Donald Trump\u2019s war on Iran<\/a> will affect financial markets. He had just watched the president\u2019s April Fools\u2019 Day address to the nation, which left him feeling glum. Even the analyst he\u2019d dispatched to the war zone to gather firsthand intelligence was reporting disturbing news.<\/p>\nPrior to the speech, stocks had been rising on expectations of a cease-fire deal and Trump\u2019s promises that U.S. involvement was almost over. But the prime-time ramble gestured at a brutal and intractable conflict. \u201cWe\u2019re going to bring them back to the Stone Ages,\u201d Trump said. It didn\u2019t sound quick or easy (among other things). His invocations of Korea, Vietnam, and Iraq didn\u2019t help either. \u201cIt\u2019s just like, What did we rally on, then?\u200a\u201d says van Geelen.<\/p>\n
For the past month, Wall Street has been trying to game out this question: How long will the war last? Embedded within it are concerns about how high gas prices will go, whether expensive energy will dent consumer spending as a whole, and whether all that will tip the economy into recession. \u201cThe longer this war continues, the worse it\u2019s going to be,\u201d says Stephanie Link, chief investment strategist of Hightower Advisors, which manages $350 billion in assets. As with Trump\u2019s year-ago \u201cLiberation Day\u201d tariff announcement, investors have had little to go on besides the president\u2019s constantly shifting rhetoric, goals, and timeline. (The key difference, of course, is that it\u2019s harder to TACO on a regional war than some arbitrary numbers on a poster.)<\/p>\n
The financial world has been especially focused on the Strait of Hormuz, the globe\u2019s most important oil-transport channel. As long as it remains functionally shut by Iran, the international economy is in grave danger. Big investors have been just as clueless about when it might reopen as the average cable-news viewer. \u201cI don\u2019t have any better information than you do on this one,\u201d admits Mike Silverman, the chief investment officer of Cresset, which oversees more than $237 billion.<\/p>\n
In that information vacuum, Citrini formulated a plan to collect better facts: Why not just send an analyst to the center of the action? Van Geelen, a 33-year-old former paramedic who gained attention for his prescience by shorting Silicon Valley Bank before its collapse, distributes his market recommendations to Citrini\u2019s Substack subscribers. That extremely viral (and controversial) research note describing a dystopian AI scenario \u2014 mass unemployment, few winners, and many losers \u2014 came out on February 22. (The premise, as van Geelen puts it: \u201cWhat if AI is so successful it\u2019s actually bearish?\u201d) When markets opened the next day, investors en masse began dumping shares in companies that would fare poorly in Citrini\u2019s hypothetical.<\/p>\n
In March, van Geelen dispatched an analyst \u2014 a quadrilingual non-American \u2014 to the northern tip of the United Arab Emirates, a strip of gulfside resorts (normally bustling, now empty) overlooking the Strait of Hormuz. \u201cMorgan Stanley isn\u2019t sending investment analysts to Fujairah,\u201d van Geelen tells me. \u201cThe hotel is pretty much empty except for six guys in suits.\u201d Shortly after his arrival, the analyst sent a photo from his trip cruising the strait with a beer and a waterproof Pelican case full of Zyn and cigars.<\/p>\n
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<\/p>\n
Photo: Courtesy of Citrini Research\n <\/p>\n
Citrini\u2019s man had been chatting up tanker captains, ship crews, maritime brokers, local fishermen and smugglers, and business executives. \u201cFrom what we can tell, there\u2019s been a lot more missile attacks than anyone really knows,\u201d van Geelen says. When the analyst asked where the rockets had been falling, the response was \u201cWherever Americans and their infrastructure are \u2014 that\u2019s where they\u2019re attacking.\u201d Even before Trump doubled down in his speech, locals were observing an increase of American boots on the ground. \u201cWe\u2019ve also seen with our own eyes that there are U.S. troops being stationed in the region, and people have told us that it\u2019s much more than what\u2019s being reported,\u201d van Geelen says. \u201cIt does seem like every single person we\u2019ve talked to is very anticipatory of escalation.\u201d All of them, he adds, are \u201cpreparing for a monthslong conflict, minimum.\u201d<\/p>\n
As for the strait itself, the Citrini analyst was counting the few ships that navigated through, taking note of their flags. The vessels were avoiding the main shipping channel, instead passing through a less conspicuous corridor of the strait, \u201cthis little slit near the island of Qeshm and Iran,\u201d van Geelen says. The majority of them were Chinese ships that had clearly paid Iran for the privilege. There were some small signs of a softening in the blockade. The analyst sent photos of a tanker passing through the main part of the strait on April 2.<\/p>\n
Some ship traffic is more positive than the absolute lack of it many investors were assuming, and it has led Citrini to believe the strait is not actually mined \u2014 a key open question right now. But Iran is clearly in control of the entire shipping channel. That state of affairs may well keep oil (and its essential derivative products, such as fertilizer) expensive for a long time. \u201cI don\u2019t see a lot of risk being priced in of this being a protracted, complex conflict,\u201d says van Geelen. \u201cI was really hoping that we would go down there and find out that everything was fine, but so far, that hasn\u2019t been the case.\u201d<\/p>\n
As he considers the situation in the gulf with oil trading around $110, he\u2019s thinking about whether the U.S. economy can survive these stressors. \u201cYou could make the argument that $90-a-barrel oil on average over the next six months is not enough to kill the U.S. economy, right?\u201d he says. \u201cBut $120 a barrel of oil? And wheat and fertilizer both being 50 percent higher? That might lead to some unpleasantness.\u201d<\/p>\n
That unpleasantness could extend to the stock market, of course. \u201cIf you\u2019re an analyst, and you\u2019re in front of a spreadsheet, and you\u2019re modeling a complete closure of the strait, it\u2019s easy to say the S&P 500 needs to be 20 percent lower,\u201d van Geelen says \u2014 a fall four times bigger than we have already seen. (But if it\u2019s not fully closed, as Citrini\u2019s analyst is seeing, that projection may be too dire.)<\/p>\n
Higher oil prices mean higher inflation, which could limit the Federal Reserve\u2019s ability to cut interest rates. \u201cThis is kind of the worst-case scenario,\u201d says James St. Aubin, chief investment officer of Santa Monica\u2013based Ocean Park Asset Management. \u201cAnd we can easily enter a bear market.\u201d<\/p>\n
But there\u2019s a complicating narrative on Wall Street. Last year\u2019s tariffs saga, in which a crash was followed by a quick bounce-back and new all-time highs, taught investors a lesson: Under Trump, it could be better to lose a bit of money in the short term than miss out on a big rebound. \u201cWhat does Starbucks or Netflix have anything to do with the Strait of Hormuz?\u201d says Link. \u201cIf we can do a short kind of war thing, we can get back to thinking about the economy doing pretty well.\u201d She has been optimistic about the initial four-to-six-week timeline Trump laid out: \u201cI think a year from now, we\u2019re going to be happy we bought some stocks on sale.\u201d (Though, she says, that view would be \u201c100 percent wrong\u201d if the war drags on.)<\/p>\n
Yet some investors see a changed world. \u201cIt just feels like we\u2019ve let the chaos genie out of the bottle in a way,\u201d says Andrew Beer, co-founder of Dynamic Beta Investments, which runs investment products designed to mimic hedge funds. \u201cMy base case is that this is something we\u2019re dealing with for a decade.\u201d Daleep Singh, who served as a deputy national security adviser under Joe Biden and now works for asset manager PGIM, also sees a fundamental change. \u201cThis war should no longer be considered a black-swan event,\u201d Singh says. \u201cMilitary conflicts are no longer rare, nor is the weaponization of economic choke points.\u201d He\u2019s predicting a \u201cface-saving cease-fire\u201d that will reopen the strait in the coming weeks. But, he emphasizes, the war has been a net negative. \u201cWe\u2019re clearly in a worse position now.\u201d<\/p>\n
Van Geelen, who asked me not to include identifying details about the analyst, is thinking constantly about his safety. \u201cObviously, it\u2019s more dangerous than being in Manhattan,\u201d he says.<\/p>\n
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