Frans Cronje: Iran War Scenarios: How It Ends and Who Really Wins

Added: 2026-05-31

[00:00:00]Hi, I'm France Cronje, at France Cronje Private Clients. My firm's got a arrangement with the Common Sense that we share through the Common Sense a lot of the content that we typically make available to the firm's corporate clients.

[00:00:13]What we're going to talk you through now is our view on the Iran war scenarios we initially created for the war, why we were relatively sanguine about it and from the outset said this is not something that's going to do severe damage to the global economy, scramble currencies, or crash markets. I'm going to show you some of the numbers around that and seem to have borne out the advice to date.

[00:00:37]Just going to pin on my screen then I can tell you exactly, show you exactly what I'm doing. Okay. There's a pin. The Iran war, day one or kind of week one.

[00:00:48]As as the war got going, we put together a set of six scenarios for our clients and how the war would likely play out.

[00:00:55]And the first scenario, we said how this thing can end is what we called the direct operational solution. And the idea there was that the um the US would take control of the Strait of Hormuz. It would remove the missile threats to shipping.

[00:01:10]It would deal with the with the mining threat. It would open up the strait on its own.

[00:01:16]Geopolitical stability is restored and the dollar would come off slightly and the um and oil prices would start moving back to where they'd been at the beginning of the year.

[00:01:27]Um technically extremely difficult and operationally extremely difficult and and something that's was likely always out of reach.

[00:01:38]The second scenario is the one that we called strategic withdrawal.

[00:01:42]Um what would happen here is that with the midterm elections bearing down on Trump, that's in November in America and uh distressed consumer sentiment in America, which is always very damaging uh from a political perspective through high oil prices, a point would be reached where the Americans realized they had to take whatever wins they had, a bank those, and they'd withdraw out of the theater.

[00:02:07]And from day one, we said this is how the thing is going to end. We also said it will intersect with scenario four that I'll show you in a moment, but that's very much what's what's happening now. Consumer sentiment data on America at the moment is sitting at about 44 points or 42 points this week. It's just a point scale.

[00:02:26]Historically, going into a midterm election, uh with a figure anything below 70 points is means that you're in severe trouble. And um the the house is very much under threat, but so too now is the Senate. And if Trump loses both of those, he's really a lame duck, and it's an ignominious end to his presidency, and and that pressure has been sort of front and center around the administration and the Republican Party, and has grown so over recent weeks.

[00:02:56]Third we said would be leadership decapitation, similar to what the Americans have done in Venezuela. Uh they removed Maduro, put Rodriguez in.

[00:03:03]She's been um I mean she's got quite a hardliner herself, but the the she's come to terms with the Americans. They find they get on well with each other.

[00:03:12]And the Americans hoped in those first strikes against the Iranian leadership that something would come to power that they could work with. That hasn't really materialized. It it could always happen at short notice, but it's not one of the likely endpoints, and it wasn't for us from the beginning.

[00:03:26]Number four was we thought it would intersect with number two, and that was controlled de-escalation. The the Iranians would come under immense pressure as their Hormuz oil flows were cut off, and hence the bulk of their their revenues, and their infrastructure very strained, and the threats of American bombing against that would would concern them.

[00:03:47]And we thought the way this war ends is in in the fullness of time as the pressure builds on the Americans, as the pressure builds on the Iranians, the Americans withdraw to to to a great extent, the Iranians back off to a certain extent, and that's the conclusion of the conflict, and we think that's exactly what we're seeing at the moment in in in the talks that are being facilitated by Pakistan.

[00:04:11]Um Number five for us was structural circumvention, that um what would occur is you scramble Hormuz up completely and turn it into into real chaos. You create an incentive to um redirect oil, perhaps through pipelines that that head westwards into Europe, uh uh um across Saudi, uh through Iraq and Turkey into Europe. And and you you create incentives to exploit um oil resources in the rest of the world.

[00:04:41]So, perhaps have another look at the North Sea, for example. And that has happened to a very significant extent, but it's not going to be one of the end points of the war, but we do think in the firm it will probably be one of the war's it it will be the war's most significant consequence.

[00:04:56]That the the the that the oil balance of power, the global balance of power that's been centered around the Middle East, really since the establishment of OPEC in 1960, and and then what OPEC did to engineer the oil price crisis, the spike in 1973, and and that that left the Middle East as the epicenter of the global oil world, and gave it vast influence over the west. We think that's been broken, and we think that the balance of power has moved very much to the United States. Uncertainty over Hormuz has inspired uh a sense to find alternative um resources, and we called this from the beginning the North Stream scenario.

[00:05:35]And that's a reference to the North Stream pipelines that were sabotaged. Um they they fed Russian gas to Europe during the Ukraine war. They were they were they were they were blown up one day.

[00:05:46]And subsequent to that, the entire quantum of gas that Europe had been sourcing from um uh Russia, it now essentially sources from the United States. The United States is in a very good place to do that for much of the rest of the world.

[00:06:00]Now, both through exploiting its own domestic uh oil resources, which which the Biden era administration had been averse to doing, and through its de facto control of Venezuelan and and by extension uh much of South America's oil potential.

[00:06:17]That's That's happened, but it's not the trigger for the end of the war.

[00:06:21]And then finally, we had what we called the infamous scenario six.

[00:06:24]And this was where where all all the other five would were were nearer term end points for the war rather than longer term end points.

[00:06:32]And they saw oil prices come off, markets hold up, the global economy hold up much better uh through 2026 than what the bulk of mainstream analysis was suggesting. But we had one scenario where that wasn't true. And that was the regional war. And what happened here is the Americans would get sucked into some regional on-the-ground conflict, militias would be introduced, Middle East would be destabilized, very high oil prices would be maintained uh through uh uh the year, and uh would uh totally undo the global economy, uh threaten recession in many countries and the like.

[00:07:13]But we held on two and four. But throughout, there were some difficult moments. We weren't entirely sure in the team always, but that is exactly how we think the thing's going to end now.

[00:07:23]Throughout, we I often had the sense that we were talking clients off ledges on the on the Iran war. And there's If you read the media at the time, it it was There was a nuclear war risk. There was a third world war risk. There was There was global recession and the data always told us something else.

[00:07:41]And And here's an example of it. I I show you a chart.

[00:07:44]What's on the chart is the daily number of launches, retaliatory strikes by Iran against their Gulf neighbors, Israel, and US facilities in the Middle East.

[00:07:58]And And really out from the first 10 days of the war or so, that number had had come down to to very, very little.

[00:08:07]And we've we talked clients as as that happened. We anticipated one it would happen with the Iranian missile suppliers, also the American reluctance to be drawn into the kind of ground conflict that might have led to a different scenario.

[00:08:21]And our advice to clients is this really isn't a war in in the way that Middle Eastern wars, the Soviets in Afghanistan, the Americans in in Iraq after Kuwait, and then the the the the the the Afghan conflict af- after 9/11 played out. This is not something that's going to be settled on a battlefield. This is going to be settled through economic and political pressure. Hence that's of the US midterms in November and the and the revenue pressure that the that the Iranians themselves were under.

[00:08:51]The data made that kind of really nice and clear.

[00:08:56]Second point we made to clients is that look, this global economy is not being being knocked back severely as a consequence of the conflict. The the the hysterical media reporting and actual economic reality of departed from each other, and that's been born out. You're looking at a chart here that shows in orange a January forecasts for the growth firstly of the world's economy.

[00:09:20]And the January forecast was that the world would grow at 3.3% in 2026, and mid-April as as the the war and as far as it was that is is is fully on the go, that's only come off by, you know, 2/10 of a percentage point. Advanced economies unchanged since January. Isn't that amazing relative to what what you read in the sort of let's call it the slightly more popular press. Emerging markets chiefly find the United States looking perfectly all right. China was always worried about its oil being cut off from the Middle East. I thought that might happen at the Malacca Strait, not at Hormuz, but they had contingencies in place.

[00:10:02]And then South Africa's economy, that's down rather sharply, but partly because growth forecasts at the beginning of the year were a bit too optimistic. And then as as ever, the domestic policies of the South African government tend to exacerbate global crises. And see South Africa fail to take advantage of global economic upturns. Currencies and and their behavior that that that that this is really being the perhaps the most powerful set of numbers on on just how kind of not dramatic this has been in the investment and economic world uh for for people who thought through the data.

[00:10:38]What you're looking at there is a line of the trade-weighted dollar, so that's the dollar index. And the the the the story is this. The the the dollar started at about 90 97 98 points on the index um you know, on uh uh ahead of the conflict.

[00:10:55]As the conflict takes off, it it it moved a little bit, but very little. Uh going only to about 100 points.

[00:11:03]And it's it's back at 99.

[00:11:06]And the rand, which always takes its lead from the dollar, uh something very similar has happened.

[00:11:12]The rand starts out ahead of the conflict on on this chart at um if you draw your eye across to the right, about 16 rand, and you know, it it has some some scary moments as as the dollar weakens, but it's moved pretty much back to 16.50, and it's 10% stronger today than it was a full year ago. And and the the the dollar is the best measure of global economic risk sentiment. If if it's a very risky world, the dollar strengthens because and and rises in the index because of a flood of of money into the relative safe haven of the dollar.

[00:11:53]And the South African rand, because it's so easily tradable, South Africa's got this amazing financial system, these these deep capital markets, is is perhaps the best global indicator of emerging market risk sentiment. And if that's very high, the dollar loses a lot of the rand loses a lot of ground. And that hasn't happened in this conflict.

[00:12:13]And then I'll take you into markets. If you, you know, you followed the wrong advice and and sort of took your money out as this war took off because you feared the nuclear holocaust and the and and what the third world war kind of scary stuff that was being written about in some serious places, you would have done very badly.

[00:12:32]This is a million rand put into the S&P 500 from the sort of early stages of the conflict. Um what that would have been worth a week or two in, three weeks in.

[00:12:45]You'd have lost a bit of money.

[00:12:46]But um if you just sat on your hands, often the best strategy, you would be about 10% up today in rand terms relative to the early stages of the war. And that's, you know, just a a two to three month month period. And underpinning all of this for us was was one big insight. And that was that oil prices were not that high. They might have started the year at around $60. And they might have hit 100 and and and sometimes, you know, $110 through the the the the the full period of the war.

[00:13:21]But but that was the nominal price of oil.

[00:13:25]My colleague Bheki Makhubu went back and we calculated the real price of oil, so the inflation adjusted price. And what Bayki found is that the average inflation adjusted oil price for the last 15 years is just about $100 a barrel, which meant that at no point at very few points through this conflict and certainly not for any sustained number of days that the global oil price moved beyond its inflation adjusted average, which meant that the shock effect on the global economy was always going to be much more muted than um some of the more dramatic and hysterical writing would have one believe.