By Kenneth Rapoza
These signals for investors will make or break the truce – and oil prices
Iranians gather in Tehran’s Revolution Square on April 8 after the United States and Iran agreed to a two-week cease-fire.
President Donald Trump’s cease-fire with Iran is like that 1980s movie starring Tom Hanks and Shelley Long, “The Money Pit.” In it, Hanks and Long repeatedly ask their contractors how long it will take for their home to be completed. It looks like a war zone. The answer, even as months go by, is always the same: “Two weeks.”
This two-week cease-fire timeline is likely to be as reliable as those contractors. Will it hold? Nobody knows for sure.
Recall that last June, Trump declared victory when the U.S. bombed an Iranian nuclear site. On Feb. 28, Operation Epic Fury began.
Some would expect the Iran war to continue. If you believe that, you dip back into oil, invest in slower economic growth by buying discounted large-cap stocks and avoid emerging-market fuel and food importers.
“I’m not jumping into the Nasdaq today,” said Vladimir Signorelli, head of Bretton Woods Research, a macro research firm in New Jersey. “This is all very unpredictable. We had a cease-fire and 100 bombs going off in Lebanon.”
On Wednesday, the emerging-market fuel importers did well. Oil did poorly. The iShares MSCI South Korea ETF EWY gained 10%.
Brian McCarthy, a former China hedge-fund trader in New York City and now founder of Macrolens in Massachusetts, said he expected Trump to hit pause. “I think this truce holds,” he said. “I would guess we have only seen about half of the snapback retracement in the markets so far.”
There’s the “war’s over” trade, and there’s the short-term scramble to trade the two-week cease-fire and buy assets that got beaten up by the war, like airline stocks. But if the truce doesn’t hold, investors have to be ready to sell in 14 days or less.
If we start from the position that Trump wants to honor the cease-fire, then that leaves two obvious indicators to watch: What will Israel do? And what will Iran do?
Prime Minister Benjamin Netanyahu of Israel made it clear on Wednesday that from Israel’s perspective, the war is not over. “There is a two-week cease-fire between the U.S. and Iran,” he said, excluding Israel from the arrangement. “But this is not the end of the war,” he said.
We will have a better sense of this cease-fire when Iran and U.S. diplomats meet in Pakistan. That’s scheduled for April 10.
I’ve written previously that there are three ways to view the war: the American strategic-imperative lens, the Israeli security lens and the Iranian national-preservation lens. Most of the war narrative has merged the U.S. and Israel’s reasons for the war.
There’s another way to look at this – through geography and – perhaps – a hidden strategic imperative for the U.S.
In the early 1900s, British geographer Halford Mackinder described Eurasia and Africa as a single strategic landmass he called the “world-island.” Mackinder’s argument was simple: Whoever dominates that landmass has the best shot at dominating global power.
Iran sits near the center of this landmass. The Strait of Hormuz sits at the edge. The energy that fuels Asia’s economies passes directly through the Strait. In that framework, Iran is not another war on terrorism action like Iraq was.
The economic integration of Asia depends on this narrow, vulnerable corridor. “Energy flows, militant networks, trade routes, and financial pressures all pass through it in different forms,” wrote geopolitical analyst Tanvi Ratna. “When pressure is applied at that point, it does not stay contained. It moves outward across multiple theaters at once.”
If the Strait of Hormuz becomes unreliable, energy can be sourced from the U.S. or transported via Saudi Arabia’s East-West pipeline. But if the U.S. cannot dominate this region – mostly due to the rise of China – it may try something more realistic: prevent it from becoming too integrated. That means disrupting how energy, trade and capital move across it. Worth noting: the China-Iran Railway was struck earlier this week, hitting a key piece of infrastructure.
The longer the war goes on, the harder it will be for the U.S. Japan and South Korea could cement energy ties with Russia. Europe too.
The longer the war goes on, the harder it will be for the U.S. to reroute and disrupt the “world island,” because markets will adapt. Countries will change their energy sourcing to hedge inflation risk.
Japan and South Korea could cement energy ties with Russia in a protracted war scenario. Italian officials are hinting at plugging back into the Russian-energy matrix. Europe could import more Chinese solar technology to build more solar power plants.
Long-term LNG contracts could be signed that lock in alternatives to U.S. exports. What begins as leverage over the global economic system risks accelerating its bifurcation between China and the U.S.-led West, only on terms Washington cannot control.
If the unspoken strategy is to reshape global energy and investment, then this war needs to be quick. The longer the U.S. is tied up, the more likely the world is to adjust to economic life without the U.S. at the center. Once those shifts are locked in, they are hard to reverse.
Much hinges on Iran’s Hormuz Strait “toll” proposal – something Trump seems OK with, provided the U.S. gets a cut of the action. Oman has also said it would participate to raise funds for reconstruction. If the toll idea works out in the Pakistan talks, it sets the table for a positive, broad-based market reaction. If not, we are back to square one.
For Trump, the best-case, movie-ending scenario is a deal. In it, Trump is watching Fourth of July fireworks in Washington with his new friend, the leader of Iran. All is well. Maybe the U.S. shares ownership of Hormuz. Dow 50,000 returns.
Except this war has three participants – Israel and Iran get a vote. And that’s why there’s no clear timeline or guarantee that this cease-fire will lead to the war’s end.
Kenneth Rapoza is an analyst for the Coalition for a Prosperous America, which represents U.S. producers and workers. He is a former journalist who has reported from Brazil and covered the BRIC economies.
Also read: The U.S. has more natural gas than it knows what to do with – helping Americans weather the Iran oil crisis
More: Retail and travel stocks rally after Iran cease-fire – but it could take months for consumers to see lower prices
-Kenneth Rapoza
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04-11-26 1128ET
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