A couple of questions have been rolling around in my head on this.
- Does the administration fully account for the effects of the straight closure?
- Does energy independence from unfavorable nations matter more than years of pain?
- Do perverse incentives to accelerate renewables provide additional economic benefit?
The first question is an umbrella question and is likely best answered as more yes than no.
The immediate impacts were not well understood, but, as the event has lingered, much information is being collected as the world discovers an energy economy without that supply.
Trump has stated before that we should all expect pain economically as we reset the world order. This statement would support an underlying belief that perhaps one way to make Iran irrelevant is to make oil less relevant?
Although I would have never taken this course, the impacts beyond the short term pain will be a significantly different energy economy. One which favors both energy sustainability through renewables AND a US energy producer’s economy through raw and finished goods.
I’m not an economist and I didn’t stay at a holiday inn last night, but I suspect there may be silver linings behind this dark, dark, very dark cold front.
As it relates to our near term investment impacts, I see it as the following:
Volatility (obviously) with algo and news cycle related swings and additional beta from prior periods. (play the VIX?)
Inflation reaccelerates - energy is in everything. This is baked in and will play out. Old economy goods producers are generally good at capturing inflation impacts and do not materially suffer during inflationary periods. P&G simply raises prices. Coke shrinks the average container size. etc. etc.
New economy services and software companies do not suffer - much. They rely on energy and energy consumption fuels their data center stories, but this is a small fraction of their monetization themes. Prices for “pro” subscriptions for AI for consumers now exceed $200/mo. Enterprise subscriptions are less, but, consumption based and coverage per employee rings the cash register. Energy impacts will be carried through to the end customer.
Solar and battery installations will continue to accelerate. An entire tranche of solutions and solution providers just became much more economic as their IRR compared to “do nothing” got bumped for the last month. As trends continue to harden, these companies will continue to convert leads to paid deployments.
What about those E&P companies? Well, their prices have certainly reset. I think this trend is just starting. Operations and work overs will favor the entire oil economy to reset in the US as fields are brought back on line and connections through pipeline, rail and shipping are increased.
