Original post: @radigancarter

Compiled by: Big Claws | PANew Lobster

I've been thinking about this issue on and off for about a week, while also dealing with the evacuation of my wife and responding to the attacks in Oman. This is my current framework for thinking about how this war will affect the markets over the next 6 to 12 months. I'm not trying to predict, but rather to identify the most likely middle paths as events unfold, so I can be flexible and seize opportunities.

My mission remains unchanged—to be a Thucydides-like chronicler: to take my own risks, pursue the truth, and clearly state the facts. As great powers clash once again, and we all feel the weight of this uncertainty, my only concern is how, as an individual investor, I can protect my family.

I anticipate there will be four stages ahead.

Phase One: Denial

This is where we are now.

Market fluctuations were entirely driven by what the president said during the opening bell. Everyone was desperately hoping to believe that this new Middle East war would be short-lived for Israel. Powell was already assuring the market that "this is not stagflation," while watching Israel bomb the South Pars gas field, probably wishing he could throw his phone away.

Phase Two: Trigger Point in Six Weeks

If the war continues, this phase will arrive in the sixth week of mid-April.

By the sixth week, the oil price shock triggered by the disruption to energy infrastructure will be transmitted through freight rates, food, and consumer goods. CPI data will begin to cause panic, and tech stocks will start to feel real pain—as valuation multiples will be compressed.

The reason is simple: rising energy prices have pushed up the CPI, completely extinguishing any remaining market expectations for a Fed rate cut. Powell has already begun to dampen these expectations, and the data for April and May will ultimately confirm them.

When Powell dashes the last glimmer of hope for a rate cut, the market will experience an "emotional collapse." But unlike every sell-off in the past 15 years, I'm not sure this time I can simply "buy the dip" and wait for the Fed to bail me out.

This inflation is supply-side driven—from the bombing of gas fields and LNG terminals.

The Federal Reserve has a bunch of useless economics PhDs and a computer that can print money out of thin air, but it doesn't have oil engineers, nor does it have an LNG production line in its basement. Monetary policy won't solve this problem. Those tech stocks priced in on "interest rate cut expectations" will be repriced on "interest rates remaining unchanged"—and everyone will be gloomy all summer because they'll gradually realize there's no easy way out.

Phase Three: The Long Summer and AI

This phase targets July and August, the start of earnings season, when the losses seen on the battlefield will be reflected in the real numbers.

Corporate profits will fall short of expectations, and unemployment will rise. Against the backdrop of this war, the pace at which AI replaces the workforce will only accelerate as companies cut costs to cope with higher energy inputs. Politicians will begin to panic ahead of the November midterm elections.

The third stage presents the buying opportunity I've been anticipating.

At that time, the quality targets I'm watching are expected to appear at significant discounts—because everyone is fed up with all this, angry about rising costs, uneasy about the job prospects, and strongly demanding that the government do something before heading into the fall and the midterm elections.

And the government will indeed take action. We've switched from "cost-cutting" to "splurging," just like in the Afghan war. Less than three weeks into the war, costs had skyrocketed—hundreds of billions of dollars, with no sign of slowing down. The Federal Reserve will eventually give in, politicians will provide fiscal support, and we'll add over a trillion dollars more in debt to pay for Israel's war. Just wait patiently.

Phase Four: End of 2026 to 2027

The Federal Reserve yielded and cut interest rates, and the assets purchased in the third phase began to realize returns.

I also believe that, after this war, the fourth phase will be highly focused on energy independence and energy abundance. After the midterm elections, both parties in Congress will be singing the same song—no one wants to be labeled as "obstructing the resolution of people's suffering." Moreover, this provides them with the perfect excuse to cut interest rates, increase spending, and create jobs.

This war with Iran will highlight the necessity of controlling the input side. I expect assets located within U.S. jurisdiction, or at least in the Western Hemisphere, to benefit.

Against the backdrop of all these events, AI will only accelerate. Companies facing profit margin pressures will replace as much labor cost as possible with AI. These are not the AI companies or tech companies that people usually think of, but the productivity gains will be reflected in their profit margins in 2027 and beyond.

The AI story in this war isn't just about the companies building AI, but also about the companies that rely on AI to survive. This is the structural shift I've been focusing on this summer.

How the war started

We are now nearly three weeks away from the outbreak of this war, and I still believe that most people underestimate the duration of this conflict. This is not because I am predicting the worst-case scenario, but because:

The theological framework that drives Iranian decision-making does not work at all with the incentive mechanisms assumed by Western politicians and commentators.

The Shia tradition is built upon the story of Hussein ibn Ali, the third Shia Imam who, knowing he would die in the Battle of Karbala in 680 AD against thousands of enemy soldiers, with only 72 companions, still pressed on. In Shia theology, standing up against injustice is an obligation, especially when victory is out of the question. Defeat and death are not defeats; surrendering to overwhelming injustice is the true defeat.

The way Israel and the United States waged this war is almost a sleight of hand reenacting the origin story of Shia Islam. They used diplomacy as a pretext, assassinating Khamenei and his family while the Omani foreign minister announced a diplomatic breakthrough—just as Hussein was massacred after receiving promises of safe passage.

That's why, no matter how many targeted killings Israel carries out, the Iranians won't kneel. The Israelis know this, but they don't care. They'll bomb Tehran like Gaza, plunging the entire Middle East into chaos. They'll enjoy the chaos. And the United States? I myself wouldn't.

Shia theology redefines suffering as proof of "walking the path of justice." This tradition dates back to the 7th century—when Arab tribes swept across the peninsula, beginning their conquest of Roman and Persian territories. Persia, an ancient civilization, viewed its conquest by the Arabs as unjust, thus Shia theology found a natural place in Persian identity.

Israel and the United States believe that assassinating a leader and dropping a few Joint Air-to-Surface Standoff Missiles (JASSM) will subdue a nation whose entire history is built on resisting foreign powers—a truly absurd idea. We remain tragically ignorant of the targets we want to wage war against, having learned nothing from our failures in the War on Terror and the Ukraine war, yet still allowing psychopaths to veto our foreign policy.

Current situation

The war has entered its 20th day, and the conflict has crossed the Rubicon River.

Yesterday, Israel struck Iran's South Pars gas field—the world's largest gas field. In retaliation, Iran severely damaged Qatar's Ras Raffaele LNG facility, also the world's largest LNG facility. Qatar Energy has declared force majeure on gas exports and shut down its gas liquefaction facilities.

Qatar accounts for approximately 20% of the global LNG trade, with over 80% of its cargo destined for Japan, South Korea, China, and Taiwan. This supply has now been disrupted and may take several years to recover.

The Bazan refinery in Haifa (which supplies 65% of Israel's diesel and 59% of its gasoline) and other energy infrastructure in the Gulf were also hit.

I have firsthand knowledge of Qatar.

I worked for five years in Ras Lafan Industrial City (RLIC) on pre-commissioning of LNG facilities. Qatar Energy is vertically integrated—they own everything from offshore gas fields and LNG production lines to export terminals and LNG fleets.

These LNG production lines are massive. Twenty years ago, when they were being built, 250,000 workers rushed to the construction site every morning in that sweltering industrial city, where cranes stood densely packed like a forest. Starting these production lines, especially after they had been damaged, repaired, and inspected, was by no means a quick process. These natural gas production lines are like small cities, costing hundreds of billions of dollars, with intricate systems, some components being custom-made with delivery times measured in years.

Once missiles and Witness-136 drones fly into these devices, causing primary and secondary fragmentation damage, fires, and blast shockwaves, a systematic, step-by-step inspection and phased restart are necessary. If custom-made, long-delivery components are damaged, it will take months or even longer for a new container to be manufactured in China or South Korea, loaded onto a ship, transported to the dock, and then slowly delivered to its destination by the Mammut Heavy Lifting team.

I had hoped that the damage to RLIC wasn't too severe and could be repaired within a few months. Unfortunately, that doesn't seem to be the case.

This event has direct ripple effects on other industries. Qatar's offshore gases have extremely high sulfur content, and Qatar makes the most of its resources by separating liquid sulfur from the gases, transporting it through pipelines to produce sulfur granules, which are then shipped globally by bulk carriers for use in the production of fertilizers, chemicals, cement, and refined petroleum products. The LNG production halt will trigger a series of chain reactions, the second and third of which are currently difficult to predict accurately. However, one thing is clear: if this situation persists long enough, the global economy will begin to falter in unexpected ways.

As Charles Geoff put it, the economy is transformed energy. With the world's reliance on energy supplies disrupted and permanently absent, countries will scramble to find alternative energy imports. Declining energy production in the Middle East is driving up global energy prices; and industries unable to obtain energy at higher prices will face shutdowns and layoffs.

Direction: Heading towards stagflationary recession.

Hormuz crisis

Beyond attacks on energy infrastructure, the conflict continues to spread across the region. Israel is invading southern Lebanon, killing approximately 1,000 people and displacing nearly a million. The Iraqi pro-Iranian Shiite militia group, the Popular Mobilization Forces (PMF)—which played a key role in the fight against ISIS in 2016—has also joined the conflict, attacking U.S. facilities in Iraq, Saudi Arabia, Kuwait, and Jordan. This has forced the U.S. to reduce and withdraw personnel from the region, further weakening its ability to maintain operations in the area.

In summary, the entire region, from the Levant to the Persian Gulf and the Arabian Peninsula, is now under Iranian firepower.

I have crossed the Strait of Hormuz many times. Since the start of the war, more than 20 ships have been attacked; the Iranian Islamic Revolutionary Guard Corps (IRGC) has launched 50 waves of attacks on U.S. bases in the region.

If we also include the Houthi rebels in Yemen in the equation, then once the Houthis begin targeting Red Sea shipping, global maritime and energy trade will be split in two. Historical analogies include: the Ottoman Empire's closure of the Silk Road; the global economic impact of the outbreak of World War I in the summer of 1914; and the Suez Crisis of 1956—which heralded the end of the British Empire.

Therefore, as we move out of the war and into the fourth phase, I expect investors to re-examine their holdings, carefully considering the safety of their assets and the jurisdictions in which they reside. Assets that do not require navigating chokepoints to reach end markets and are considered to be in safer jurisdictions are likely to command a premium.

Climbing the upgrade ladder

Some people ask, since Iran has already controlled the Strait of Hormuz, why doesn't the United States attack Iran's life support infrastructure?

After targeted assassinations, the spread of conflict zones, and attacks on energy producers, this escalation is no small matter, no matter how much the White House interns made the war reports look like a video game.

Unfortunately, we were already targeting life-support infrastructure. On the seventh day of the war, the United States attacked a desalination plant on Iran's Qeshm Island. This island guards the entrance to the Strait of Hormuz and boasts exceptional geological conditions, where the Revolutionary Guard has spent decades building and reinforcing extensive underground facilities.

The following day, Iran responded in kind, sending attack drones to strike a desalination plant in Bahrain. Kuwait and the UAE also reported missile damage to their desalination plants.

Losing desalination facilities would be an existential threat to the Gulf states and Israel.

In the Gulf region, over 90% of desalinated water comes from just 56 plants. In Kuwait and Bahrain, desalinated water accounts for approximately 90% of the national water supply; in Oman, where I am located, it's 86%; in Israel, about 80%; in Saudi Arabia, about 70%; and in the UAE, about 42%.

If the US and Israel continue to target life-sustaining infrastructure, Iran will retaliate in kind, and with increasingly scarce air defense resources, striking these facilities will become increasingly easy. This represents a fatal asymmetric vulnerability for the Gulf states and Israel. Approximately 64 million people in the region could be affected. This would trigger a humanitarian and refugee crisis that would dwarf the Syrian civil war, with consequences that would extend to Europe and Türkiye.

Oil has built the modern Middle East, but desalination water sustains it—and Iran has an upgrade advantage in both. Israel can continue climbing the upgrade ladder, but it will eventually reach its peak, and Iran will strike Israel's desalination facilities.

Phase Two: Trigger Point in Six Weeks

The above describes the first phase—where we are now, and why neither side is willing to back down, and why the conflict may continue.

Of course, Trump could announce a "glorious victory, the war is over, and a stunning deal has been struck" on Truth Social tomorrow—even if it's all fake, it could change everything.

Regardless of whether the Strait of Hormuz remains under Iranian control, and regardless of whether the United States has already experienced its own "Suez Moment," if all of this occurs before the oil price shock reaches the supply chain, then everything could be overturned.

So I'm thinking: after what point in time, no matter what is said or what agreement is reached, will higher energy prices be irreversible?

My answer is: six weeks. By the sixth week, the denial period ends, and inflation data will reflect the deeply embedded damage.

Every neoconservative is talking about the Middle East.

Here is my calculation logic:

Weeks 1-2: Refined oil price adjustment (already occurred). Gas stations repriced gasoline and diesel, and shortages began to appear in vulnerable countries. Oil prices are approximately 40% higher than pre-war levels.
Weeks 3-4 (now): Freight and logistics costs begin to adjust, and carriers repric according to new fuel costs. February's PPI of 0.7% year-on-year (expected 0.3%) was an early sign of this stage; April's inflation data will be even worse.
Weeks 5-8: The accumulated freight and logistics costs from the previous two weeks rise and flow to consumer goods—food, building materials, and manufactured goods are all subject to repricing.

By the sixth week, the higher costs had been passed on to consumers, and prices would remain high even if the conflict ended, especially with energy producers offline.

Six weeks ago, a ceasefire could have reversed most of the damage because contracts hadn't been fully renewed, businesses could have resumed previous pricing, the Federal Reserve could have cut interest rates, and everything could theoretically be reversed.

Six weeks later, even with a ceasefire, the price transmission already in place cannot be reversed. Repricing has already occurred, and the May and June CPI data will reflect whatever happens on the battlefield.

At that time, the CPI data will completely extinguish any remaining hope of an interest rate cut, and Powell will announce that interest rates will remain unchanged. The valuation multiples of tech stocks will be compressed, and the market will not be happy—nobody will be happy.

Phase Three: The Long Summer and AI

My plan for this summer is to go to the beach and the gym, keep myself patient, and then seriously examine the situation at the end of summer.

By August, company financial reports will begin to reflect the losses we've seen on the ground. Meanwhile, the wave of AI replacing labor will continue to accelerate in the background—companies will cope with increased energy input pressures by cutting costs wherever possible.

In the past, companies had already chosen to deploy AI during the recruitment process; now, this is compounded by the stagflationary energy shock. Faced with shrinking profit margins, oil prices reaching $95, and an urgent need to reduce costs, companies will replace employees with AI tools wherever possible. This isn't an innovative strategy, but a survival instinct.

The adoption of AI will accelerate during an economic downturn, as it becomes the most obvious means of cost reduction.

The cruel paradox is that this works perfectly for individual businesses, but it destroys aggregate demand—the income of the displaced workers will disappear from the economy, and those who temporarily keep their jobs will cut back on non-essential consumption due to uncertainty about their employment prospects, especially against the backdrop of the energy shock continuing to drive up the cost of living.

Therefore, I would not be surprised if the energy shock pushes up prices while employment deteriorates far faster than any historical model predicted, as AI-driven job losses are structurally amplifying the cyclical downturn.

This is what I consider the most crucial point regarding the timing.

The Federal Reserve's employment authorization will be triggered sooner than anyone expected. This is not only because of the war, but also because AI is systematically amplifying the job losses in the background. This will compress the entire timeline, making a September rate cut possible.

The Federal Reserve will face a dilemma: on one hand, inflation it is unable to control, and on the other hand, a deteriorating job market. It will likely hold out through the summer before cutting rates in September, as the midterm elections will force it to back down.

AI and tech stock prices may fall in this environment, but the underlying narrative will actually become stronger—those companies that adopted AI survived the recession; those that didn't are heading for bankruptcy. Therefore, the long-term investment logic will be most compelling when stock prices are at their lowest.

This is why I am willing to wait patiently and then buy into technology and research companies that will be transformed by AI during the crisis in the third stage.

Looking back after the fourth phase, people will think, "Of course we should have bought that bankrupt copper mining company—when the Hormuz supply cut off the supply and caused a sulfur shortage, they were converting 30-ton mining trucks to driverless machines, and now, with both parties in Congress supporting energy independence, the printing presses are roaring. Isn't that obvious enough?"

Midterm elections

The Federal Reserve, the White House, and Congress each have different mandates, but they all face the same date: November. No incumbent wants to face voters with the label of "incompetent in the face of stagflation," and no Federal Reserve chairman wants to be seen as sitting idly by while the economy deteriorates.

This convergence of interests is precisely the force that breaks the deadlock. The Federal Reserve will signal at the Jackson Hole meeting in August that it will cut interest rates in September, and every politician will use "We took action" as their campaign slogan.

The market will move ahead of schedule by 4-6 weeks, which means that July and August will be a window for me to seriously consider gradually building positions.

The AI-driven deterioration in employment actually helped the Federal Reserve—it provided political cover, allowing the Fed to cut interest rates before inflationary pressures had fully subsided, because it could characterize this as "responding to an employment emergency" rather than "surrendering to the market."

2027

Emerging from this war, energy independence will become a massive, bipartisan political issue—much like the global war on terror has impacted defense spending, but this time it's about the energy sector.

With South Pars, the Qatari LNG terminal, and Saudi refineries all engulfed in flames, the fragility of energy infrastructure is undeniable. Every politician will campaign on the promise of "never relying on the Middle East again." Both parties in Congress will be highly aligned on infrastructure investment, expanded extraction, licensing reform, nuclear energy, and clean energy.

Most importantly, I constantly remind myself: I am not predicting, I am just adapting.

If a real peace agreement comes—not just Trump tweeting "it's over," but a genuine ceasefire, the reopening of the Strait of Hormuz, renewed involvement of the insurance market, and a compliant Iranian counterpart—I'll be ready to adjust my strategy at any time.

But to be honest, with Larijani killed and Israel continuing to assassinate anyone we can negotiate with, that hope is fading every day.

This is my current framework of thought. It's not a prediction, but a framework that can be adjusted at any time.

Bessant: The new Federal Reserve Chair may be announced in about a week.

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