Peace—or Just a Pause?

So, peace be upon us?

Just hours before I started writing today’s dispatch, the US and Iran announced a two-week ceasefire to negotiate the end of the war.

I’m not sure if this is the real deal or just the US stalling before launching a ground invasion. After all, the US and Iran were in the middle of negotiations when the US and Israel launched their surprise attack on Iran.

So, just maybe this is a diversion.

I mean, it has to be… right?

The 10-point peace proposal Iran offered, and which Trump called “a workable basis on which to negotiate” includes:
Continuation of Iran’s control over the Strait of Hormuz.
Acceptance of [uranium] enrichment.
Lifting all primary and secondary sanctions.
Termination of all UN Security Council resolutions [against Iran].
Payment of compensation to Iran.
Withdrawal of US combat forces from the region.
Call me a cynic, but if this is the art of the deal, then Iran walks away from this war as the winner. I don’t see how anyone can frame that any differently. Iran gets everything it has ever wanted, plus control of the Strait of Hormuz (which it never had), and Trump gets…?

Which is why I am not convinced the ceasefire is anything more than another Trumpian ruse.

We shall see.

But today’s dispatch isn’t about Trump or ruses. It’s about assuming this ceasefire sticks and peace blooms.

What does that mean going forward for investors?

I’ve been thinking about that for a week or so. (I actually tried to convince my managing editor, Ben, to let me travel to Oman’s Musandam Peninsula, which juts into the Strait of Hormuz, because I wanted to see for myself what’s really going on with shipping. He said no. I used to like Ben.)

Still, the cogitating I’ve been doing has led me to this line of thinking: If—if—the US and Iran do fashion a lasting peace deal, then you’re going to want to be positioned for what’s next.

First, oil prices will come down.

Initially, they’ll probably settle in the $70 to $75 range. Markets will need time to return to normal. The International Energy Agency authorized the release of 426 million barrels of oil from global strategic reserves during the course of the war.

How much of that has already flowed into the market so far isn’t clear, but refilling those reserves will require between one and four years of oil purchases. Most likely, that leans toward the high side, since countries wouldn’t want to rush into the market and drive oil prices higher. But their incessant buying will keep prices elevated for some time.

Plus, energy infrastructure in the region needs replacement/repair because of damage incurred in the war and that will keep oil supplies limited to a degree for a while. Likewise, a lot of the countries in the Middle East—OPEC nations—have a lot of rebuilding to do, and what better way to gin up the necessary cash than to restrict oil production to keep oil prices, and thus profits, higher.

Second, gold prices will go up.

As I explained in a dispatch I sent out early in the war, gold prices fell in response to boom! boom! for several technical reasons tied to overleveraged traders covering losses, and countries selling their appreciated gold to buy dollars they need to afford suddenly higher oil prices.

Those processes would end. And gold would resume its march higher.

Indeed, as I write this dispatch, gold prices are up more than 2% just on the prospect of no more war.

The reason: The fundamentals driving gold higher have not changed. The US is still a financial basket case because of its extreme and growing debts and debt-servicing costs. The war only exacerbates that.

Third, the dollar goes down.

The rationale driving gold higher is the same rationale driving the dollar lower.

America’s fiscal incontinence is a global concern, and the world’s focus will return to that reality quickly.

Moreover, nothing has changed with the Trump administration’s desire for a weaker dollar.

So, we’re back to Down Dollar—a permanent feature of the US economy until a reset happens.

Four, opportunities emerge elsewhere in oil.

Whatever peace plan forms, one facet is already knowable: Sanctions on Iranian oil will cease. Iran will accept nothing less, and if Trump really wants peace he’s going to have to acquiesce to that reality.

And that means opportunities.

Iran has vast oil fields, but after years of sanctions and malinvestment, it needs Western capital to come in and bring those oilfields up to modern, efficient, and highly productive standards. I suspect we will see European and Chinese Big Oil make big splashes in Iran soon after the peace is official. Not so sure that’s going to happen with US Big Oil because American companies will be persona non-grata for a while.

European oilfield-services firms, and those that already have regional expertise, will likely be big winners.

Same with tankers and shipping companies.

Increasing Iranian oil production will require an increased number of oil tankers.

But don’t rush into these trades just yet.

Like I said, the 10-point plan Trump called “workable” leaves Iran as the clear winner and Trump as the clear loser… and anyone who has paid any attention to Trump knows that he loathes being seen as the loser.

So, I have a suspicion that just maybe we see a ground invasion occur before the two-week ceasefire ends.

If so, oil, which is now down 15% to the mid-$90s, will fly well above $120 in a blink.

The dollar rebounds higher again.

Gold sinks again.

But if a peace plan is signed, then I would quickly add gold to my portfolio, and non-dollar assets like those we have in Global Intel. And I would be looking to add European oil companies and oilfield-service plays because an unsanctioned Iran is going to be a gusher for those companies and their stocks.