Original text: @radigancarter

Translation: Big Pliers | PANew Lobster

I have been intermittently thinking about this issue for about a week, while also dealing with evacuating my wife and responding to the attack in Oman. This is my current framework for thinking about how this war will affect the market over the next 6 to 12 months. I am not trying to predict, but rather sorting through the most likely intermediate paths as events evolve, to adapt randomly and seize opportunities.

My mission remains the same— to be a Thucydidean chronicler: taking risks, pursuing truth, and stating facts clearly. When great powers confront each other again, and we all feel the overwhelming pressure of uncertainty, my only concern is how, as an individual investor, I can protect my family.

I anticipate four phases ahead.

Phase One: Denial

This is where we currently are.

Market fluctuations are entirely driven by what the president says during trading hours. Everyone is eager to believe this new war in the Middle East will be brief for Israel. Powell has been assuring the market that "this is not stagflation," while simultaneously stating that while watching Israel bomb the South Pars gas field, presumably wishing he could throw his phone away.

Phase Two: Six-Week Trigger Point

If the war continues, this phase will arrive in the sixth week in mid-April.

By the sixth week, the oil price shock caused by attacks on energy infrastructure will be transmitted through transportation costs, food, and consumer goods. CPI data will start to cause panic, and tech stocks will begin to suffer real pain— as valuation multiples are compressed.

The reason is simple: rising energy prices will push up CPI, which will completely kill any remaining hopes for the market that the Federal Reserve might lower interest rates. Powell has already begun to tamp down these expectations, and the data in April and May will ultimately confirm this.

When Powell extinguishes the last flicker of rate cut hopes, the market will experience an “emotional collapse.” But unlike every other sell-off in the past 15 years, this time I am not sure I can simply "buy the dip," and then wait for the Fed to provide a floor.

This inflation is driven by supply side— from bombed gas fields and LNG terminals.

The Federal Reserve has a bunch of useless PhDs in economics and a computer that can print money out of thin air, but it doesn’t have oil engineers, nor is there an LNG production line in the basement. Monetary policy cannot solve this problem. Those tech stocks priced on "rate cut expectations" will be repriced to "rate stays unchanged"— and everyone will be gloomy all summer as they gradually realize there is no simple way out.

Phase Three: Long, Hot Summer and AI

This phase targets July to August, when earnings season starts, and the losses seen on the battlefield will be reflected in real numbers.

Corporate earnings will fall short of expectations, and unemployment rates will rise. Against the backdrop of this war, the speed of AI replacing labor will only accelerate, as companies need to cut costs to cope with higher energy inputs. Politicians will begin to panic before the midterm elections in November.

Phase Three is the buying opportunity I am looking forward to.

By then, the quality targets I focus on are expected to appear at significant discounts— as everyone gets tired of all this, angry about rising costs, anxious about employment prospects, and strongly demanding the government to take action before entering autumn and the midterm elections.

And the government will indeed take action. We have already switched from "cutting costs" to "large-scale spending," just like during the Afghan War. Less than three weeks into the war, costs have soared— hundreds of billions of dollars, with no signs of slowing down. The Federal Reserve will ultimately capitulate, and politicians will provide fiscal support; we will add over a trillion in debt to pay for Israel’s war. Just need to be patient.

Phase Four: Late 2026 to 2027

The Federal Reserve yields and cuts rates, and the assets bought in Phase Three begin to realize gains.

I also believe that emerging from this war, Phase Four will be highly focused on energy independence and energy abundance. After the midterm elections, Congress will sing the same tune—- no one wants to be labeled as “obstructing the alleviation of the people's pain.” Moreover, this provides them with the perfect excuse to lower rates, increase spending, and create jobs.

This war with Iran will reveal the necessity of controlling the input side. I anticipate that assets located within U.S. jurisdiction or at least in the Western Hemisphere will benefit.

Against the backdrop of all these events, AI will only accelerate forward. Companies under pressure on margins will substitute labor costs with AI as much as possible. These aren’t what people typically think of as AI companies or tech companies, but productivity improvements will manifest in their margins in 2027 and beyond.

The AI story in this war is not just about the companies building AI, but also about those using AI to survive. This is the structural change I am focusing on this summer.

How the War Began

We are nearly three weeks into this war, and I still believe that most people underestimate how long this conflict will last. This is not because I am predicting the worst-case scenario, but because:

The theological framework driving Iran’s decision-making fundamentally does not align with the incentives assumed by Western politicians and commentators.

The Shia tradition is built on the story of Hussein ibn Ali— the third Shia Imam, who knew he would be killed in the Battle of Karbala in 680 AD, facing thousands of enemy troops with only 72 companions, but he still moved forward. In Shia theology, standing up against injustice is a duty, especially in situations where victory, in the conventional sense, seems impossible. To fail and die is not to fail; to succumb to overwhelming injustice is the true failure.

Israel’s and the U.S.’s way of waging this war seems to be repeating the origin story of Shia Islam step by step. They used diplomacy as a façade for deceit while assassinating Khamenei and his family at the same time the Omani foreign minister announced a diplomatic breakthrough— just like Hussein who was slaughtered after receiving a promise of safe passage.

That is why, no matter how many targeted killings Israel conducts, the Iranians will not kneel. The Israelis know this, but they do not care. They will bomb Tehran like they did Gaza, setting the entire Middle East ablaze. They welcome chaos. As for America? I personally do not welcome it.

Shia theology redefines suffering as a testament to "walking the path of justice." This tradition dates back to the 7th century— when Arab tribes swept out from the peninsula to conquer the territories of Rome and Persia. Persia, an ancient civilization, viewed its conquest by Arabs as unjust, hence Shia theology found a natural place in Persian identity.

Israel and the U.S. believe that by assassinating leaders and launching a few "Joint Air-to-Ground Stand-Off Missiles" (JASSM), they can make a nation whose entire history is built on resisting foreign powers submit— this idea is utterly absurd. Our ignorance about the objects we want to go to war against remains tragically unchanged; we’ve learned nothing from the failures of the War on Terror to the war in Ukraine, yet we still let psychopaths have veto power over our foreign policy.

Current Situation

The war has entered its 20th day, and the conflict has crossed the Rubicon.

Yesterday, Israel struck Iran’s South Pars gas field— the largest gas field in the world. In retaliation, Iran severely damaged Qatar’s Ras Laffan LNG facility, which is also the largest LNG facility globally. QatarEnergy has declared force majeure on gas exports and has shut down its gas liquefaction facilities.

Qatar accounts for about 20% of global LNG trade, with over 80% of its cargo shipped to Japan, South Korea, China, and Taiwan. This supply has now been interrupted and may take years to restore.

Haifa's Bazan refinery (supplying 65% of Israel's diesel and 59% of its gasoline) and other energy infrastructure in the Gulf have also been struck.

I have firsthand knowledge of Qatar.

I worked for five years in Ras Laffan Industrial City (RLIC) on the pre-commissioning of LNG facilities. QatarEnergy is vertically integrated— they own the entire chain from offshore gas fields, LNG production lines, to export terminals and LNG fleets.

These LNG production lines are enormous. When they were built twenty years ago, 250,000 workers would rush to the site every morning in that heat-surrounded industrial city, with cranes densely packed like a forest. Starting these production lines, especially after damage, repair, and inspection, is not a quick process. These gas production lines are like a small city, costing hundreds of billions of dollars, with complex systems, and certain parts are custom orders with delivery times measured in years.

Once missile and Shahed-136 drones fly into these facilities, causing major and secondary fragmentation damage, fires, and explosions, systematic checks must be conducted one by one, and phased restarts are required. If custom long-lead time parts are damaged, it will require months or even longer to wait for a new container to be manufactured in China or South Korea, loaded on a ship, delivered to the terminal, and then carried slowly to place by a mammoth heavy-lifting team.

I had hoped the damage to RLIC was not so severe and that it could be repaired within months. Unfortunately, it seems that is not the case.

This event will have direct ripple effects on other industries. Qatar's offshore gas has a very high sulfur content, and QatarEnergy "utilizes everything" to send liquid sulfur separated from the gas through pipelines, producing sulfur granules, which are then shipped globally on bulk carriers for use in producing fertilizers, chemicals, cement, refined products, etc. The halting of LNG production will trigger a series of cascading effects, with second- and third-order impacts currently difficult to accurately predict. But one thing is clear: if this situation persists long enough, the global economy will begin to fracture in unexpected ways.

As Charles Gave said: The economy is transformed energy. With the disruption and prolonged absence of the energy supplies that the world depends on, nations will rush to find alternative energy imports. A decrease in energy output from the Middle East will drive up global energy prices; for those industries unable to obtain energy at higher prices, they will shut down and lay off workers.

Direction: Moving towards stagflationary recession.

The Hormuz Crisis

In addition to hitting energy infrastructure, the conflict is continuing to spread regionally. Israel is invading southern Lebanon, resulting in approximately 1,000 deaths and nearly a million displaced persons. The Iran-backed Shia militia group, "Popular Mobilization Forces" (PMF)—which played an important role in fighting ISIS in 2016—has now also joined the battle, attacking U.S. facilities in Iraq, Saudi Arabia, Kuwait, and Jordan. This has forced the U.S. to reduce and withdraw personnel from the region, further weakening its ability to maintain operations in the area.

Comprehensively, the entire region from Levant, Persian Gulf, and Arabian Peninsula is now under Iran’s firepower control.

I have crossed the Strait of Hormuz multiple times. Since the war began, over 20 ships have been attacked; the Islamic Revolutionary Guard Corps (IRGC) has launched 50 waves of operations against U.S. bases in the region.

If we incorporate Yemen’s Houthis into the equation, once the Houthis start attacking maritime shipping in the Red Sea, global maritime trade and energy trade will be split in two. Historical analogies include: the Ottoman Empire closing the Silk Road; the impact on the global economy when World War I broke out in the summer of 1914; and the 1956 Suez Crisis— which announced the end of the British Empire to the world.

For this reason, after exiting the war and entering Phase Four, I expect investors to reevaluate their holdings, considering the safety of assets and the jurisdiction they are in. Assets that do not need to traverse chokepoints to reach terminal markets and are considered to be in safer jurisdictions are likely to command a premium.

Climbing the Escalation Ladder

Some ask why, since Iran has already controlled the Strait of Hormuz, the U.S. isn't striking Iran's vital support infrastructure?

After targeted assassinations, the spread of conflict areas, and strikes on energy producers, further escalation— this is not something that can be taken lightly, no matter how much the White House interns make the reports of this war look like video games.

However, unfortunately, we have already been attacking vital support infrastructure. On day 7 of the war, the U.S. struck a desalination plant on Iran's Kish Island. This island guards the entrance to the Strait of Hormuz, and the geological conditions on the island are excellent; the IRGC has spent decades building and fortifying numerous underground facilities here.

The next day, Iran responded in kind, sending attack drones to hit a desalination plant in Bahrain. Kuwait and the UAE also reported missile damage to desalination plants.

Losing desalination facilities poses an existential threat to Gulf countries and Israel.

Over 90% of the Gulf’s desalinated water comes from only 56 plants. In Kuwait and Bahrain, desalinated water accounts for about 90% of national water supply; in Oman, it’s 86%; in Israel, it’s about 80%; in Saudi Arabia, it’s around 70%; and in the UAE, it’s about 42%.

If the U.S. and Israel continue to strike vital support infrastructure, Iran will respond in kind, and as air defense interception resources become increasingly scarce, striking these facilities will become easier. This represents an asymmetric and deadly vulnerability for Gulf countries and Israel. Approximately 64 million people in the region may be affected. This will trigger a humanitarian and refugee crisis, making the Syrian civil war look trivial in comparison, with consequences spilling over into Europe and Turkey.

Oil has built the modern Middle East, but desalinated water sustains its life— and Iran has escalation advantages in both. Israel can continue to climb the escalation ladder, but it will eventually hit a ceiling, and Iran will strike at Israel's desalination facilities.

Phase Two: Six-Week Trigger Point

The above are all part of Phase One— the position we are currently in, and the reasons both sides find it impossible to retreat and why the conflict may continue.

Of course, Trump could announce "glorious victory, war is over, a tremendous deal has been struck" tomorrow on Truth Social— even if it were all false, it could change everything.

Regardless of whether the Strait of Hormuz remains under Iran's control, or if the U.S. has already experienced its own "Suez moment," if this happens before the oil price shock transmits through the supply chain, it all could be overturned.

So I am pondering: after what time point, no matter what is said or what agreements are reached, will higher energy prices become irreversible?

My answer is: six weeks. By the sixth week, the denial period will end, and the inflation data will reflect the embedded damage.

Every neoconservative is talking about the Middle East

Here is my calculation logic:

• Weeks 1-2: Adjustments in petroleum product prices (already occurred). Gas stations are repricing diesel and gasoline, and vulnerable countries are beginning to show shortages. Oil prices are up about 40% from pre-war levels.

• Weeks 3-4 (i.e., now): Freight and logistics costs are starting to adjust, carriers are repricing based on new fuel costs. The February PPI YoY of 0.7% (expected 0.3%) is an early signal of this phase, and April's inflation data will be worse.

• Weeks 5-8: The cumulative increase in freight and logistics costs from the first two weeks flows into consumer goods— everything from food, building materials, to manufactured items is being repriced.

By the sixth week, the higher costs will have been passed to consumers; even if the conflict stops, prices will remain elevated, especially if energy producers are offline.

Six weeks prior, a ceasefire could reverse most damage as contracts had not fully re-negotiated, companies could revert to previous pricing, and the Federal Reserve could cut rates— theoretically everything could turn around.

Six weeks later, even with a ceasefire, the price transmission already in the pipeline cannot be reversed. Repricing has already occurred, and the CPI data for May and June will faithfully reflect this, regardless of what happens on the battlefield.

At that point, the CPI data will extinguish the last hopes for rate cuts, and Powell will announce that rates will remain unchanged. The valuation multiples of tech stocks will be compressed, and the market will not be pleased— no one will be pleased.

Phase Three: Long, Hot Summer and AI

My plan this summer is to go to the beach and gym, keep myself patient, and then seriously assess the situation at the end of summer.

By August, corporate earnings will start to reflect the losses we see on the ground. Meanwhile, the wave of AI replacing labor will continue to accelerate in the background— companies will need to cut costs in every way possible to deal with the pressures of higher energy input.

In the past, companies were already choosing to deploy AI when hiring, and now they will layer on the stagflation energy shock. Facing margin compression, oil prices rising to $95, and urgent needs to cut costs, companies will substitute employees with AI tools wherever possible. This is not an innovative strategy, it is a survival instinct.

The adoption of AI will accelerate in an economic downturn, as it has become the most obvious means to cut costs.

The brutal paradox is: this may work perfectly for individual companies, but it will destroy aggregate demand— the income of displaced workers will vanish from the economy, and for those who temporarily keep their jobs, they too will cut unnecessary consumption due to uncertain employment prospects, especially against the backdrop of rising living costs driven by the energy shock.

Therefore, I would not be surprised if the accelerating price increases due to the energy shock, coupled with the deterioration of employment, far exceed what any historical model would predict, as the AI-driven job losses are structurally amplifying the cyclical downturn.

This is the most critical point regarding the timeline that I believe.

The Federal Reserve's employment mandate will be triggered sooner than anyone expects. Not merely because of the war, but because AI is systematically amplifying the employment losses in the backdrop. This will compress the entire timeline, making a September rate cut possible.

The Federal Reserve will find itself in a dilemma: on one hand, inflation it cannot suppress; on the other, deteriorating employment. It will endure through the summer, then cut rates in September, as the midterm elections will force its hand.

AI and tech stock prices will decline in that environment, but their narrative logic will actually strengthen— those companies adopting AI are the ones that survive the downturn; those that do not adopt AI are heading toward bankruptcy. Therefore, the logic of long-term investment will become most compelling when stock prices are at their cheapest.

This is precisely why I am willing to be patient, and later buy those tech and research-oriented companies that will be transformed through AI during the crisis in Phase Three.

By the end of Phase Four, looking back, people will feel, "Of course, we should have bought that beleaguered copper mine company— at the time, the cutoff from Hormuz caused a sulfur crisis, but they were converting 30-ton trucks to unmanned ones, and now because both parties in Congress support energy independence there’s a printing press roaring, isn’t that obvious?”

Midterm Elections

The Federal Reserve, the White House, and Congress each have different mandates, but face the same date: November. No incumbent wants to face voters with the label "no response to stagflation," and no Federal Reserve chair wants to be seen as doing nothing while the economy deteriorates.

This convergence of interests is the force that breaks the deadlock. The Federal Reserve will signal in August at the Jackson Hole meeting, cutting rates in September, and every politician will campaign with the slogan "We took action."

The market will anticipate this 4-6 weeks ahead, which means July to August is my serious consideration window for gradually building positions.

The AI-driven deterioration in employment is actually aiding the Federal Reserve— it provides political cover, allowing the Fed to cut rates even while inflation pressures have not completely subsided, because it can classify this as "responding to an employment emergency," rather than "surrendering to the market."

2027

After emerging from this war, the theme of energy independence will become a huge, bipartisan political issue— much like the implications of a global anti-terror war for defense spending, but this time in the energy sector.

As South Pars, Qatar’s LNG terminal, and Saudi oil refineries fall into flames, the vulnerability of energy infrastructure will be undeniable. Every politician will campaign with "never again depend on the Middle East." Both parties in Congress will be in strong agreement on infrastructure investments, expanding production, license reforms, nuclear energy, and clean energy.

Most importantly, I always remind myself: I am not predicting, I am just adapting.

If a real peace agreement comes— not just Trump tweeting "it’s over," but a real ceasefire, the reopening of Hormuz, the insurance market re-engaging, and a compliant Iranian counterparty capable of enforcement— I will adjust at any time.

But frankly, as Larry Jalili has been killed and Israel continues to assassinate anyone we could negotiate with, this hope is fading daily.

That is my current framework of thought. Not a prediction, just a framework that can be adjusted at any time.

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