Unhedged Podcast Summary: "What the Israel-Iran War Means for Markets"

Release Date: June 17, 2025
Hosts: Katie Martin & Rob Armstrong, Financial Times & Pushkin Industries

1. Introduction to the Geopolitical Context

Katie Martin opens the episode by addressing the escalating tensions in the Middle East, specifically between Israel and Iran. She emphasizes the gravity of the situation, stating:

"Is that all more important than the human lives at risk here? Obviously not." [00:50]

While acknowledging the dire human impact, Katie shifts the focus to the economic and market implications of the conflict, setting the stage for a deep dive into how such geopolitical shocks ripple through global finance.

2. Market Reactions to the Conflict

Rob Armstrong delves into the immediate market responses to the Israel-Iran tensions, particularly examining oil prices. Contrary to expectations, oil prices have not surged dramatically:

"There was a big jump in the price of oil, which is pretty much what you would expect from an escalation of Middle East tensions because Iran is an oil producer. So the price rushed higher, like by 12%. But it's calmed down a lot since then." [03:53]

Katie adds context by comparing the current situation to the 2020 Russia-Ukraine conflict:

"If you compare it to Russia's full-scale invasion of Ukraine in 20, then you saw oil go to $110 a barrel, like in a pretty straight line. And that was much more dramatic." [04:09]

3. The Role of the United States in Global Energy

Rob highlights the shifting dynamics in global oil production, emphasizing the United States' dominant position:

"The United States has emerged as the global energy superpower. I mean, these, every time I look at these numbers, they amaze me. So let's look at top producers of oil worldwide. United States, this is 2023. This is from the Energy Information Administration of the United States. 22 million barrels a day." [05:02]

This significant increase in U.S. oil production has lessened the traditional impact of Middle Eastern tensions on global oil prices.

4. Potential Future Scenarios and Tail Risks

Katie and Rob discuss the uncertainty surrounding future developments and their potential market impacts. Rob introduces the concept of "tail risks":

"Katie, you give me a wonderful opportunity to roll out my favorite Wall street cliché, which is tail risks... the probability of a 10% or greater increase in the price of oil is 17%, which is a much thicker tail than you usually." [10:59]

Katie expands on this by outlining two primary scenarios:

1. Oil Prices Spike: Potential rise to $120 a barrel due to escalated actions, forcing central banks to grapple with rising inflation and interest rates.
2. Oil Prices Stabilize: Return to lower oil prices, indicating minimal impact from the conflict.

"So this is the difficult thing for investors and for the rest of us is that we're sort of staring down the barrel of this world where the oil price could go crazy or it could do nothing." [09:15]

5. Central Bank Responses and Economic Implications

The discussion moves to the challenges central banks face amid fluctuating oil prices. An oil price shock can simultaneously slow economic growth and increase inflation, putting central banks in a tough spot:

"An oil shock both slows growth and increases inflation. Right. So you're getting it from both ends of your mandate." [13:30]

Rob notes the dilemma for the Federal Reserve:

"The American central bank is getting it from both sides of its mandate and they have a problem on their hands." [13:47]

6. Shifts in Safe-Haven Assets and Currency Dynamics

Katie observes subtle shifts in safe-haven assets and currency preferences:

• Gold: Near record highs at $3,390, signaling investor nervousness.

  "Gold has overtaken the euro as the second most important reserve asset for central banks." [15:04]

• U.S. Dollar: Contrary to traditional flight-to-safety patterns, the dollar isn't experiencing significant upticks.

  "Holders of those assets are not nervy, but maybe it's because some of the use of fear as a driving force in pushing the dollar and US Government bonds higher has reduced recently." [14:43]

• Euro and Swiss Franc: Increasing roles as reserve currencies and safe-havens respectively.

  "There is something going on here. We've strayed away from oil and into the dollar, but these things are going on at the same time." [16:29]

7. Longshot Foreign Segment

In a lighter segment, Katie and Rob share their "Long" picks:

• Rob Armstrong: "I am Long New York City Pizza Katie." [19:52]
  Celebrates the superior quality of NYC pizza compared to the West Coast.

• Katie Martin: "I am Long Trump mobile." [20:35]
  Endorses the bold marketing strategy of Trump-branded luxury phones.

8. Conclusion and Upcoming Developments

Katie wraps up by mentioning the upcoming Federal Reserve decision and the retirement of the U.S. due to Juneteenth:

"We will be back on Tuesday. Until then, again, it's muggy out there. Stay cool. Choose light fabrics." [21:11]

Key Takeaways:

• Oil Market Resilience: Despite heightened geopolitical tensions, oil prices remain relatively stable compared to past conflicts, primarily due to increased U.S. production.

• Uncertain Future: Investors face a binary outcome where oil prices could either spike dramatically or remain stable, complicating investment strategies.

• Central Bank Challenges: Potential oil price increases could force central banks to navigate conflicting mandates of controlling inflation and maintaining growth.

• Shift in Safe-Havens: Traditional flight-to-safety assets like the U.S. dollar are less responsive, with gold and euros gaining prominence.

• Investor Preparedness: While markets show resilience, underlying nervousness is evident through assets like gold and the Swiss franc.

This episode of Unhedged provides a nuanced analysis of the Israel-Iran conflict's implications for global markets, highlighting both the resilience and underlying vulnerabilities within the current financial landscape.