Brett Erickson

Managing Principal, Obsidian Risk Advisors
Board Member: DePaul Biz & Seton Hall IR
Expertise Featured in: See Banner
[email protected]

[Brett Erickson @BrettErickson28]

I see many people claiming that Iran is “equally losing” this war because the United States has so thoroughly damaged their economy. An economy that was already in a bad spot prior to the war. But how true is this?

There are a few data points worth highlighting that show Iran may emerge FAR stronger economically… despite the ~$160B on damage caused by US bombing and the blockade.

If we look at the exchange rate of the Rial to the USD, many want to point to the current rate:
1,917,000:$1USD

But take a closer look, and you’ll see that this figure is not so straightforward.

At the start of the war, the Rial was trading at 1,720,500:$1. When the blockade reached its peak, it hit 1,819,000:$1.

Then came the MOU… and it strengthened massively, dropping from the 1.82M to 1,532,000:$1USD.

Stronger than it was BEFORE the war. And the only reason it ticked back up after this is because the MOU was destroyed.

This can similarly be observed with Iran’s inflation rate. While many want to claim that Iran is experiencing “hyperinflation”, the textbook definition of this would be 50% inflation month over month. In June, Iran’s inflation that month was 7.2%. But here’s the problem…

Under the MOU, and in July, Iran’s inflation HALVED to 3.6% month over month… OOPS!

Now we can clearly see that there is massive economic benefit to Iran emerging victorious in this conflict. CONFIDENCE they will not be attacked again plays a huge role.

But then add to this the likely economic concessions they will receive to include likely ~$100B of frozen assets, the unsanctioning of their oil sales, fees imposed on the Strait of Hormuz, and potentially additional sanctions being lifted?

Just from these, it can be reasonably calculated that Iran will unwind ALL damages from the war in less than a year, and then be making additional revenues every year following… alongside the immense power that comes from controlling the Strait… alongside the economic confidence that comes with knowing no country DARES to attack Iran again… alongside the massive increase of domestic support for the Iranian government after defeating “the Great Satan”…

Is Iran going to become Luxembourg any time soon? No. But even WITHOUT making any nuclear concessions (which would be an INSANE boon to their economy) that would see secondary and likely primary sanctions lifted, Iran will emerge from this war in a STRONGER economic position than they entered it.

Regardless of the bombing. Regardless of the blockade.

Stronger.

[Brett Erickson @BrettErickson28]

@jasaki1 True story, I was there.

[Brett Erickson @BrettErickson28]

While many around the world were glad to see the United States INSANELY escalate against Iran, we are likely still a long ways from anything resembling a durable peace deal.

The fundamental problems between the United States and Iran are still glaring.

Iran wants control of the Strait, including a means to extract revenues. On top of this, Iran has experienced roughly $160B of damages to their country and economy from this war. To think that “just the Strait” would be enough for Iran is delusional at best. No, Trump would almost certainly be required to cough up tens, if not hundreds of billions of dollars of cash to secure a more lasting deal.

From the United States’ side… and more accurately, President Trump’s side… that is just a MONUMENTAL embarrassment and defeat. Something he has been psychologically incapable of coming to terms with. Could that change? Sure… but that is an INCREDIBLE and permanent stain on his enduring legacy as a President… as a person.

Trump is 80 years old. To put it nicely… HE CHONKY… to think he has a long and happy life in front of him after this term ends is optimistic at best. And I think this is a factor many are still underestimating. Unless something bizarre happens, this is his last hurrah. His last significant chapter of not just his Presidency, but of his entire life.

While Iran is making… very realistic demands given the strategic landscape of this conflict, the world needs to retain a certain amount of skepticism that Trump will be willing to not just end his Presidency, but his LIFE on one of the lowest possible notes.

[Brett Erickson @BrettErickson28]

@Byron__3 What country WOULDNT rally around the flag after that?

[Brett Erickson @BrettErickson28]

The war was over after Minab. Everything since has just been Trump living in denial.

Argue with a wall.

[Brett Erickson @BrettErickson28]

@elRadoRado Agreed. But full war is insanity. But yes.

[Brett Erickson @BrettErickson28]

With the Trump Administration literally CROWDSOURCING strategies for the Iran War per a new leaked memo, the reality is that Trump wants to be sold a fantasy. Another delusion. The next pipe dream.

That’s what he’s looking for. If he called me, or even better, all of the other experts who have been consistently right during this war that are more credentialed than I, we would all say the same thing:

Sign the deal. Cut your losses. Move on.

But that’s not what Trump wants to HEAR. He’s crowdsourcing ideas because he wants to be SOLD, just like how he was with the decapitation strikes… then the oil well shut-ins… then the blockade… then economic fury… then Project Freedom…

The harsh reality is that there IS NO “creative, outside of the box” solution. He is cornered, he is screwed, and he needs to come to terms with REALITY, not begin the quest for the next delusion.

[Brett Erickson @BrettErickson28]

With the Trump Administration literally CROWDSOURCING strategies for the Iran War per a new leaked memo, the reality is that Trump wants to be sold a fantasy. Another delusion. The next pipe dream.

That’s what he’s looking for. If he called me, or even better, all of the other experts who have been consistently right during this war that are more credentialed than I, we would all say the same thing:

Sign the deal. Cut your losses. Move on.

But that’s not what Trump wants to HEAR. He’s crowdsourcing ideas because he wants to be SOLD, just like how he was with the decapitation strikes… then the oil well shut-ins… then the blockade… then economic fury… then Project Freedom…

The harsh reality is that there IS NO “creative, outside of the box” solution. He is cornered, he is screwed, and he needs to come to terms with REALITY, not begin the quest for the next delusion.

[Brett Erickson @BrettErickson28]

@TrumperTantru11 Wait… when was I supposed to stop injecting bleach?!

[Brett Erickson @BrettErickson28]

The Trump Administration literally CROWDSOURCING their Iran War strategy shows just how mismanaged this war has been, and how desperate they truly are.

Who could have possibly predicted the U.S. would be forced to stoop THAT low.

[Brett Erickson @BrettErickson28]

@Lostinwebspace0 Michael Scott said that.

[Brett Erickson @BrettErickson28]

@MamaScoobi95 It’s not “full” crowdsourcing, but they sent a memo to all analysts at the pentagon asking for ideas…

[Brett Erickson @BrettErickson28]

@hazkaz2001 It was over at Minab

[Brett Erickson @BrettErickson28]

@jasaki1 Sure, but it’s been “it’s gonna get bad!” For 6 months

[Brett Erickson @BrettErickson28]

With Iran now claiming that there are no discussions happening between the United States and Iran, we see one thing that should at least be noted…

Trump is still EXCEPTIONALLY jawboning the energy markets. This is where I truly believe Iran has underplayed their own hand. Whether or not there actually are talks taking place, the energy markets are down significantly, and that benefits Trump (temporarily) more than it does Iran of course.

And I’ve heard the counterarguments:
“This is intentional for Iran so there is less demand destruction”
“Iran doesn’t care about oil, they care about refined products”

One of these is flawed, one of these moves the goalposts. Of course, when there is lower prices, there will be less demand destruction. But that’s a longer time horizon. Yes, refined products, at least for now, are the larger constraint than pure oil availability.

But both of these miss the core problem:
That big “Brent Crude” price is what is the primary warning signal for every American right now. When that baby is at $80/barrel, the thought is “no crisis. What crisis?” When she’s at $120/barrel, “the sky is falling! The sky is falling!”

This is where Iran has been unable to outplay Trump, and it may be just about the ONLY place they have not outplayed Trump.

But Dementia Don’s still got that jawboning down PAT.

[Brett Erickson @BrettErickson28]

@subhasis19 Meh. He’s already rich.

[Brett Erickson @BrettErickson28]

@ARoslanowski Trump will get nothing and he will thank them for it.

[Brett Erickson @BrettErickson28]

@stockcookies It could be, but it seems EXCEPTIONALLY risky given that domestic support for the war in the U.S. is already nonexistent

[Brett Erickson @BrettErickson28]

@BradleyKSherman Oh certainly. They’re tired of this crap. Morale has to be through the floor

[Brett Erickson @BrettErickson28]

@zakerifard73156 I’m somewhat doubtful of that narrative personally

[Brett Erickson @BrettErickson28]

@Byron__3 That’s still far too weak. Calm and level statements aren’t going to come close. They need, if the goal is to anti-jawbone, to be much more bombastic and aggressive in their responses.

[Brett Erickson @BrettErickson28]

@ShehuSada It’s a BAD look

[Brett Erickson @BrettErickson28]

@javedhassan That’s how I’m seeing it… I personally don’t see any credible rationale as to why the would not be more aggressive or even proactive in riling the energy markets

[Brett Erickson @BrettErickson28]

Iran would be fools to return to the MOU. They won’t, because they’re not fools, but let me briefly explain why this would be so absurd.

Under the original MOU, Iran received ONE up front concession: oil sanction waivers.

These were effectively neutered by the United States when they revoked them without notice, and added escrow accounts during the 10-day wind down period.

Why is this significant?

This is because the oil waivers are inherently predicated on countries believing that they can purchase Iranian oil AND have it seen through to delivery. They are gambling their supply on Iran’s ability to legally deliver said oil.

Washington, by revoking the waivers, proved PERMANENTLY that any future sanctions lifting on their oil is not durable. Not trustworthy.

This ensures that it is not a meaningful concession in the future.

In addition to this, the ONLY reason Iran accepted so little up front is because they had stockpiled ~60M barrels of oil on vessels inside of the blockade line before the MOU. This meant that once the MOU was signed, and the blockades were lifted, Iran could RAPIDLY export this oil outside of the blockade line, knowing that if it was reimposed, this was essentially $7B they could reap regardless.

This time however, the United States has struck vessels seeking to load oil post-MOU destruction. Now, Iran does not have that same incentive to lift the blockades with so few up front benefits… particularly because they’re in a STRONGER position now than they were before.

As a result, Iran will almost certainly need IMMENSE asset unfreezing upfront before any blockade is lifted. By most estimates, Iran has ~$100B to $120B of frozen assets in other countries locked up by U.S. sanctions.

Iran has repeatedly stated that they plan to recoup a significant portion of this UP FRONT in any new MOU.