A Consequential Look into Geopolitics and Investing
Petro-Politics and Power Plays: How Iran and America Are Shaping Your Financial Future
I recently stumbled upon a compelling YouTube channel called Predictive History, hosted by Professor Jiang Xueqin. His forecasts echoed in his GeoStrategy lectures1—such as Donald Trump’s return as the 47th U.S. President and rising tensions between the U.S. and Iran—have proven eerily accurate. Only one major prediction remains: the U.S. losing a war against Iran (as in no one wins, but everyone loses), leading to the collapse of the American empire and its financialized economy down the road.
Regardless of his individual views, this made me reflect on how such global developments can deeply influence an investment portfolio. Markets are especially volatile during periods of geopolitical uncertainty. Let’s dive into Professor Jiang’s insights and explore potential risks and opportunities for investors.
Iran's Geopolitical Strategy
→ Energy Market Implications
Strategic Geography: Iran sits at a critical crossroads between the Middle East, Central Asia, and the Persian Gulf, granting it control over vital trade routes, including the Strait of Hormuz—through which around 20% of global oil flows. Tensions involving Iran, the U.S., or Israel can disrupt oil shipments and send prices soaring. Conversely, diplomatic breakthroughs like a renewed nuclear deal could increase Iran’s exports and stabilize prices.
Investment Angle: Energy investors should monitor Iran’s actions closely. A tightening of sanctions or military posturing could boost oil majors like ExxonMobil (XOM), Chevron (CVX), Canadian Natural Resources (CNQ), and Suncor Energy (SU) due to price spikes. Conversely, a deal could benefit companies with exposure to Iranian oil, such as those in refining or shipping.
Natural Gas Opportunities: Iran holds the world’s second-largest natural gas reserves. If sanctions ease, foreign investment in Iran’s energy sector could surge, particularly for European or Asian energy firms looking to tap into its underdeveloped gas fields.
Investment Angle: Consider energy companies in ETFs like the Energy Select Sector SPDR Fund (XLE) for broad exposure to oil price volatility or companies like TotalEnergies (TTE) that have historically engaged with Iran’s energy sector. Midstream infrastructure companies like TC Energy (TRP) or Pembina Pipeline (PPL) that will benefit from rising LNG demand and global diversification away from Iran also benefit.
→ Geopolitical Risk and Regional Stability
Proxy Warfare and Defense Spending: Iran’s support for proxies like Hezbollah, Shia militias in Iraq, and the Houthis in Yemen fuels regional instability. This drives defense spending in rival nations like Saudi Arabia, Israel, and the UAE, boosting demand for defense contractors.
Investment Angle: Defense contractors such as Lockheed Martin (LMT), Raytheon (RTX), and Boeing (BA) could benefit. Cybersecurity firms are also gaining relevance due to Iran’s digital warfare tactics.
Sanctions and Trade Disruptions: U.S. sanctions on Iran limit its access to global markets, but Iran’s pivot to China and Russia creates opportunities for investors in those economies. Iran’s alignment with China and Russia, including its BRICS membership and SCO participation, signals a shift toward a multipolar world. This creates opportunities in markets less tied to Western sanctions, particularly in Asia. For example, China’s growing imports of Iranian oil strengthen its energy security, potentially stabilizing its industrial sector.
Investment Angle: Consider emerging market funds with exposure in the energy sectors of these countries. Some Canadian-available emerging market ETFs include ZEM from BMO or XEC from iShares.
Risk: These may carry significant geopolitical risks.
→ Risk Management Considerations
Volatility as a Constant: Iran’s unpredictable actions—whether through proxies, nuclear posturing, or maritime tensions—create volatility across energy, defense, and emerging markets. Investors need to factor this into risk models.
Investment Angle: Diversify portfolios with safe-haven assets like gold (e.g., SPDR Gold Shares, GLD, ZGLD) or government bonds to hedge against Iran-driven disruptions.
America’s Slowly Dying Empire
→ Economic Impact of Imperial Overreach
Sustainability: This lecture highlights the U.S.’s $33 trillion national debt and $971 billion trade deficit (2022 figures), driven partly by military spending ($816 billion in 2023). That’s money not going into infrastructure, healthcare, or innovation—sectors that could drive long-term market growth.
Investment Angle: Consider defense stocks like Lockheed Martin or Raytheon as previously mentioned.
Risk: Long-term sustainability is questionable if budgets tighten.
→ De-Dollarization Risks
Reserve Currency: The U.S. dollar’s status as the world’s reserve currency lets America borrow cheaply and dominate global trade. BRICS nations (Brazil, Russia, India, China, South Africa) are exploring alternatives, frustrated by U.S. sanctions and financial overreach. If the dollar loses its grip, Treasury bonds could tank, and U.S. markets might face capital outflows.
Investment Angle: Emerging markets to hedge against a dollar decline. Trustworthy cryptocurrencies, despite their volatility, also seem worth a small allocation as a non-dollar asset.
→ Deindustrialization and Sector Opportunities
Rebuilding America: America’s focus on global control has hollowed out its manufacturing base, leaving supply chains vulnerable (80% of semiconductors coming from Asia). Policies pushing for reshoring (bringing manufacturing back to the U.S.) could spark a boom in industrial sectors. Economic nationalism suggests government incentives could flow to these sectors, boosting returns.
Investment Angle: Think infrastructure (Caterpillar) and semiconductors (Intel). Other companies in ETFs like the Industrial Select Sector SPDR Fund (XLI) can also capture this trend.
The Saudi’s Influence
→ Oil Price Volatility
OPEC Power Play: The longstanding rivalry between Saudi Arabia and Iran, including proxy conflicts in Yemen, Syria, Iraq, and Lebanon, and their competition for influence over OPEC and global oil markets. Saudi Arabia and Iran are both major oil producers, with Saudi Arabia wielding significant influence as OPEC’s de facto leader and Iran striving to regain market share despite Western sanctions. Any strategic move by Saudi Arabia—whether increasing production to suppress prices (hurting Iran’s economy) or restricting output to drive prices higher—could lead to significant oil price volatility.
Investment Angle: Energy ETFs like the Energy Select Sector SPDR Fund (XLE) or oil-focused stocks could benefit from price spikes driven by supply disruptions or geopolitical escalations.
Risk: Sudden production increases by Saudi Arabia to undercut Iran could depress oil prices, impacting energy sector returns.
→ Currency and Commodity Markets
Foreign Exchange: The Saudi Riyal’s peg to the U.S. dollar provides stability, but Iran’s Rial faces ongoing depreciation due to sanctions and economic mismanagement. This dynamic could influence commodity markets, particularly if Iran ramps up oil exports to counter Saudi moves.
Investment Angle: Investors in commodity currencies (e.g., Canadian Dollar, Australian Dollar) tied to oil prices could see gains during supply shocks. Consider oil and gas stocks in these countries. Gold, often a hedge against geopolitical uncertainty, may also rally.
Risk: A stronger U.S. dollar, driven by Federal Reserve policy or safe-haven flows, could pressure commodity prices and emerging market currencies, indirectly affecting investments tied to the Saudi-Iran dynamic.
→ Broader Market Implications
Escalation and Tensions: Whether through proxy wars, sanctions, or diplomatic breakthroughs, this could influence global risk sentiment. A Saudi "trump card" that weakens Iran’s position might stabilize markets by reinforcing Saudi Arabia’s dominance, but unexpected Iranian retaliation (e.g., disruptions in the Strait of Hormuz) could trigger sell-offs.
Investment Angle: Maintain a balanced portfolio with exposure to energy and defense for growth, alongside defensive assets like bonds or dividend-paying stocks to mitigate volatility.
The Moral of the Story
In a world where oil flows chart the course of empires and proxy wars ripple through global markets, investors must stay agile. Consider the potential multiple scenarios: escalation (higher oil prices, defense spending), de-escalation (increased Iranian exports, market stabilization), or status quo (continued volatility). Iran’s strategic maneuvers, America’s shifting global role, and Saudi Arabia’s energy diplomacy all contribute to a volatile—but potentially rewarding—investment landscape. Whether it's navigating sanctions, riding defense sector surges, or seeking safe-haven assets amid uncertainty, a well-balanced, globally aware portfolio is no longer optional—it's essential.
Over history, it is necessary to understand that investors are rewarded over the long-term. There have been wars and ongoing conflicts throughout the 125-year period as presented in the image above. Despite significant volatility during those times, the major index of the S&P 500 shows a general upward trend.
Major events typically cause short-term declines, but the market consistently recovers and reaches new highs. The log scale2 emphasizes that long-term growth outweighs these disruptions. Whether it is the S&P 500, other high quality indices or individual stocks, they often demonstrates resilience, with historical downturns linked to wars and geopolitical events being temporary. Long-term investors benefit from this upward trajectory.
Disclaimer: The information provided in this article is for educational and informational purposes only. It does not constitute financial advice or a recommendation to buy, sell, or hold any specific stocks or securities.
● Written with the help of Grok
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YouTube links embedded within subtitles.
A logarithmic scale adjusts the distances based on percentage changes. A move from $10 to $20 (a 100% increase) would appear the same as a move from $20 to $40 (also a 100% increase), even though the absolute price difference is different.