Every hammer sees a nail
I just got back from a relaxing vacation in the Maldives that gave me a nice break from all the madness going on in this market. There’s nothing like clear blue water, fine white sand, and first class food and service to ease the stress. It also doesn’t hurt that my pnl is back at my high-water mark.
Trump is threatening to create a humanitarian disaster for millions of innocent Iranians by hitting Iran’s power plants and bridges if Iran doesn’t open the Strait of Hormuz by 8 am EST. Equity futures have gone bid this afternoon, perhaps on speculation that Trump will back down again. I hope they are right.
Citrini wrote a great piece of investigative journalism after sending one of his analysts to the SoH. The analyst got himself into some hairy situations and the piece is an entertaining and insightful read. Unfortunately the article is behind a paywall, but a subscription is well worth the price.
The piece describes how in a status quo scenario, Iran will slowly allow more ships to pass and collect a toll on all traffic. Today, the amount of ships passing through is in the low teens and may increase over coming weeks.
The list of approved nations is expanding fast. On March 26, Iran granted passage to five countries: China, Russia, India, Iraq, and Pakistan. Within a week, Malaysia, Thailand, the Philippines, France, and Japan had all secured access. We expect this list to keep growing as the rest of the world decides that guaranteeing its own energy supply is worth the diplomatic cost of dealing with Tehran.
Where my view differs from Citrini’s is that I don’t see a world where Trump and his allies (Israel, Saudi Arabia) allow Iran to control who can and cannot go through the Strait of Hormuz, even if traffic gets restored close to its previous levels. This would be seen as a tremendous loss of global power and influence by the US and will be viewed by the American public as a losing situation. Trump already has a large portion of his Navy and over 10,000 troops ready to stage a ground war in the Middle East, and I don’t see how he will just walk away without attempting a ground war to take control of the Strait. Maslow said “If the only tool you have is a hammer, it is tempting to treat everything as if it were a nail.” The world’s most powerful military sitting in the Gulf is Trump’s hammer, hovering ominously over Iran and ready to strike.
In the event of a ground war, I’d have to question whether Iran can slowly bring back traffic in the SoH as described by Citrini. The SoH would become ground zero for any military escalation, making it too dangerous for ships to pass. In order for the Strait to open back up, things have to get worse before they become better.
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