Redeye Macro Note: Countdown to Energy Crisis Pt. 2, Aviation Sector Troubles, Latest War Developments

In this Redeye Macro Note, we discuss the latest developments shaping and driving a potential energy crisis, highlight aviation sector troubles as United cuts flights, look at war updates, and more.

Don Johnson (@DonMiami3), Chief Economist

Good Friday evening MacroEdge Readers and Community,

I am pushing this note through later than usual this evening to cover some of the latest developments on the geopolitical landscape and macro front. We will have a much more in-depth market note available on Sunday evening with the next Weekly Macro Note - but I will try & tee up a lot of the same topics we’ll be discussing more in-depth on Sunday. This week I will be attending a conference in the first half of the week, and there should be some interesting relationships to come out of it. Additionally, there are a lot of interesting companies presenting, and that should give some additional color to opportunities that we’re all seeking out from a public equities perspective. Given the underinvestment into *real* economy sectors like oil and gas - I am curious to see if attendees are yet paying attention to the re-rating that still needs to happen in the space with $95/bbl WTI.

After a volatile day in markets, we saw the President throw out another ‘soft TACO’ as it pertains to the war almost being over and the Strait of Hormuz opening back up. The narrative around the conflict coming to a close in the immediate future (next few weeks) is absolute nonsense, barring any shock to the bond market or collapse in equities that may force the US to rethink its efforts more broadly in the region. It’s surprising that the market continues to buy any and all ‘TACO’-esque narratives as they pertain to ending the war in ‘days’, especially given that we’re already three weeks in, and the Administration is requesting another $200bn to continue fighting the war for three months, while thousands of Marines are in transit to the Middle East for a forward deployment.

It looks very unlikely that things will resolve over the weekend, though we’ll have to again see how futures open on Sunday evening, and see how things evolve over the weekend. As highlighted above, we’re setting the foundation for a much more in-depth Weekly Macro Note - where we’ll dive into things like the latest real estate data, provide an update to our energy portfolio strategy basket, and much more. There’s a lot of opportunity to be had right now, and as I mentioned on X, this is one of the best macro-driven investment windows that we’ve seen it at least the last 15 years.

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Latest War Developments

The Israel/Iran war has shown little sign of slowing down through the week, with things remaining very tense at the end of the week. Intense strikes against Iranian military assets continued through the week, while Iran continued attacks against energy assets and US military targets in return.

The WSJ confirmed that Iran launched a ballistic missile strike on Diego Garcia, a target over 2,000 miles away with IRBMs - though no missiles landed. This is significant as a show of force because 2,000 miles is enough range for Iran to hit many US assets in Europe if things were to deteriorate further from here. The situation is quite fragile as both sides hold out from any talks of a ceasefire or efforts to restore things from where they are. Entering a third week with the Strait of Hormuz closed means that on-water oil inventories are going to continue to drop sharply from here, and even US officials noted that securing oil supplies right now is a difficult task. For East Asian countries like Japan and South Korea, we may start to see them make separate concessions with Iran - such as paying in Yuan, or paying tolls as we’ve started to see - for ships en route to those countries. The ‘toll booth’ signal is one that I take as a sign that Iran’s quasi-control over the Strait of Hormuz has not ended and will not be ending for at least the immediate term. Any expeditionary US Marine force at the current size is unlikely to accomplish securing the Strait, and we are more likely to have success through diplomatic channels.

With all of these developments being said, it would be very wise for politicians to heed our 14-20 day *final warning* window, as off-ramp avenues continue to dim, especially as we’ve moved well beyond our first window of closure from the first week of the conflict. Three weeks quickly turns into two months, and two months quickly turns into twelve, then sixty. Fighting a war with no agenda is a very dangerous game in the Middle East, and Iran’s significance in the energy realm has shifted the world into arguably its most precarious position since the pandemic lockdowns. This time, we’re not going to be able to print oil, minerals, or foodstuffs that countries are going to start running out of over the next several weeks if the current situation persists.

Countdown to Energy Crisis

We continue to realize the ‘right tail’ scenario currently on the pathway we’re on, and I am setting a 14-20 day resolution window for parties to figure out how to resolve their way out of the war, or things are going to get significantly worse from an energy crisis standpoint. In terms of total production offline, we are around the ~10mbpd mark now:

(Continued below: Countdown to Energy Crisis data & discussion, Airplane Impact Expands, The Technical Picture…)