Why We're Buying This Dip, Despite War
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By now, you'll have heard the US attacked Iran and killed their Supreme Leader Ayatollah Khamenei. The big question mark that remains is how this will affect markets going forward. There’s a lot of misinformation (and frankly, fear) so it's important we remain objective.
To recap: The US launched air strikes on Iran after failed nuclear talks and rising civil unrest. They targeted key officials but also weapons sites. The goal being to disarm nuclear weapons, install a US-friendly government, and exert stronger control over the Strait of Hormuz — a key shipping corridor that carries significant oil supplies to Asia including China.
It's not a coincidence that China is tangentially impacted. We have previously written about Hormuz and Malacca, and the strategic importance of these two shipping corridors. Controlling the straits gives the US long-term strategic leverage in the region.
Iran’s response was aggressive, more so than the US was anticipating. Iran launched retaliatory missile and drone strikes against neighbors like UAE, Bahrain, Kuwait, Saudi Arabia. Pushing those regional partners into the arms of the US.
Iran also shut down the Strait of Hormuz and attacked oil tankers passing through. Effectively denying oil exports to the world. Oil export is the financial lifeline of Middle Eastern countries, not to mention the Asian countries which depend on the oil. So effectively, Iran has turned the rest of the world against them and backed themselves into a corner.
Trump was likely expecting a Venezuela-style surgical strike and quick resolution. Instead, Iran put up resistance and this fight will likely last weeks, if not months. Both sides have threatened extensive violence, which makes resolution appear to be a distant possibility.
In the meantime, global oil and natural gas prices are skyrocketing. Markets are freaking out over inflation, much like when Russia invaded Ukraine and curbed global energy supplies. Investors are fearing an extended conflict and worst-of-the-worst outcomes, but that’s where we think they’re wrong...
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