Israel-Iran Tensions Surge: Global Markets at Risk

Peter Tchir 0:00
This was a telegraphed attack by Iran. But I think when we look at it, what they really tried to do is telegraph it to the countries in the region. So the Saudis, the Jordanians, so that there was no accidental conflict there. I think we believe that they were surprised by how quickly this intelligence went to the US. But on the other hand, make no mistake about this. This was 300, some odd drones, missiles, this was a full scale attack.

James Connor 0:28
Hi, and welcome to Wealthion. I’m James Connor. And today, my guest is Peter Tchir. And Peter is the head of macro strategy at Academy securities. And we’re going to get his views on what’s happening in the Middle East, and also how these events are impacting or will impact the global economy.

Hi, Peter, thank you very much for joining us today. How are things in Connecticut?

Peter Tchir 0:52
Not too bad? keeping busy certainly with everything that’s going on across the globe.

James Connor 0:58
So Peter, Academy securities has a very unique history, and its founders are all military or ex military. Maybe you can give us a little bit of background on the firm.

Peter Tchir 1:08
Yeah, it’s really interesting. It gets started post 9/11. And it was the first post 9/11 veteran based firm, about 50% of the staff is veteran we try and keep it that way. I am not a veteran, I did not serve. In fact, the running joke is I’m the token pacifist being Canadian. But we survived through that. Our entire suite suite is veterans. Our president, many people know Phil McConkey former New York Giant was also a Naval Academy grad. And within that, we also have a subset which we rely very heavily on. We call it our geopolitical Intelligence Group. And it’s now 20, retired generals, admirals and two astronauts who really inform us on the geopolitical side of things. And it’s been really neat, because I can take what I’ve always done from a macro side, and I still do that. But more often than not, I’m able to incorporate what’s going on geopolitically. And I think we have unique insights. And that’s been really important the last few weeks is we’re navigating what’s going on in the Middle East.

James Connor 1:58
Fascinating background on your firm. And this is why I want to talk to you to tap into this knowledge. And I want to get your views on what happened this past weekend. And I want to hear from you how you think Israel will retaliate, retaliate against the Iranians for the drone attacks.

Peter Tchir 2:16
Yeah. So obviously, this was a telegraphed attack by Iran. But I think when we look at it, what they really tried to do is telegraphing to the countries in the region. So the Saudis, the Jordanians, so that there was no accidental conflict there. I think we believe that they were surprised by how quickly this intelligence went to the US. But on the other hand, make no mistake about this. This was 300, some odd drones, missiles, this was a full scale attack. And we believe it’s going to be incredibly difficult for Israel to ignore this, right. This is not one or two that were kind of tossed randomly, hoping to miss this was a pretty full scale attack, the fact that it failed, shouldn’t count that much. Right. We still charged people with attempted murder in this country, right. So the fact that they try this attack, I think it’s gonna be very difficult, we believe that Israel will have to respond our thing right now is it’s more about when not if they will respond, because you really can’t set a precedent of allowing a foreign country to attack your soil and not respond. However, we do think it will be a targeted response, it may do something to go after anything that could maybe promote regime change. I think the only positive that came out of this whole weekend was you saw how the Saudis how the rest of the Middle East reacted around stance, probably more alone than they realized. So if you can target things that might trigger regime change, that could be good. Going back in time, right? A lot of the Iranians are very unhappy with their own leadership, they don’t want to be part of this kind of, you know, restrained country. So maybe something good could happen to that. We’re also on the eye for probably cyber and other types of attacks on the nuclear facilities, because that’s going to be a big area that Iran wants to or sorry, Israel wants to watch out for is where does Iran stand on their nuclear capabilities? And how do we shut that down if this is going to escalate?

James Connor 4:03
And so I just want to clarify a couple of points you just made. So first of all, there’s no diplomatic relationships between the US and Iran. Correct?

Peter Tchir 4:12
Correct. No official one. So everything goes back channels in theory. So I think that’s how most of the negotiations have been going.

James Connor 4:19
So there would have been no communication through the back channels about this drone attack?

Peter Tchir 4:24
No, we believe that it was all sent directly from the Saudis and other Gulf countries, to the US and to Israel. That’s what allowed the defense to be so successful. And it was a very successful defense. And the other thing that does come up is, you know, this is where it gets tricky, too, is we spend millions and millions and millions of dollars on the defense. Their attack is relatively inexpensive, right, a lot of the missiles that we use cost a million dollars a pop. So this is great, but I think we’ve been talking more and more about this. We see it going on a little bit, even in Russia and Ukraine is we have very sophisticated equipment, but it’s costly. And it becomes ineffective to take million dollar missiles to knock out $20,000 drones at some point that becomes a losing battle.

James Connor 5:08
And so even though the Iranians would not want to communicate with the US about what they were doing, why would they want to communicate with their neighbors? Or why would they want to tell anybody? Why wouldn’t you want to take advantage of the element of surprise.

Peter Tchir 5:20
You know, and all these things, accidental conflict is one of the biggest risks they take, I think when we look at what’s happening even within Taiwan or China, right, they’re trying to promote almost this accidental contact. So Rand is going to be flying through some of their air spaces, they wanted, I think these countries to be well aware of this so that they didn’t accidentally hit a Saudi, you know, jet fighter or anything like that. So I think they were actually trying to be cautious, and make sure that they didn’t surprise any of their people who I think they thought were more allies. And I think it turned out they’re not really allies to Iran right now. Many in that region would like the Iranian government switched anyways. So I think that’s probably more of what happened. And this was meant to be well telegraphed to the US think was meant to be well telegraphed to avoid any sort of accident in the air as the attack was occurring.

James Connor 6:07
So 99% of the drones and missiles were ineffective. And do you think that was done purposely by the Iranians, like, maybe they’re just trying to send a message to Israel?

Peter Tchir 6:18
You know, we don’t think so. Or a couple of our generals have spent some time analyzing the missiles that were sent over. These are supposedly some of their better missiles. These were drones that they use. There’s some estimates that as many as 50% of the drones actually failed at launch. So I think what you’re seeing a little bit is the Iranian military has really dedicated their entire money to missiles, these drones, and it’s questionable how effective they are, aren’t we’ve seen some of those same issues, I think, even when Russia has been trying to use them. So we think this was actually meant to be an attack that was successful. And they’re probably very back on their heels. And that’s probably one of the reasons they were very quick to say they’re done, because we think they were surprised by how little got through.

James Connor 7:01
And this whole this event that happened it was it was a result of the Israelis attacking the Iranian embassy in Damascus. Why did Israel attack that embassy?

Peter Tchir 7:14
You know, I think, not to get biblical. But I think this is one of those where we, you start talking about an eye for an eye. And now we keep trying to figure out where did the first I come from. And the reality is, Hamas is supported by Iran. Without Iranian support, Hamas would not exist as the fighting force, they are similar with what’s going on with the hoody is a lot of their weaponry, almost all their weaponry supplied by Iran, probably some of their targeting some of their information. So it’s almost unfair to say that Israel prompted this by going after us Iranian targets when I think Israel would view it as okay, this is retaliation for what’s going on. And you go back in time when President Trump, you know, took out Soleimani. And Salam at all our generals hated him as an individual, he was an evil person. But they would all say that he was very effective at what he did, managing these proxies getting the proxies to do their bidding. So it was an important thing we took it, slow them down. And if you go back at that time, Israel or sorry, Iran did respond, they hit one of our bases in Iraq, but it was very limited attack, right. It wasn’t 300 solid missiles, I think it was a half dozen sort of things. It was a very weak, poorly led attack this that’s why they were saying this is different. This was so many missiles, that if they wanted to do something just for show, it wouldn’t have included that level of weaponry that they actually use. So that’s why we think Israel has to take this seriously. And Iran’s more back on their heels because it failed not because it purposely failed.

James Connor 8:42
And so I’m sorry, what? So what do you think the follow up is going to be from Israel?

Peter Tchir 8:47
You know, we think they’re going to try and target something whether it’s more on the cyber side, whether it’s more a high level leader, I we don’t think they’re going to do a full response right at the attack been more successful, I think you would have immediately seen jet fighter scramble, and a big airstrike into that. away from that. I would say a lot of our discussions now with our client base. And we mostly talked to large corporations, large asset managers, and people are like, Okay, so the one kind of overhanging threat that no one’s quite sure what to do with is nuclear capacity that Iran has they even kind of threatened that they might use either nuclear hypersonic in their next attack, I believe overnight, when they said, you know, the next attack will include weapons they haven’t used before. We’re not sure where they stand on nuclear. We’re also, you know, I think this is where it gets very tricky. I would say to the mouth that our generals and admirals know, Israel does not have the capability by themselves to take out the Iranian nuclear facilities. So we would probably have to get directly involved. And that could be a friction, they it’s unclear whether they have the missile technology and the bombs and the delivery mechanisms that we have that we could take out those deeply buried bunkers. So that gets very tricky. That’s why I think we’re leaning again to more cyber response in terms of what they try and do to slow down Iranian nuclear production.

James Connor 10:09
And what do you think the Biden administration is doing currently? Behind the scenes?

Peter Tchir 10:15
No. I think the one thing that we’re questioning is what’s going on behind the scenes versus what’s front and center. And I would say that most of our geopolitical advisors, kind of were surprised that we would come out and immediately say, we would not support an Israeli counter attack, because we kind of look at deterrence, right. And you’re everything that you do in the military is always both to send a message and to flex your muscles and create some element of deterrence. Right? Actually having conflict is really not on anyone’s interest, right? No one wants it. No, it’s death. It’s awful. So deterrence is such a big part of that, and whether it’s a nuclear deterrence or traditional. So I think by taking chips off the table, seemingly unnecessary, and you look again, overnight, Iran’s coming back saying they will respond heavily, right, so they’re trying to keep that threat high. So we’ve always understood in the past, and again, our generals will tell anytime that we are supplying weaponry, you know, military intelligence and aid to countries, they always come with strings attached with rules of what we want. But most of those are conducted backchannel and rarely, so upfront. And so I think that’s something everyone in our sphere is trying to figure out. Why were we so quick to say, Israel, you’re not allowed to attack Iran back when I think quite frankly, right, if air Andrews Air Force Base has been attack, even if it was an unsuccessful attack, we wouldn’t want to just do nothing.

James Connor 11:43
Yes, very good points. So I want to ask you about the oil price now. And oil is trading in the mid 80s. And I’m surprised didn’t catch more of a bid on the back of this. What are your thoughts on that?

Peter Tchir 11:54
No, we think oil is going to maintain, you know, relatively high prices. I think there’s a chance that spikes to you know, $100 on Brent, maybe 105. I think the one thing that’s helping mitigate oil prices is one, the Saudis have a lot of potential production they could put back on the market. We think they do that somewhere above 100. Right. And the one concern about that event? Well, if the Saudis are really aligning with Iran, maybe they wouldn’t help us in the event that you get an oil spike. But given what we saw this past weekend, I think it’s pretty clear the Saudis and they’ve invested a lot, right. They were part of the Abraham accords. I think the Saudis wanted to westernize. And then the other side, I think, you know, this is almost a little bit depressing. I think when you think about it, it’s just become very clear that politically as a nation, inflation has become our Achilles heel. And we’re so worried about energy prices, right? One, we did not refill the SPR. So we had an opportunity maybe to refill it more than we did. We did not do that. You look at what we’re telling the Ukrainians, we’re telling the Ukrainians not to target Russian energy facilities, right, because we want there and even within what we see in the Middle East, but the sources we talk to, there’s about three and a half million barrels of oil per day being sold by Iran, mostly into China, some into India, that’s well above levels, we have them sanction for most of that is being shipped on carriers that are either Chinese related, so you kind of know that. So we have been unwilling to stop those. So again, we’ve kind of turned this blind eye to Iranian production. You know, many wonder, well, how are they funding there were efforts in the funding of the proxies. There’s a lot of this oil on the market. And I think that’s been the biggest thing that we’ve seen, I think domestic policy is trying to do everything not to have to clamp down on Iran, because that would push oil. So I think we’re gonna see oil there. And domestically, I think we’re seeing oil and energy use increase anyways, you know, the prevalence of data centers, I think is huge, right, you’re starting to see more and more demand. We talked, a lot of people are building out tech infrastructure, including the data centers, and getting reliable energy is one of the biggest problems they’re finding When citing this. And what we find interesting. We have one Admiral, she’s been great. She was actually in charge of naval cyber attack capacity. So you know, most people in the cyber world or the defense side, so she has a pretty unique side from looking at the cyber frack. But we’ve been recommending to clients, I think people are taking various seriously, if you have data centers, you want them domestically based, you want local employees working on these. It’s not going to protect you from cyber completely, but it reduces that risk. So things like cryptocurrencies where the mining is headed offshore, I think data center data storage, data processing is going to become more and more domestic. That’s going to drive energy demand in this country. So I think there’s a lot of good reasons to buy energy separate from what’s going on in the Middle East. And I almost think you get the geopolitical spikeless for free right now.

James Connor 14:42
Okay, a couple of points. First of all, how many barrels does Iran produce daily?

Peter Tchir 14:47
We believe it’s around three and a half million. And that’s talking to several I’ve got some very good sources within the energy side. So that’s outside of our normal scope, but the people that I trust have been very good are saying that and either sanction levels I think It’s below a million or something. So there’s this huge gap and what is being shipped? Over the past month, I think we’ve tried to stop a few ships that were flagged on donations, we felt we could stop. But this is really an ongoing, you know, thing we’ve allowed to slide.

James Connor 15:15
So you mentioned that you think oil prices are going to drift higher. And I know you talked about data centers, but that’s more longer term. What about in the short term here? Like as we head into summer? If we have WTI, trading around 85 bucks? Where do you see going up to 100?

Peter Tchir 15:32
You know, I think on a spike, we can get to maybe 95, maybe to 100. I think on the downside, though, you’re probably 7580. So I feel we’re in this much higher band for the next, you know, six months to a year. And again, I think here we’re seeing this kind of realization that not only do we have to build out sustainable energy faster than we thought and more aggressive, you’re seeing states like Michigan Institute, some rules were people were using citing and saying, Well, I don’t like the site of this windmill. So we can’t do it. And now there’s timing to push that through. So you’re gonna see, I think, a lot of commodity demand as we build up sustainable energy. And I think really, for the first time, I’m quite happy about this. I feel like in the last six months, there’s this realization, we’re gonna need traditional energy sources for the next 1020 30 years. So there’s some investment in that, you know, I’ve always said fry for the last three or four years and knock on wood it’s been working well, is the energy companies of the future are probably the energy companies that today, right, they’ve got the PhDs, they’ve got the skills at pulling energy out of this earth, how they pull it out, will shift over time. But so that’s why I’m so bullish on the sector in particular, I’m probably more bullish on the stocks even than the commodity. But that’s my favorite place to be right now, with all the geopolitical things going on.

James Connor 16:44
So I want to go back and look at the Middle East and get your views on if you think this can escalate. Right, and we had two oil price shocks in the 1970s. One in 1973, from the oil embargo, one in 1979, from the Iranian Revolution, both resulted in significantly higher oil prices. Do you envision a scenario like this happening now, you know, like sometime this year, sometime next year, if things do escalate in the middle?

Peter Tchir 17:14
And so we’ve been talking about both escalation and expansion. And so I think now you’re seeing both right expansion of the number of nations directly involved, right, up until this weekend, you had not had Iran and Israel directly attack each other. So that’s kind of that expansion as well as escalation. I think there is a real risk that at some point, we decided we have to do something to stop this, and we maybe it’s us, maybe it’s Israel, it’s going to be very difficult to stop the containerships. Because I think that would bring us almost a direct confrontation to China, right, most of the oil is going to China, stopping the ships that are carrying the oil to China, I think could be very diplomatically problematic, especially, as you know, Yellen is over there trying to get some sort of trade normalization going on which we don’t think it’s going to be particularly successful. So do you wind up attacking some of these oil fields to something happened to create a real disruption? Does Ukraine for example, decide, well, maybe they put pressure on the US by attacking Russian oil fields more directly. And I just feel that overall, our enemies, in particular, know that this inflation has become our Achilles heel. And if you want the incumbents to lose, you would create an oil shock, right? Because, as we saw, you know, coming into the midterms and things like that, the incumbents do not do well during inflation spikes. So I don’t know what other countries will be motivated to do. But yeah, I think there’s a risk that we’re almost back, unfortunately, to where we were felt like 20 years ago, or 10 years ago, we kind of were self sufficient. And it didn’t matter as much we’re not in the Middle East. And somehow it seems like we’ve lost that even though we’re relatively self sufficient. We’re not wholly self sufficient. And it’s a little bit scary to me, that’s so much seems to depend on the price of oil, and so little that’s truly in our control at this point for the next six months.

James Connor 18:57
Yes, I have to admit the I follow a lot of commodities, but I find the oil market the most interesting of all commodities, just because of the geopolitical aspects, it’s, it can be very volatile.

Peter Tchir 19:08
Yeah. And it’s, you know, about two years ago, and I think we were premature, we always talked about, okay, when you got the geopolitical overlay that we have, you can take a look at where oil was, and that’s where US interests were. And we felt that was shifting towards where cobalt lithium, where the rare earths and critical minerals are. And I think some of that is true, because those are gonna be kind of the important ones in the future. But honestly, I think we all took our eye off the ball, just how important oil still is today, and that we kind of lost a lot of interest in those regions. You know, one thing I’ve completely learned since I’ve been an academy that I think is relevant about this is the term business follows the flag. And I think historically what that was meant, you know, we plant our flag somewhere, and it creates an environment that’s conducive to business, right? There’s law, there’s order, there’s, you know, things that you can have expectations. And unfortunately, I think for the last 20 years, we’ve been taking that flag and pulling it closer to home, and it’s Korea. Eating this kind of spaces where bad things happening and allows different actors to come in. And we’ve been, you know, to some extent, I think, very handcuffed by our own rules when we had that kind of economic friction with the Soviet Union. They were awful militarily. You know, we often talked about the dime framework of geopolitics. So diplomacy, information, military, and economic, and Russia was no good at diplomacy. They were very good at information allegedly very good at military. Now we’re questioning that economically, we’re nowhere China has used that economic power to really work closely and develop a lot of tight relationships with these autocratic resource rich nations. And I think that’s when you look at all these flow issues we’re talking about. It’s not coincidence that it’s the US and the West that’s having their commodity flows disrupted. Well, China manages to kind of go on with limited risk, and India as well.

James Connor 20:55
Interesting points. Peter, as we wrap up, what maybe you can summarize for our viewers what they should be aware of in the coming days and weeks and what might happen.

Peter Tchir 21:06
You know, I again, I think this really comes down to this whole escalation. I think anytime you, I would fade almost any move when you hear about some sort of peace talks occurring. And you know, this is awful and even hard to say, but our generals probably believe it’s unlikely the hostages will be returned, because they’ve been held captive for so long. Who knows what shape they are in, it’s unlikely they’re in a shape that they actually want presented back to the west. So we think there’s very limited ability to have a peace or a truce that works for both sides. So we think we see this grind on, we think the battles are incredibly hard. I think our generals would say from their work, and what they look at Israel has been very cautious. It’s just very difficult to fight in these places, especially when the enemy is violating Geneva Convention convention, by putting command and control centers, under hospitals, etc. So we don’t expect this to end anytime soon. Which is why again, I think you’re gonna see pressure on oil, I’m very negative on yields. That’s one thing I would say, traditionally, you get these kinds of flight to safety moves. And we saw a little bit of that last Friday, where stocks fell, but treasuries rallied, we’re back to where we’ve been, I think, recently were treasury yields going higher, because normally this flight to safety, you see the economic slowdown, and that makes everyone want to buy treasuries, I think partly, we’ve separated enough already, that it’s not going to help as much in that respect, people are going to see oil spike that’s bad for inflation. And then I think there’s this real risk that everyone’s going to start across the globe spending more and more on military, which might be the right solution to this. But that is going to run up these deficits even higher. So I think we see the 10 year get the 5%, even with a kind of geopolitical event, which is very unusual. So that’s why I’ve been targeting being long energy as my best hedge for geopolitical risks. And I’ve been short to be honest, under the NASDAQ stocks.

James Connor 22:55
Interesting points. Well, listen, I want to thank you very much for sharing your thoughts today. And if somebody would like to learn more about you, in your firm, where can they go?

Peter Tchir 23:03
So, www.AcademySecurities.com. We’ve got our advisory work, you can read about our board, you can see the geopolitical research we put out, we put out one T report at least a week, which is my work. It’s more macro and probably one during the week. And we put out CIT reps, which is situation reports. So every time one of these comes out, we were able to put something together what’s important, and we typically have two or three generals respond. And then we do have an asset management side, which has an interesting ETF V ETS Zed, or sorry, v TZF. What the Canadian slip in, but it actually invests in mortgages that go to veterans. And so that’s been an interesting way we’re, we’re again, trying to support and some of the fees go to charity. So we’re trying to make this I think we live I guess we call it mission driven, where we want to be authentic to our mission, and add capabilities and kind of compete within this DIY space in a unique way.

James Connor 23:55
Oh, that was a great overview. Once again, thank you very much.

Peter Tchir 23:57
Thank you very much for having me.

James Connor 23:59
Well, I hope you enjoyed that discussion with Peter Tchir and hearing his views on the Middle East and how things might evolve in the coming weeks. During times of economic uncertainty like we’re going through right now, physical gold is one way to help prepare for uncertainty. And if you would like to learn more about purchasing gold and how to own it, and also how to store it, consider visiting our sister company HardAssetsAlliance.com. It has over $3 billion in assets and it’s used by over 100,000 clients worldwide. And there’s a link below in the show notes. Once again, I want to thank you for being with us today and I look forward to seeing you again soon.