i i i yes, in a way, because they managed to close the Strait of Hormuz, and so they managed to ignite a global energy crisis. Uh now the extent of that crisis is a little bit underwhelming for those of us who expected more. Uh the I think many of us thought that if you attacked the Iranian regime and assassinated the leadership, that the the closure of Hormuz would have involved more extensive attacks on regional infrastructure than what we've seen. You know, because the shipping can can restart in relatively quickly. Um but like with the attacks on the Qatari liquefied natural gas plant, it takes months or or a year to to conduct the maintenance and renovation and reconstruction, and so you l you permanently lose some production capacity. Um I would have thought that they would have done more of that kind of damage than they have done. So so the the ability of the US and Israel to s to stop their drones and missiles has been pretty impressive. Uh but having said that, they did close Hormuz, and so Yeah, I think they've probably I think they've probably I again all we can really go by is the American reaction and what we can see is that President Trump is apparently eager to contain the war rather than escalate.

SPEAKER_02 8:39

If we go back to US politics, I mean, and we we cast our mind back to all those big speeches, pre-election, America first, uh no foreign wars, uh keeping Trump's uh troops at home. And and uh Trump President Trump was really an isolationist, you could argue, uh, in terms of foreign policy. Where has this come from? This what I would call an incredible miscalculation. Uh why has he turned about in such uh a massive way?

SPEAKER_00 9:14

Yeah, well, I think it's a great question, and it points back to why we should think in terms of geopolitics rather than politics, because the politics of it do not support the event itself. You know, the politics would suggest this wouldn't happen. President Trump rose to power within the Republican Party as an vocal critic of the George W. Bush administration, foreign wars, entanglements, quagmires in the Middle East, regime change in Afghanistan and Iraq. He was opposed to all those things, and his movement argued that all of those things were detrimental to the United States from a fiscal point of view, but also that they had an adverse domestic impact where the military-industrial complex got more powerful and civil liberties were impinged upon. So now we see that there's a split within his base because ha you know, half of his base, or maybe a little less than half, believes that this war is another example of the US military-industrial complex running the game, and that President Trump himself has betrayed American interests. Uh, so where did it come from? But if we think of it geopolitically, it's quite clear the US has a long grand strategy of demanding access to all regions of the world, particularly in the maritime space. And also it has had a long red line against Iranian nuclear weaponization. And some of you maybe, you know, some listeners might be laughing, well, Iran, you know, didn't get a nuclear weapon. Well, they didn't get a nuclear weapon because the US and Israel attacked them um last year and this year. And so, in other words, if we forget about President Trump and and BB Netanyahu and some of sort of the individuals, what we can see is that the US did not want Iran to be a nuclear-armed state that was backed by Russia and China and that could exert influence across the region. And so we saw the Americans uh try to remove or disarm or defang Iran its offensive or potentially offensive capabilities like like nuclear or ballistic missiles or regional terrorist proxies. And that fits with long-term U.S. national security interests. And in a way, you could say that the national security establishment and the intelligence community have rolled the Make America Great Again movement into a ball and just thrown it at Iran uh to prevent, you know, uh some other misuse of power. For example, President Trump had his sights set on Greenland, which would have been hostile to the NATO alliance. For U.S. long-term strategic interests, it would be much better to prevent Iran from getting a nuclear weapon and succeeding in the way that North Korea did, rather than allowing President Trump to break up the NATO alliance.

SPEAKER_02 12:10

Yeah, it's really fascinating looking at this conflict, I think, through the prism of US-China relations, US Russia-China relations. So we know that Russia, uh Mr. Putin is quite happy with whatever everything that's been going on, but try to get a handle on China's um view on this. What what's your what's your uh interpretation of how China sits with this at the moment, Matt?

SPEAKER_00 12:35

Yes, well, you are correct that Russia benefits from this, and in fact, Russia did not exert much pressure on Iran to prevent them from taking the path of nuclearization. First, because Russia did cooperate in the 2015 nuclear deal, but the Americans pulled out of that deal under President Trump in 2019. So Russia didn't see any interest in going and revisiting the deal, but also because with the Ukraine war, as you know, they they loved the idea that America would intervene in the Middle East again. Oil prices go up, that helps to fill Russian coffers. The national the global topic conversation simply shifts to the Middle East and everyone forgets about Ukraine. And and then also there's more energy price pressure on European politicians, which reduces their own willingness to support Ukraine. So it's great for Putin, agreed. Um, and it it certainly fits with those, you know, those who believe that President Trump is fundamentally sort of allied with with Putin or Russia, they're probably feeling reinforced right now. Um, I mean we'll see about that, but yeah, could be true. Uh with China, you know, China was looked at as, well, first of all, I've been tracking this for many years leading up to this conflict, and many investors around the world believed that China would prevent this conflict from happening. They said, Well, look, China imports 90% of Iranian oil exports, and China is the biggest investor in Iran, and it's building infrastructure in Iran, has a strategic partnership with Iran, but China also has these great relationships with the Gulf Arab states, who and it's one of their biggest uh actually their biggest customer. And so in this case, what China will do is mediate the relationship, and so China played a role, for example, in mediating the normalization of diplomatic ties between Saudi Arabia and Iran. And China was expected to exert coercion or persuasion over Iran to prevent them from seeking a nuclear weapon, and then that would prevent a war. Um, the problem is it it just didn't happen that way, and I think what it calls attention to is that China is not as much of a status quo actor as some people believe. So what is often believed is that China upholds the status quo because they benefit from trade, they're an exporter, and they want the global system to be relatively stable so that that's good for exports. But the reality that we've seen in modern times is it it it in certain critical strategic ways, China is undermining the world system and provoking and challenging the United States. And one example is nuclear proliferation, where North Korea, Pakistan, Iran, these countries gain nuclear weapons in great part because of assistance technologically from China. And the Americans view that as undermining the world system. And so what we can see is that China did not prevent Iran from going down that path. The Americans showed their uh typical willingness to engage militarily and intervene and go on adventures militarily. And now what China is faced with is that the U.S. has demonstrated enormous power in the region. Uh, no matter what you can say about the American operation, it certainly doesn't cause Middle Eastern regimes to um, you know, to laugh at the United States or to thumb their nose at the United States. Everyone realizes that the U.S. can make their leaders disappear overnight or can destroy their critical infrastructure. So it reduces China's influence over the region, even though that creates a vulnerability with China importing about 42% of its oil from the region. So we should expect that China will have some form of response to this. Either they need to show that they can that they can project power in East Asia to sort of demonstrate that they have a sphere of influence and that the U.S. should not think about taking these adventurous actions in East Asia, or they need to start to send their Navy on broader excursions into the Indian Ocean and try to show that they're willing to have a naval skirmish to defend their own energy, their vital supplies. Um, but we should expect a Chinese reaction and in geopolitical time that could be in the coming years. It doesn't necessarily have to be tomorrow.

SPEAKER_02 16:58

I I've uh was listening to an interview Jeff Curry did. Jeff Curry, former Goldman Sachs head of research, and he was talking about the parallels between this uh supply shock and the demand shock uh during COVID. So the demand shock uh drove oil prices down, uh obviously because there was everybody was at home, and this supply shock is driving prices up. But he he he couched them in very similar terms, Matt. And he's thought he what his big takeaway was how in the name of God are oil prices only$100-120 a bar? So this is a market misconception that he thinks. Would you support that view? And I know that's a trick question, tricky question. I mean, let's say these talks, let's say these talks are successful. Is the view that uh oh, everything back to normal? I mean, or is there a structurally higher oil price now baked in because of the risk premium associated with future Iran activity?

SPEAKER_00 17:56

Yeah, I think higher price. So if it was, let's say the oil price sho should have averaged around$60 per barrel, Brent crude. Maybe now it's going to be$80 or$90 per barrel, simply because of those dynamics we talked about earlier, where Iran actually still has an interest in causing a higher oil price ahead of the midterm election to try to create change of party in the United States to try to create change of policy, and the Democratic Party has been opposed to what President Trump is doing. Um, but it's not like they believe they can trust any party in particular, it's just that they would want to turn the tables and and change American policy. Um the other thing is that there will be a some kind of risk premium embedded because President Trump can renew the conflict after the midterm election anyway, you know, if he wants to pursue regime change, for example. And so I would expect that we we might settle, but I don't think we're gonna settle at as low of a level as previously. Having said that, I think the answer to the question of why the oil price isn't even higher is b you know, because in previous examples of major oil shocks, we saw the oil price rise, you know, uh easily by double easily by above 50%, like in the Gulf War, the first one in 1991, uh maybe an 80% increase in the oil price. In the 1973 Arab oil embargo, and in the Iranian revolution in 1979, we saw uh 200-300% increases in oil price. Um now, a lot of structural conditions have changed, but I think the biggest cyclical factor right now that really matters is that China's economy is simply very weak. And they did not roll out. In early March, when the war was beginning and the world was focused on the war, China held their National People's Congress annual legislative session. They did not provide a large new convincing fiscal program to stabilize aggregate demand. So you still have a weakening growth momentum overall in China, and that they're the marginal buyer of each barrel of oil, and so with weak Chinese growth, you have a problem with the demand side. So even though we have a supply constriction and we're debating that in the Middle East, and some of that will linger, we don't have extremely robust global demand for oil, and so that may be why the oil price hasn't sustainably doubled, whereas you might suspect that it would sustainably double in the environment of a war with Iran and closure of Hormuz.

SPEAKER_02 20:27

Interesting. Um, just two final questions, Matt, because I'm very conscious of your time given the day given the day that's in it. Like, is this fatal for President Trump now in terms of you know the MAGA movement? We know Marjorie Taylor Green, uh Tucker Carlson, um the podcast podcast host Joe Rogan. I mean, cracks are emerging, uh, there is a rupture there, but is it fatal in the sense of uh Trump with the midterms, but also longer term? Because a lot of people are looking past the midterms, looking at what's next for the Republican Party. Is this a criv is this a pivotal moment, do you think?

SPEAKER_00 21:06

Yeah, I do think it's a pivotal moment, but I don't think the jury is in yet. And and what I mean by that is if we do have a doubling of the oil price sustainably, that typically coincides with a recession. If we have a significant slowdown, persistent high headline inflation, the Republicans are going to get wiped out in the midterm election, meaning that they'll lose the Senate, not just the House, because they're definitely going to lose the House. Um, they'll lose the Senate, and then also the odds of President Trump and the Republicans, like the odds of the Republicans winning in 2028 would fall pretty substantially. Because when you uh calculate a recession, you know, uh US has had elections since 1788, so we have a lot of data. And um and when you throw a recession into a four year presidential term, it drastically skews the the uh Probabilities. So for example, with a two-term president, the opposition has about a 70% chance of winning the 2028 election. Now, Trump is a little different because his two terms weren't served consecutively. So maybe he's just a one-term president. Well, in that case, maybe it's more like uh maybe the Republicans have a 60% chance of re-election. But if you throw a recession in the mix, then the then they have a 40% chance at best. And if you treat him as a two-term president, which he kind of is, because he can't run again, so he won't be on the ballot, uh, you're looking at you're looking at a 30% chance that Republicans are re-elected in 2028. Um so it really matters whether the energy price causes a recession or not. And if if it in and given that Trump is backing off for that exact reason and trying to negotiate, etc., well let's say, okay, let's say he manages to avoid a recession, he's just wounded. Um it's a coin toss then whether Democrats win the Senate this year. Uh but uh but when we get to 2028, you know, it's still going to be uh it's it's it's it's still going to be fairly likely that that we have a party change, that the the Democrats come in. Um But I think what we have to recognize is that a lot of the things happening in the world are not just about President Trump. You know, there's a tendency to personalize everything that happens as if Trump is the sole source of disruption. So, first of all, if a Republican wins, they they will pr like J.D. Vance, for example, they have a two-term potential and they're younger, so they need to listen to their advisors, they need to be stewards of the economy and to try to get re-elected, and that means that the policies may become a little bit less disruptive. If a Democrat comes in, well, that they'll drastically change policies, they'll be more multilateral, they'll sort of go on an apology tour, try to make amends with allies, etc. Um, so what we have to expect is that what we're witnessing is a extremely disruptive phase right now, and it's going to last for the rest of Trump's term, you know, another two and a half years. He won't control Congress, he'll continue to pursue trade war, he'll continue to be aggressive in foreign policy, not just with Iran or Venezuela, but also Cuba and maybe some other areas. And then when we get into the next phase, mid-29 onward, that's going to represent that the U.S. has had a generational change, and some of the policies will actually become a little bit less disruptive.

SPEAKER_02 24:32

Last question. And and I I was kind of chuckling there when you when you mentioned JD Vance um being conciliatory. I I remember his uh speech in Munich to the European leaders. There wasn't much of a conciliatory tone there, so let's hope he's a bit more conciliatory. But there's a lot of investors really, really nervous now, Matt, okay, with everything going on, uh, even we see the lights of gold, which would typically have been a safe haven, uh really collapsing as well. So, I mean, what is the kind of view in BCA research? And I know there's multiple strategists with multiple views, but if I was to ask you in terms of top of mind from a portfolio perspective, what would you be saying to clients at the moment?

SPEAKER_00 25:13

Yeah. Well, I I appreciate that because like BCA is independent, but also our strategists are independent and it's it's really valuable. It means that we don't all have to tow the party line, and you know, everyone can do their own. But of course, we as as strategists have a responsibility also to make sure that we iron out difficulties among each other so that we do convey a coherent message. And I think in general, the company has been uh I think most strategists have been underweight equities this year, feeling that the equity rally had gone very far, very fast, and that there were problems emerging in AI that was disruptive to the to, for example, software, um, but also private credit, some problems emerging there. And then, of course, the Fed was having to reduce the number of rate cuts that they were going to offer. And then finally, now my prediction, this war erupted, and that's that's tipped several strategists into a more defensive posture as well. So I think there's a tendency to underweight equities. I think there's a tendency to um overweight you know, government bonds on the expectation that inflation will ultimately subside, even if there is an energy shock. And there's also a tendency to favor more defensive sectors in the economy simply because we were in a slowdown phase of the business cycle anyway. Um certainly the war has pushed up the probabilities of either a recession or some kind of stagflationary context where growth slows but inflation is a little higher. Um, relative to a you know a Goldilocks scenario, which is probably only about 20% now, where you where you continue with robust growth and low inflation. Um so most of all, what I think we all have in common is a recognition that the U.S. consumer has been extremely resilient so far, but there's not a lot of ammunition left. And uh so a job market that has not you know been hiring as much, where savings rate is extremely low, and the unemployment rate seems to have nowhere to go but up, that could be a problem for U.S. consumption. And so that should be a slowdown, and that should favor more defensive allocation. And then lastly, I'd just say the geopolitics of it. Uh clearly defense stocks have continued to benefit. Also, you know, we commodities in general, we're seeing a scramble for commodities because countries are insecure and they're using fiscal resources either to rebuild their armies or to regear their industry to be more domestically focused in a period of trade wars, or both of those things. Um, and in cases of Europe and China, of course, there'll be a further uh investment in renewable energy to try to avoid these oil and natural gas shocks. So uh I think a lot of fiscal spending is an outcome here. And what that can do, you know, that has a a long-term relationship that could be problematic for bonds, you know, for government bonds. But uh at the moment, what it can do is help to try to stabilize um the demand in those in those societies which might otherwise face really significant growth disappointments.

SPEAKER_02 28:25

Matt, I just want to say a huge thanks. Uh you're very generous to jump on today in the day that's in it. If people want to learn more about, I know BCA research, I'll put links to that. You're LinkedIn, I'll put a research uh a link to that because you're very active on LinkedIn as well. But I've noticed you on a podcast, Geopolitics. Is it talking geopolitics or what is that uh matter? Where can people find out more about what you do?

SPEAKER_00 28:48

My colleague Marko Popic and also a former colleague of mine, Jacob Shapiro, have a uh podcast called Geopolitical Cousins, which I would definitely encourage people to follow. And I'm a frequent guest there. I'm sort of the third cousin. Um but the uh but the main place to go for this kind of research that we do, which by the way, is we're you know, we're always trying to make sure that it's market-oriented, you know, it's not just politics for the sake of politics, and also uh, you know, we're providing data-dependent analysis. Uh, that's bcaresearch.com, and you can look at the geopolitical strategy, you can look at the U.S. political strategy, and you can also look at other asset classes and regions because we've got uh many strategists working on these issues.

SPEAKER_02 29:30

So, Matt, uh, you have a busy week ahead. Best of luck with everything, and sincere thanks again.

SPEAKER_00 29:35

Thank you very much, Alan. I really appreciate you having me on.