I hope this message finds you well. As events continue to unfold, it’s becoming increasingly apparent that the conflict with Iran is likely to persist longer than both President Trump’s initial indications and what the markets have currently priced in. This has sweeping implications across various sectors, particularly for oil prices, inflation, bond yields, and global economic growth. The risk of stagflation—a scenario where inflation rises even as economic growth slows—is starting to become more pronounced.

To put things into perspective, the Strait of Hormuz, though only 21 miles wide, is a critical artery for the world’s energy supply, handling roughly 20% of global oil and refined products. Even historical disruptions, such as those during the 1970s oil embargo or the Iran-Iraq war, did not reach the current magnitude. While oil prices have certainly climbed, I believe they do not yet fully capture the scale or potential duration of the disruption. With about 20 million barrels of oil passing through the Strait daily, even alternative pipelines and Strategic Petroleum Reserves will likely leave the world short by around 10 million barrels a day. The aftershocks of this war will last, even if it ends soon—expect oil prices to remain elevated over time. Years of underinvestment in oil production and a heightened risk premium for future disruptions will continue to make markets more sensitive to shocks.

The impact spreads beyond oil. Approximately 20-25% of global liquified natural gas (LNG) exports also transit the Strait, making Asian energy markets particularly vulnerable. Once LNG facilities are shut, restarting them is not a quick process, meaning that even an abrupt resolution to the conflict could still result in weeks of disrupted supply.

Fertilizer distribution is another area feeling the strain, as one third of global nitrogen and urea production passes through the Strait to crucial markets in Asia. Disruptions here could lead to significant increases in food prices worldwide.

Naturally, the most immediate economic effect is through inflation and reduced consumer spending, as the cost of oil feeds into nearly every corner of the economy. A useful rule of thumb: every 5% increase in oil prices can add about 0.1% to inflation. Given we've already seen a 50% spike, that translates to roughly a 1% increase in inflation. For consumers, this means diverting spending from other areas to cover higher fuel costs. For example, in the US, a 50-cent rise per gallon equates to $200 million less in consumers’ pockets every day. This scenario increases the risk of recession, particularly if not all companies are able to pass on these higher costs—think of airlines, grocery stores, and other sectors sensitive to energy prices. The resulting uncertainty can lead employers to slow hiring or even cut jobs. Interest rates have also begun to climb in response to inflationary pressures from higher oil prices. Central banks now face a real dilemma: while economic indicators are weakening— Canada, for instance, lost 84,000 jobs in February, and the US revised its Q4 GDP growth down to just 0.7%—inflation remains stubbornly high. Core inflation was 3.1% in the US and 2.4% in Canada as of January, figures that don’t even factor in recent oil price hikes. Stagflation, marked by high inflation, rising unemployment, and stagnant growth, presents a tough challenge for central banks, whose primary mandate is maintaining price stability and full employment.

So, how should you position your investments in these uncertain times? Our guidance remains consistent with what we’ve emphasized over the past year: focus on gold and commodities, stable dividend-paying companies (such as utilities and healthcare), shorter-duration bonds, and sectors with persistent demand—like defense, cybersecurity, pipelines, and railways. These strategies are designed to provide resilience, no matter how the geopolitical landscape shifts.

On a lighter note, my kids are currently studying in Europe and have become seasoned experts in the art of weekend budget travel. Recently, they convinced my wife, Kris, and me to join them for a Ryanair adventure from Dublin to Malaga, Spain. If you haven’t had the pleasure of budget airline travel, it’s quite the experience—seats that give you an idea of what it feels like sitting on a park bench, discovering the true meaning of "priority seating" (just a spot for your backpack overhead), to being the sole person at baggage claim because nobody checks a bag. One thing’s for certain: unlike many airlines I've flown with, I certainly got what I paid for.

Regards,

Ashit