‘No going back’: Insider’s grim war call

Key numbers: global oil at ~$100/barrel risks a prolonged inflationary shock; a rise above ~$150/barrel could force widespread business closures and recession. Martin Eftimoski warns the Iran war and Iran-imposed tolls on the Strait of Hormuz create a permanent 'new normal' that will take years to stabilise, accelerate de-dollarisation (BRICS 'Unit') and reduce demand for US Treasuries, complicating servicing of the ~$39 trillion US federal debt. Australia may gain near-term leverage from LNG/thermal coal exports with Asian partners, but the macro outlook is multi-year higher inflation, rising borrowing costs and elevated market risk.

Analysis

This shock is less an episodic price spike and more a regime shift that raises the long-term risk premia on global safe assets and tradeable energy. If foreign official demand for Treasuries softens, expect the term premium to re-price higher by a few dozen to low hundreds of basis points over 1–3 years, mechanically raising corporate and mortgage funding costs and compressing high-duration equity multiples.

Near-term winners are balance-sheet-heavy commodity exporters and firms with tangible storage/logistics optionality — they can convert scarcity into margin while real-economy demand adjusts. Losers are concentrated in high-leverage USD debtors (EM corporates, regional banks with long asset books) and long-duration assets (sovereign bonds, growth tech), with shipping and refining experiencing asymmetric upside from dislocation and contango dynamics.

Key catalysts and timelines: days–weeks for volatility spikes and credit-flow squeezes; 3–18 months for policy/FX realignments and reserve-asset adjustments; multiple years for a durable de-dollarisation equilibrium if trust in Treasuries erodes. Reversals require coordinated DM action (large-scale Treasury buying, swap-lines, or credible diplomatic settlement) or a rapid restoration of safe‑asset bid via attractive real yields.

Contrarian read: markets may be overpricing an abrupt Treasury exodus — China and other large holders face political and market-cost frictions that make a disorderly dump unlikely in the near term. That implies two practical opportunities: (1) harvest risk premia in duration via structured short-duration yield exposure, and (2) use volatility to add real-asset and commodity exposure selectively rather than blanket dollar shorts.

Key Decisions for Investors

• Buy gold exposure: GLD (or physical) 6–18 month tactical allocation (5–8% NAV). Rationale: insurance vs reserve-asset repricing; target +25–40% upside in a stressed de-dollar outcome, downside ~10% if USD rallies. Enter on volatility spikes; layer on pullbacks.
• Short long-duration US Treasuries: synthetically short TLT via put spreads or sell 10Y futures with a 6–24 month horizon. Risk/reward: 100–150bps upward move in 10Y yields equates to ~15–25% TLT drop; cap loss with call spreads if yields collapse. Size modest (2–5% NAV) as a convex hedge to fiscal-risk scenarios.
• Long Australian/commodity exporters: BHP (BHP) and Rio Tinto (RIO) 6–18 months, funded by small reduction in US equities. Expect currency-adjusted upside from commodity rent extraction; hedge with AUDUSD put if downside risk escalates. Target asymmetric payoff: 20–30% upside vs 10–12% downside.
• Pair trade: long refining tightness / short fuel‑sensitive services — buy VLO (Valero) and short DAL (Delta) 3–9 months. Mechanism: refining margins capture scarcity and flows, airlines suffer fuel cost passthrough; aim for 2:1 downside protection via sizing and stop-loss at 10% adverse move.
• FX tactical: buy AUDUSD call spreads 3–12 months (politically executable via forwards/options). Expect AUD to re-rate on sustained commodity account surpluses; limited-cost call spreads cap downside while offering ~8–15% upside if commodity-induced flows accelerate.