The Iran war boom has started

Added: 2026-05-15

[00:00:01]Before we dive in, a quick heads up.

[00:00:04]Vulka and I are heading back to London for our second inconas live recording.

[00:00:09]We'll be at a brand new town hall in King's Cross. And our guest is none other than Hassan Piger. That's Friday, June the 5th. So space is extremely tight, so don't wait and grab your tickets at unheard.com/econoclasts live.

[00:00:44]I'm going to go against the grain of my main argument in previous editions of the econs. Uh some of you will remember that I claimed that until Trump started bombarding Iran, he was winning hands down on everything from tariffs to his relations with with China, especially the European Union and so on. And I went on to say that his attack on Iran, his assault on Iran sealed his downfall.

[00:01:10]Now, I still think this, but today I want to acknowledge that in the medium run, Trump's people, uh, the oilmen he cares about, the putoaucracy more generally around him are doing very well, thank you, out of the Iran war.

[00:01:29]Now, this may not be enough to save his bacon. I don't think it will be, but given the oligarchic nature of the United States, who knows? It may be. So, let me begin with some numbers, shall I?

[00:01:40]When Russia invaded Ukraine in 2022, within 10 weeks of the beginning of the invasion, companies worth at least 10 billion, American companies worth at least 10 billion lost value worth around $2.4 trillion. Now, 10 weeks after the bombs began raining down on Iran, companies worth at least 10 billion have gained 5.6 trillion. Gained, not lost, gained. Then there is the astonishing recovery after the Iran war begun of the whole stock exchange in the United States. So let's compare the speed of this recovery with uh previous crisis.

[00:02:21]Now 2001, remember the dotcom bubble when it burst? Well, it took the New York Stock Exchange and NASDAQ, it took them about 1,6 days to recover. 1 16 days after the GFC, the great financial collapse crisis of 2008. Uh the recovery took 1,365 days. After COVID, the recovery took 217 days.

[00:02:47]After Putin's invasion of Ukraine in 2022, it took 338 days. Last year after you know remember the liberation day of huge tariffs being imposed it took 57 days for the stock exchange to recover now after the Iran war it took a mere 12 days now what is the main driver of this post Iran attack recovery well as everyone knows it's mainly the splurge on AI and in particular investment in the mic microchips that drive the AI business model. So semiconductor producing companies like Nvidia and TSMC, they gained 26% since the beginning of the war in Iran. In terms of capitalization, companies like Alphabet, the owner of Google, gained 1,38 billion, that is more than 1 trillion.

[00:03:46]Amazon gained 663 billion. Microsoft 209 billion. Oracle 142 billion and so on.

[00:03:55]So that is painting a picture isn't it of a Trump still capable of keeping sweet the cloud lists as I call the tech lords.

[00:04:05]Now as far as the pain is concerned where did it focus on where did the most pain concentrate on? It concentrated on sectors uh whose fortunes gyate in sync with the prospects of the masses of the many of the majority companies for instance supply and consumers have suffered the most but also the metals and mining sector have tanked. What surprised me looking at the numbers is that American arms manufacturers have also fared badly. And you know what analysts say is that the explanation they give is that this is due to the fear that despite a very healthy demand for their lethal products, American arms manufacturers are failing to ramp up production to meet that extra demand.

[00:04:51]And now let's go to oil.

[00:04:54]The oil men. This is where it becomes fascinating. Now Trump cares about one particular species of oil man. The people who are involved in the fracking business around the perian basin in Texas and New Mexico. The independents mostly independents.

[00:05:12]Now they are the Trump power bases not so much Exon Mobile or Shell or um Chevron. Now unlike Exxon Mobile these independent companies middle midsized companies in the perian base are doing quite well some say almost too well now exon suffered their capitalization went down by 25 billion about 4%. Why?

[00:05:39]Because uh of the serious damage inflicted by Iran's drones and missiles in Qatar in the Lasan facility in Qatar.

[00:05:47]But Trump doesn't mind this that much.

[00:05:50]His political base as I said before is the perian base. Now the perian base most of those companies on average they have a break even price of oil about 65 $65 per barrel. Now that was above the actual oil price uh between 2023 and 2025.

[00:06:11]The result was that during that period uh there was a loss of about 30% of jobs and of wealth between 2023 and 2025.

[00:06:20]From their perspective the ideal price is around 90 per barrel. So now they are producing as if there is uh no tomorrow and they are supplying um primarily the European markets but they're a bit worried that the price is too high. From what I hear, these independent frackers, they don't want a price much above 90 per barrel because their profit maximizing, you know, calculations, optimization, uh, program tells them that above 90 there's too too much cost push inflation in the United States and that's taking its toll on domestic demand.

[00:07:01]Now, no one can ever be sure of Trump's logic, but from where I'm standing, his decision to halt the war in is consistent with the interest of this permanent base in constituency. So, let me conclude Vulcan and I want I'm dying to hear your your opinion on this. Trump's people unlike other presidents people think in terms of real estate economics. They look at rents and they look at asset prices that these rents bolster and drive. That's the only thing they really care about.

[00:07:36]And while the MAGA base is suffering, the working-class base, the blue collar workers along with consumers and companies serving consumers, pharmaceutical companies, mining companies, the metal industry and so on.

[00:07:49]Nevertheless, and this is the point I want to raise today, Trump's mates are doing rather well as a result of the Iran war. So well that Trump may be convinced that their support may help him recover lost political ground even in the midterms coming up in November.

[00:08:06]So while I still think Iran is going to cause his political, you know, demise eventually, it's not hard to see how all this money making of his nearest and dearest can give him a false sense of security. What do you think, Vulcan?

[00:08:23]>> I agree. I very much agree. I mean, he certainly, you know, his allegiances is with the fracking industry. The industry is doing well. I also agree that there is a maximum price and and a minimum price. Obviously, we know they cannot be profitable below below, you know, $60, but too high would also actually, you know, drive people into the alternative technologies. You know, if it was at $200, even Americans might just, you know, use solar technology and other and other things that would not be beneficial for the fracking industry.

[00:08:52]You know, I also agree with this point that that Trump is not stupid. I don't think he cares much about the MAGA base.

[00:08:59]You know, I think he cares much more about his business pals. it's actually more rational for him to do so because his business pals have the money, they support campaigns. I'm probably slightly more um you know slightly differ about the long-term consequences of the I don't think the the war will bury the the American presidency, his presidency, except if he were to end it without a what would be seen as a victory. And it's pretty much impossible for him to end it without the victory unless he unless he were to step up the war. the diplomacy. We see this again and again.

[00:09:34]You know, he comes up with a proposal.

[00:09:35]He's keeping everyone sweet by saying, "Yes, there's diplomacy going on. We're in talks with the right people." And he's giving some some rather assuaging comments. There aren't really any talks.

[00:09:45]The position of Iran hasn't shifted. I think Michael Rubio was fairly clear about this in when he gave a speech on the weekend when he said there's two things we these are red lines for us.

[00:09:55]You know, we cannot get let Iran develop nuclear bombs and we cannot let Iran control the straight of moose. This the the bottom line for both for Iran is the opposite red line. Not only do they want to control the straight for for for Mus they've already established an authority that would collect the tolls. Now we all know this is against international law but they're doing it anyway. It's it's something that that is now becoming an institutional fact. So Iran would have to change laws and it would have to, you know, dismantle authorities that is setting up. So you know they're locked in a in a long-term battle there and for now they're going the blockade way. Uh the US blockade was supposed to actually be sort of a way of of of winning this war. But this cannot last either because Iran has other ways of getting the oil through. We are seeing reports of Iran shipping oil actually through the blockade. Swishing off the transponder, going under a different flag. I mean the tricks are old. Countries like Iran and Russia, they know this. They've been playing these games for a very long time. You know, I calculated the borders is the the border of Iran with neighboring countries and land borders is about the distance from from uh Boston to Anchorage in Alaska. You know, Iran is a very very large country and has a lot of land borders and it has trains that connect with China. China built these train routes through its belt and road initiative. So, what you're seeing there is now the the train business is booming the train transport.

[00:11:20]Now, you can't at this point yet, maybe never, uh transport oil in volumes on trains. You you still need ships, but other goods can be shipped. Iran gets supplies from China. The idea, as you know, they say in the Wild West, to smoke them out, which is what a blockade tries to do. It's not smoke, but it's water we're trying here. But it's ultimately the idea is the same is just to to ensure that somebody is deprived of important resources or vital resources for their survival. That's just not happening. Even the CIA has report this was leaked that Iran can can last for three four months and you know if somebody can last for three or four months they might last for eight months.

[00:11:59]It's not like that this is sort of like the clock is ticking and 3 or 4 months that takes us well into the you know November election campaign. So the idea that that this blockade would ultimatate and I think we made a very similar misjudgment about the Russians. They thought that our sanctions would smoke them out. Our sanctions would put them to on the brink. And people still say this in Europe and saying, "Oh, you see that Putin made this overure towards peace that means he's losing his nerve."

[00:12:25]I think one has to be very careful with these assessments and you know, I think there's sort of a public discourse going on which on on Ukraine and Russia is quite wrong actually and uh and when you know and the same the US is doing the same on on on Iran and uh the west is not as large as it thinks it is. And I think this is the ultimate, you know, delusion about our our our size or, you know, our the west combined size and the rest of the world. The Russia, China, Iran universe and us, we're pretty much on, you know, pretty pretty close, pretty similar similar size. Neither strong enough to dominate the other to blockade the other. That is just this is just ridiculous. So, we are probably going into a longer war here. Um, possibly with a buildup of military action, possibly with a ground troop evasion. There could be many many possibilities here and you know I'm not I'm not trying to speculate of what it is but I can say this is going to take longer and as it takes longer the oil price will stay higher the fracking will become more commercially viable it'll be good for his his his business body so yes I completely share that share that analysis and the idea that something is bad for Trump usually in the past usually turned out to be wrong because Trump usually had a sense whether we we consider him intelligent in sort of the definition that you in our own sort of sense is a is a different matter. But he was usually quite canny in terms of doing things that benefit end up benefiting him and his family and his friends and he certainly has a talent for that. Well, the reason why I still think that the Iran war is going to be his uh downfall at least in the long term or the longer term is twofold. On the one hand, the Iranians cannot be defeated. they cannot be defeated either by uh um boots on the ground. It's it's as you said it's a vast country and it's got a population and a military that um essentially is going to um to bind together against any such invasion. They showed that with a war against Iraq. I mean it wasn't that the Iranian regime was back then in the early 1980s that popular. uh it was that the moment Iraq invaded they all bound together like you know most people do. It wasn't that the Communist Party of Vietnam was that strong. It was the fact that the Americans uh behaved like an imperial overlord and therefore united the country against them. So they're doing the same thing and also because you know you know Iran has learned the lessons of history and that is that the United States goes in thoughtlessly whether this is in Vietnam or in uh Afghanistan or uh Iraq and then at some point they get tired and they get out. Uh so they all they have to do is buy their time.

[00:15:08]Eventually the Americans whether it's Trump or his successor will you know up stumps and leave. Uh the second reason is the AI splurge. What is keeping the stock exchanges buoyant at the moment is the huge investments in AI. But as we have said before in the economic class there are two things mitigating against this uh continuing. The first thing is that the price of microchips is going up as a result of the helium shortage which is again the result of the blockade of the states of hormones. Secondly, because AI is very terribly energy intensive and you know with the increase in the price of energy which the Iran war is causing at some point you know the valuations uh are going to have to take into consideration the increase in chasm between the revenues of AI companies and their increasing costs. So I still think that the original prognostication that the Iran war in the end was uh the waterlue of Donald Trump but in the medium run as I have been saying and clearly you you agree his mates are doing pretty well out of it in the medium run there is a scenario where where it could work out in the long run I mean it all depends I think I think you're right it all depends on AI I think the effect of AI on the global economy will be more positive in the long run then the effect of the Iran war will be negative on the global economy in the long run. We already seeing the first productivity statistics. They're not they're not big. It's not like a macro factor, but you can already see in certain sectors that productivity has increased. It's not sort of this game changer thing. It's not like our growth will double. No, we we're talking about, you know, estimates of 0.3 percentage points. Studies have shown that during 2019 and 2025, AI had these sort of impacts on certain sectors. We were talking about sort of small decimal points here, but that was also a period when AI was not very strong and it wasn't it wasn't as powerful as it is today. You know, we've seen an AI models uh a massive increase over the last year in terms of its the powers that they generate and the what they can do. They you know a year ago they were still clunky in programming. They did programming and they would they help programmers but nowadays they're very very good. It doesn't just increase your productivity by you know 50% as it used to do. it just you know it just triples quadruples quadrintuples your productivity and you know these are sort of the big step changes that you might we might be looking for and if that happens then the industry is big in business but also the economy as a as a purchase of AI equipment will be there and yes it will cost more energy but you know the US the US we have to remember is becoming probably you know as some people are saying the biggest sort of geopolitical event of our time is the US becoming independent an independent and an oil producer. That has not been the case before. They are now really self-sufficient. We Europeans are not.

[00:18:04]But that may completely change global politics and it has it has economic implications that we we you know we probably struggle with to understand at this point. Well, I think that we should devote a whole episode of the economic class on this. I have a different view.

[00:18:17]I also think AI is going to boost productivity magnificently except that I think it will do this in China, not in the United States. But we you and I can have a very interesting disagreement on this in some future episode.

[00:18:30]This is it for now. However, folks, uh don't forget to come back to the econs for your economic um debunking of orthodoxies that uh you can very easily live without.

[00:18:44]>> And don't forget to rate, like, and subscribe to the econosts.