Iran Conflict, Oil Prices, & Global Economy Talk

Oil prices are surging, global tensions are rising, and suddenly something happening halfway across the world in Iran is hitting close to home! In this episode, we break down what’s going on with Iran, why disruptions in a key oil shipping route matter so much, and how it all connects to inflation, markets, and your everyday expenses. More importantly, we talk through what this means for your financial plan and how to stay steady when headlines feel anything but!

To watch in video format, read show notes, or view the transcript, visit thewealthmindsetshow.com/s2e33

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Transcript

You're listening to The Wealth Mindset Show, where Hixon Zuercher Capital Management's team of finance professionals, portfolio managers, and a life coach come together to tackle complex topics in finance and retirement planning, so you don't have to. From investment strategies and wealth management to tax planning, retirement income, and aligning your money with your values and purpose, The Wealth Mindset Show offers the tools to thrive.

Austin Wilson:

All right. Hey, hey. Welcome back to The Wealth Mindset Show where the Hixon Zuercher team helps you manage wealth, navigate retirement, and make smart decisions for a secure, meaningful future. I'm Austin Wilson, Director of Investments at Hixon Zuercher Capital Management.

Tony Hixon:

I am Tony Hixon, taking over for host duties, joined by...

Jordan Shaw:

Jordan Shaw.

Austin Wilson:

The Jordan Shaw.

Jordan Shaw:

The Jordan Shaw, the one and only.

Austin Wilson:

He's the only one I know.

Tony Hixon:

Today, we're diving into something that's a little bit interesting to talk about. It's news headlines of the war with Iran. We're going to talk about oil prices, how they're surging, what could that mean for your wallet, markets, the global economy. And then, Jordan will weigh in on what that means for you, your investments, your portfolio, and your financial plans. So before we get started though, let's catch up on what's going on in the families.

[1:12] - Life Updates: Spring Cleaning, March Madness, & Family Time

Austin Wilson:

What's going on with life?

Tony Hixon:

What's happening right now? Jordan, let's start with you.

Jordan Shaw:

Oh, life right now, this is spring-cleaning mode for everyone. So, our house is messy, and it's that mess before it gets really nice. I mean, I live in that area a little bit. I like it, the potential to be reset for the summer and the warmer weather out there and getting outside for walks, that's where I'm at. I'm at a peaceful place right now.

Tony Hixon:

Good for you. How's your bracket?

Jordan Shaw:

I don't want to talk about that one.

Tony Hixon:

Okay. All right...

Jordan Shaw:

Avoid it at all costs.

Tony Hixon:

We're in the midst of the NCAA tournament.

Austin Wilson:

Yeah, It's true.

Tony Hixon:

Depending on when this comes out and Jordan's not going to talk about that. Austin-

Austin Wilson:

He's not going to talk about that, yeah.

Tony Hixon:

... what's going on with you?

Austin Wilson:

Same outside weather it's time for. We had 70 degrees last weekend with 70 mile an hour winds.

Tony Hixon:

Yes, we did.

Austin Wilson:

Then we got two inches of snow, and now it's 60 degrees and nice out again.

Tony Hixon:

Beautiful.

Austin Wilson:

So, the kids are enjoying being outside and we're enjoying that too. What about you, Tony?

Tony Hixon:

Yeah. So, my oldest sophomore in college studying abroad in Spain right now. Her major is Spanish education, and she'll be back in a couple weeks. So, we're looking forward. She's been there for four months. She's learned a lot about the Spanish language. Carrie and I were able to head over for a week to visit, and we're looking forward to have her back for the summer.

So with that, Austin, as our CIO, you have a lot of responsibility. You have to know a lot about a lot of things, right?

Austin Wilson:

Master of none. No, yeah. There's a lot going on. There's a lot going on.

Tony Hixon:

There's a lot. So, this is not a news episode.

Austin Wilson:

It's not. There are no breaking news here.

Tony Hixon:

We're not going to describe the entire situation, but from a high level, what is the Iran conflict? What started all this?

[2:50] - What Began The Iran Conflict & Why Oil Prices Are Spiking

Austin Wilson:

Yeah. So, as of the time of this recording, it's been a few weeks now that it's been since really the US took initiative and really with the help of Israel, to try and put a stop to Iran's nuclear capabilities. That's what this whole thing was started as is, hey, there's a global threat that Iran has potentially the capability to have nuclear missiles. And we don't think they should because there's a number of reasons, but a lot of that is they're state funded terrorism and all kinds of things like that.

They're bad guys, in general. There's probably great people in the country, but the leadership, not so good. Right?

Tony Hixon:

Right.

Austin Wilson:

So the discussion was, well, let's try and take out through a targeted series of events their ability to do this. So, that's what started this whole thing. If you think about where Iran is, however, this creates problems.

Tony Hixon:

Okay.

Austin Wilson:

Iran is in the Middle East, which is not surprising. But it is very, very key to global oil production, global oil transport, all these things. And a lot of its neighbors are doing the same thing they are, very... It's an oil-producing area of the world.

What this means is that the world energy situation is under a little bit of a threat. So, about a fifth of the world's oil travels through the Strait of Hormuz, which is right outside of Iran there. It connects a couple of the seas and a couple of areas of the country and where a lot of the eastern side of the world gets their oil from.

So, this is not the US's. The US does not get a ton of oil from over there, but the rest of the world gets a ton of oil from over there. And if you cut off essentially a fifth of the world's oil supply, that's a big problem.

So, we've seen oil prices spike. And as of the time of this recording, depending on what you're looking at, 50-ish percent of an increase in a barrel of oil, a couple different ways we can measure that, but it's really a huge jump. This is impacting oil prices here in the US. It's impacting oil prices in Europe and around the world. It's impacting gas prices. We're going to talk about that in a little bit, but we've had a significant jump in the price of oil.

What is interesting is that when we're watching this, oil prices shut up seemingly overnight, but they've continued to shoot up over the weeks that this has been going on. And they obviously have yet to meaningfully come down. They've come down off their peaks, but still well elevated from where they were.

And if we look historically, these events, we do have, unfortunately, these events have happened in the past. So, I think out of the last 14 events that have been similar to this, oil prices have essentially come back down to where they were in a couple months. So, we're definitely not a couple months out, and we're still elevated.

They should continue to come down. This is not anticipated to be a forever conflict. Iran doesn't have the military capability. They don't have the money. They don't have all this stuff to actually continue this as long as essentially the United States does.

So, that's something we're watching right now, and it's just creating a lot of volatility in terms of markets. I feel like markets are down mid-single digit percents overall. However, if you look individually, there's a lot of volatility in terms of individual sectors and individuals.

There are things that are working, there are things that are not working. And any given day, you can be up 2% because there might've been some good news, or you can be down 2% because there might've been a little bit of bad news. So, that's what's going on right now.

Tony Hixon:

Yeah, yeah. And you mentioned the hit to gas prices. So, I happen to remember before this conflict occurred, gas was what, maybe 2.40 a gallon maybe in that area. And I think I know this morning I just filled up at 3.79.

[6:19] - Why These Discussions & Headlines Matter to You

Tony Hixon:

So Jordan, from a budgeting perspective, that can be quite a hit to a budget when gas price increases almost 100% in a few weeks. What is your suggestion, when you run into clients who haven't budgeted enough in certain areas like that, when a shock occurs to a budget item?

Jordan Shaw:

Look into getting a good two-wheel bicycle is an option.

Austin Wilson:

Live close to work.

Jordan Shaw:

Live close to work. But in all seriousness, alternatives to those energy usage aspects of your life can be something that will need to be looked at. Do you need to drive the vehicles that you are, the places that you go, how much is necessary? And obviously, we're not encouraging people or encouraging ourselves really to, "Oh, you need to focus on only the necessities."

Because like we've talked about, this may not be a long-term thing. Typically, this is only a blip when you zoom out and look at everything. But obviously we're feeling it today, right now, what do people need to do?

And it's look into where you can cut back on the things that you maybe didn't even realize that you had a five-year subscription to some protein shake that you didn't care about. You know what I mean? So, there's things like that that need to be certainly looked at all the time, and especially in moments like this where spending that you need for energy, utilities, and things that you're going to be paying for regardless just to live your life. When that goes up, other things come under some pressure and need to be looked at.

Tony Hixon:

Yeah. And Austin, if you're right, maybe gas prices will start to recede in the summertime.

Austin Wilson:

Yeah. Well, the challenging thing is that we have two things going against us. We have the shock that is oil spike causing gas price spike, and gas prices go down a lot slower than they go up, of course. So we're going to probably see that, but we're also running into seasonality of gas prices.

So, in the winter, gas prices are low, not a lot of people are driving. And then through the spring and into the peak of summer, gas prices rise. So we're actually fighting an already probable increase of gas prices on top of a shocked increase of gas prices. So, will they go back down? Maybe a little bit, but I wouldn't count on it anytime soon to be substantial.

And that's unfortunate. And there's a really key level. If you look at consumer, like sentiment mentality of how consumers are feeling, you get to that $4 a gallon range, which we're not quite there yet, depending on where you are in the country, you might be... but we're not right here in Ohio. That's a mental trigger where people start getting a little bit more freaked out.

And if it stays above $4 a gallon for a while, I think we'll start to see more sentiment issues. As of right now, it's not even on a national basis. So, it's something to keep our eyes on.

[9:04] - What Is The Fed Doing?

Tony Hixon:

Yeah. Well, energy prices, gas prices, they obviously drive inflation higher. So, what do you think the Fed is thinking about the possibility of inflation going higher from here? What will this do for rates in our economic situation?

Austin Wilson:

So, if we looked going into 2026, the markets would have been saying, and the Fed themselves would have been saying, "Yeah, you're probably going to get a couple interest rate cuts." And that's what everyone's base case was going into 2026 and even into February.

Then all of a sudden March comes and this happens and things change. The data changes. The data changes in the short term. So, we haven't seen actually this hit the actual published inflation data yet.

Tony Hixon:

That's okay.

Austin Wilson:

It's going to, but what the Fed wants to see is 2% inflation, that's what they've talked about for a long time. There's a lot of reasons for that and a lot of maybe thoughts why that might not be as relevant anymore. But what I think is going to do, as you look today, the markets are now pricing in no cuts.

So, the markets are saying the Fed's probably not going to cut and that's because inflation's probably going to creep back up a little bit with some of these inflationary shocks from some energy prices. But the Fed's probably not going to be increasing rates in the face of this because there's a couple things. Number one, this is a relatively short term event. This is a relatively isolated event, and this is a supply driven event.

So we're choking off... We're not. Iran essentially right now is choking off the world's supply of oil by a significant margin right now. So, they're controlling the supply. Supply is limited, but demand's relatively the same around the rest of the world. So, that makes prices go up.

What the Fed can do with interest rate moves is control the demand side of the equation. They can make things more expensive to borrow money, to buy things on interest and things like that. They can make money flow slower, which makes the demand side of things a little bit weaker.

They cannot control supply. They cannot open up the strait of Hormuz. They cannot make oil cheaper and gas cheaper. So, I think that-

Tony Hixon:

They won't hike rates more.

Austin Wilson:

Yeah, they can't do that. So, they can control what they can control and they can look at this and say, "Well, this isn't really something we can fix right now." So, I don't think this is really going to change their... They're not going to hike rates in the face of this, but what it does is probably just allows them a little bit more patience as inflation already was a little above where they wanted to be to not be cutting rates in the face of this.

So, the Fed's in a tough spot because the other side of their mandate, in addition to price stability, which is the inflation side of the mandate, is the labor market. The labor market is, it's okay. I'm going to say like soft okay.

It's certainly weakened from where it was a year or two ago, where we have less job openings and higher unemployment rate, certainly. And all of this is being masked by some changes in demographics, some changes in the labor pool. And honestly, great productivity and a lot of this is coming from things like AI. So, the labor side of the market is actually weaker than the inflation side.

So, they have one thing running hot and one thing running cold. So what are they going to do if they have conflicting signals? Probably nothing.

Tony Hixon:

Nothing, yeah.

Austin Wilson:

So, I think the Fed's going to be probably waiting for a while on this.

Tony Hixon:

Makes sense.

Austin Wilson:

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Ready to transform your relationship with money? Join us at hzcapital.com, and let's embark on this journey together. Now, back to the show.

[12:52] - The Silent Killer to Your Portfolio

Tony Hixon:

So Jordan, inflation is... We call that the silent killer to a retiree's portfolio. If you're living on a fixed income or you're not invested in such a way as to keep pace with inflation, it can really affect a financial plan or a retirement plan. So, in the face of probable inflation as a result of the increase in gas prices, how are you talking to your clients? How are you building confidence into them that their plans will be okay?

Jordan Shaw:

Yeah. And there's really two things that come to mind. The first is to directly answer that question, we're accounting for, and every good advisor should be accounting for, inflation happening in general.

Tony Hixon:

That's right.

Jordan Shaw:

So, that's something that when you're investing, you are making sure that the long term is going to be through all the historical data you can find, and the best investments you can put together, hopefully, outperforming whatever inflation does so that you can continue to draw, continue to take from your portfolio to provide for your lifestyle in a way that, sure, you may feel the day-to-day increase in costs. But you know the portfolio's doing what it is set to do and you'll continue to be able to use that as a source of funds.

And there's other things too, like those that are drawing on social security, that increases right now, according to inflation. So, there are some other fixed income sources and some pensions that people have that will help hedge against that just naturally by the way they were built, which is a good thing. And the other thing that comes to mind too is looking globally at this and each country and how this is going to impact inflation.

I'm curious, and maybe this is more of a question to you, Austin, too. Like this instance of what's happening, it's really targeted a single item, a single or group of items, or liquid, natural gas and oil, right?

Austin Wilson:

Yep.

Jordan Shaw:

Versus other economic issues or global issues that have happened and have hit a wide range of different things that might spike inflation a certain way. So I'm curious, do you have thoughts on how that, even though it's just one thing, how it's still trickling down and rising costs?

Austin Wilson:

Yeah. I mean, simply put, energy costs get, they impact everything, right? So, if transportation costs are higher because fuel costs are higher, plane tickets are going to be higher because jet fuel's higher. You've got trucking costs, which are going to be higher. You've got shipping costs around the world, which are going to be higher.

As well as manufacturing costs are going to be higher because if you're using oil to make things like plastic, asphalt, all these other things that go into the manufacturing of the products, in addition to the transportation costs, that's where you start to see a little bit more of a sustainable impact is it's just going to take time to flush through all the different levels all the way to the end consumer there. So, that's why I think it could be a little bit of a, while it's supply driven shock for energy prices, it could be a more lingering impact in terms of just a slight tick up that might stick around a little longer than we thought. Because right now, obviously all the oil that's in that people are buying and around the world, they're buying at elevated costs and that should, and as the way economics work, it's going to get flushed through to consumers and/or profit margins of some companies.

So, that's something we're watching right now. So, it does not just impact the gas pump and oil prices in general. There are so many different components there.

But I do think each level probably gets a little bit more and more diluted as you get down there. So, it's not like a 50% price and change in oil is not going to make your gallon of milk cost 50% more. It might make it cost a couple cents more or whatever.

Tony Hixon:

Yeah. I think that leads into the idea of the short term versus long term energy shifts. So I would say, I think we would agree this is a short term.

Austin Wilson:

Yeah, correct, absolutely.

Tony Hixon:

That'd be correct. So, maybe dig a little bit deeper as to why we think it's that way and maybe dig a little bit deeper too on domestic production, how the US has become a net exporter recently. Talk a little bit more about our less dependence on oil.

Austin Wilson:

So, if you look back over the last 20 years or so, the US has gotten to the point where we have become a net exporter of oil, meaning we drill and acquire more oil naturally here than we import. That's a really good place to be.

And that's why oil priced in the United States, the way we would look at West Texas intermediate and stuff like that, has been less impacted than global oil, like Brent crude and stuff like that. So, we are more energy independent than we ever have been before.

What this means is that we have the ability, to the extent that we have refining capacity, because refining capacity does take time to change, but we have the ability to be less dependent on specifically Middle Eastern oil than the rest of the world is. So places like China, places like Europe, a lot more dependent on Middle Eastern oil than we are right now, but this has been a shift that's been occurring over 20 some years. And we've just finally, over the last handful of years, gotten to the point where we are in a much better position.

If this would've happened in, say, the 1970s where we already had a giant oil shock, that was a lot of that was because we were not energy independent. We were wholly dependent on oil coming from places like the Middle East. And I think that that made things a lot more steep and severe and long-lasting of an impact that I don't think we necessarily have the chance of right now.

Tony Hixon:

Yeah, that's true. So, it seems like any given day, I turn on our TVs, how many do we have? 12-15 TVs?

Austin Wilson:

Yeah, probably a lot. Yeah.

[18:21] - What Should Investors Do?

Tony Hixon:

They're all set to CNBC and I'm seeing 200 point down days, 300, 400 point down days. This can be very unsettling for investors, and so Jordan, as you talk with your clients, how do you help them stay grounded and avoid those emotional decisions, which would be like, "I need to get out of the market," or, "What are you doing for me," wanting to churn the portfolio, what kind of conversations are you having with your clients on that?

Jordan Shaw:

Yeah. The first part of that conversation is just listening because everyone has a different perspective on these types of things that happen. Some people are very well-informed and will say, "You know what? I'm not worried about it. It's going to be short-term," or whatever it is, they're maybe very optimistic about it, and there is no emotional decision for them. Maybe they've been through similar things in the past.

And then of course, there's clients who are understanding what's going on and maybe feeling the impact a little bit more or they're more dependent on a portfolio, and there are those emotional conversations trying to work through what does this mean for them. And after listening and understanding where those individuals are coming from, it's important to reiterate the fact that when you're in the midst of an emotional conversation or emotional situation, you typically do things that are not characteristic of what you truly believe at your core. And those who work with us share a lot of our core investing principles and beliefs too and understand that.

So, it's just guiding the conversation back to that, and saying, "You know what? This will happen. This is incorporated in a lot of ways into the plan that we put together for you, into how your investments are set to perform." And it's expected. The volatility is expected. Unfortunately, it's just how the world works that we live in right now.

And another piece of the conversation that can come into play is if clients really want to do something about it, because there isn't an action, like we're doing a lot here, but sometimes clients want to do something as well. I don't want to say it's just a distraction, but it can be a healthy distraction too. Instead of looking at, how's this going to impact me and what can I do, start asking the question to, what can I do to help this situation?

And those who have the means to perhaps look into and research the different nonprofit organizations out there, Doctors Without Borders or Red Cross, just well-known organizations that are out there, trying to aid in the peace process, helping the people that are in need in times like this. And that's something that can provide a lot of value to clients. It's not dollars related, it's not portfolio related perhaps in some ways. But it addresses a deeper thing that there's human beings at the core of all this that are being impacted.

Tony Hixon:

Yeah, very well said. And it is easy to forget that when we're looking at news headlines and the Strait of Hormuz and big conversation on the oil and all that kind of things, there are humans involved. And so, it is important that we keep that in mind and that there's a need out there to help support. So Austin, last thoughts on, I think we're down maybe 4-5% from all-time high.

Austin Wilson:

Yeah, four or five.

Tony Hixon:

Not extreme but...

Austin Wilson:

Maybe a little bit more after today.

Tony Hixon:

The last three years, we've been up 15 plus percent the past three years. And so a lot of clients or investors have been lulled to sleep. This is easy, right?

Austin Wilson:

Makes money by doing nothing.

Tony Hixon:

Yeah. I think there's a chart that we like to pull up from time to time on the entry year declines versus calendar year returns. Maybe lean in a little bit of that. Is this expected? Is it-

Austin Wilson:

Yeah. So, I guess one thing to point out is that we've had these geopolitical events happen seemingly here forever. If we remember just a couple years ago, we had Russia invading Ukraine, that obviously caused its own oil spike and all these other things. But if we look back historically, these things have been relatively short-lived, aside from World Wars. Again, we are not comparing to those.

But these sort of events have been relatively short-lived and markets have recovered. If we look at entry-year decline, historical probabilities, we can really expect as investors in large cap US stocks up out a 10% correction about once a year on average, and that is no fun. And I feel like the markets feel like they're there already. Even though they're not, and that's because you get a little bit of good news and markets are up about 2% to make up for some down that they've had.

So, could we get this to go down a few more percent and hit a 10% correction? Absolutely. But that's doing that on the back of, like you said, three 15-plus percent S&P 500 return years. Great years in the market. Everyone is still sitting on tons of gains if you've been invested for any significant amount of time, and that's absolutely normal.

And honestly, it's pretty healthy because you can't just go up into the right forever. Things get overbought. Expectations become unrealistically high, and it's time for some digestion. And if you get a 10% pullback to get some of that digestion just pulled forward, that can actually lead another leg higher for the markets. So, this is nothing new.

One thing that we would continue to focus on is diversification. You can't have all your eggs in one basket. If you're just holding technology stocks, you're probably not real happy right now. If you're just holding oil stocks, you might be right now, but you wouldn't have been for the last 20 years.

This is why we would say across sectors, you should be diversified. Across asset classes, you should be diversified, even within equities. The US is great and we love the US and of course we're hometown biased people, but you got to have some exposure to things outside the world because that's how the world has held up better in terms of the market this year. Fixed income's obviously had its place too. It's flat for the year-ish right now, so doing better than equities, as well as areas like small and mid-cap stocks have outperformed US stocks or large cap stocks this year. So, this is where I think just making sure that your financial picture is sound, your plan is sound, your asset allocation with your advisor is sound, it certainly is going to pay dividends.

Tony Hixon:

For sure.

Austin Wilson:

Pun intended.

Tony Hixon:

I'm hearing stay calm.

Austin Wilson:

Stay calm.

Tony Hixon:

I'm hearing stay invested. I'm hearing care for others, and this is an opportunity if you're a younger investor to put some money into the market at a 5% discount.

Austin Wilson:

Absolutely.

Tony Hixon:

You're buying some things on sale. So, we appreciate your time and listening to this episode. It was fun to debrief about what was going on in the Middle East. If you found this helpful, don't forget to subscribe so you never miss an episode of The Wealth Mindset Show.

Visit thewealthmindsetshow.com for more resources. And if you're ready to invest with us, head over to hzcapital.com. Thanks for listening, and we'll see you next time.

Austin Wilson:

Bye.

Thank you for joining us at The Wealth Mindset Show, where we tackle the complexities of finance and life planning to help you align your wealth with your values. We hope today's conversation provided value and clarity as you navigate your financial journey.

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