Wall Street’s Eyes on the Strait

“It’s the most bearish outcome,” says James van Geelen. “I’m losing my mind.” Citrini Research’s founder — recently famous for causing a $200 billion market meltdown with a grim paper about the post-AI economy — has been desperately trying to figure out how Donald Trump’s war on Iran will affect financial markets. He had just watched the president’s April Fools’ Day address to the nation, which left him feeling glum. Even the analyst he’d dispatched to the war zone to gather firsthand intelligence was reporting disturbing news.

Prior to the speech, stocks had been rising on expectations of a cease-fire deal and Trump’s promises that U.S. involvement was almost over. But the prime-time ramble gestured at a brutal and intractable conflict. “We’re going to bring them back to the Stone Ages,” Trump said. It didn’t sound quick or easy (among other things). His invocations of Korea, Vietnam, and Iraq didn’t help either. “It’s just like, What did we rally on, then? ” says van Geelen.

For the past month, Wall Street has been trying to game out this question: How long will the war last? Embedded within it are concerns about how high gas prices will go, whether expensive energy will dent consumer spending as a whole, and whether all that will tip the economy into recession. “The longer this war continues, the worse it’s going to be,” says Stephanie Link, chief investment strategist of Hightower Advisors, which manages $350 billion in assets. As with Trump’s year-ago “Liberation Day” tariff announcement, investors have had little to go on besides the president’s constantly shifting rhetoric, goals, and timeline. (The key difference, of course, is that it’s harder to TACO on a regional war than some arbitrary numbers on a poster.)

The financial world has been especially focused on the Strait of Hormuz, the globe’s most important oil-transport channel. As long as it remains functionally shut by Iran, the international economy is in grave danger. Big investors have been just as clueless about when it might reopen as the average cable-news viewer. “I don’t have any better information than you do on this one,” admits Mike Silverman, the chief investment officer of Cresset, which oversees more than $237 billion.

In that information vacuum, Citrini formulated a plan to collect better facts: Why not just send an analyst to the center of the action? Van Geelen, a 33-year-old former paramedic who gained attention for his prescience by shorting Silicon Valley Bank before its collapse, distributes his market recommendations to Citrini’s Substack subscribers. That extremely viral (and controversial) research note describing a dystopian AI scenario — mass unemployment, few winners, and many losers — came out on February 22. (The premise, as van Geelen puts it: “What if AI is so successful it’s actually bearish?”) When markets opened the next day, investors en masse began dumping shares in companies that would fare poorly in Citrini’s hypothetical.

In March, van Geelen dispatched an analyst — a quadrilingual non-American — to the northern tip of the United Arab Emirates, a strip of gulfside resorts (normally bustling, now empty) overlooking the Strait of Hormuz. “Morgan Stanley isn’t sending investment analysts to Fujairah,” van Geelen tells me. “The hotel is pretty much empty except for six guys in suits.” Shortly after his arrival, the analyst sent a photo from his trip cruising the strait with a beer and a waterproof Pelican case full of Zyn and cigars.

Citrini’s man had been chatting up tanker captains, ship crews, maritime brokers, local fishermen and smugglers, and business executives. “From what we can tell, there’s been a lot more missile attacks than anyone really knows,” van Geelen says. When the analyst asked where the rockets had been falling, the response was “Wherever Americans and their infrastructure are — that’s where they’re attacking.” Even before Trump doubled down in his speech, locals were observing an increase of American boots on the ground. “We’ve also seen with our own eyes that there are U.S. troops being stationed in the region, and people have told us that it’s much more than what’s being reported,” van Geelen says. “It does seem like every single person we’ve talked to is very anticipatory of escalation.” All of them, he adds, are “preparing for a monthslong conflict, minimum.”

As for the strait itself, the Citrini analyst was counting the few ships that navigated through, taking note of their flags. The vessels were avoiding the main shipping channel, instead passing through a less conspicuous corridor of the strait, “this little slit near the island of Qeshm and Iran,” van Geelen says. The majority of them were Chinese ships that had clearly paid Iran for the privilege. There were some small signs of a softening in the blockade. The analyst sent photos of a tanker passing through the main part of the strait on April 2.

Some ship traffic is more positive than the absolute lack of it many investors were assuming, and it has led Citrini to believe the strait is not actually mined — a key open question right now. But Iran is clearly in control of the entire shipping channel. That state of affairs may well keep oil (and its essential derivative products, such as fertilizer) expensive for a long time. “I don’t see a lot of risk being priced in of this being a protracted, complex conflict,” says van Geelen. “I was really hoping that we would go down there and find out that everything was fine, but so far, that hasn’t been the case.”

As he considers the situation in the gulf with oil trading around $110, he’s thinking about whether the U.S. economy can survive these stressors. “You could make the argument that $90-a-barrel oil on average over the next six months is not enough to kill the U.S. economy, right?” he says. “But $120 a barrel of oil? And wheat and fertilizer both being 50 percent higher? That might lead to some unpleasantness.”

That unpleasantness could extend to the stock market, of course. “If you’re an analyst, and you’re in front of a spreadsheet, and you’re modeling a complete closure of the strait, it’s easy to say the S&P 500 needs to be 20 percent lower,” van Geelen says — a fall four times bigger than we have already seen. (But if it’s not fully closed, as Citrini’s analyst is seeing, that projection may be too dire.)

Higher oil prices mean higher inflation, which could limit the Federal Reserve’s ability to cut interest rates. “This is kind of the worst-case scenario,” says James St. Aubin, chief investment officer of Santa Monica–based Ocean Park Asset Management. “And we can easily enter a bear market.”

But there’s a complicating narrative on Wall Street. Last year’s tariffs saga, in which a crash was followed by a quick bounce-back and new all-time highs, taught investors a lesson: Under Trump, it could be better to lose a bit of money in the short term than miss out on a big rebound. “What does Starbucks or Netflix have anything to do with the Strait of Hormuz?” says Link. “If we can do a short kind of war thing, we can get back to thinking about the economy doing pretty well.” She has been optimistic about the initial four-to-six-week timeline Trump laid out: “I think a year from now, we’re going to be happy we bought some stocks on sale.” (Though, she says, that view would be “100 percent wrong” if the war drags on.)

Yet some investors see a changed world. “It just feels like we’ve let the chaos genie out of the bottle in a way,” says Andrew Beer, co-founder of Dynamic Beta Investments, which runs investment products designed to mimic hedge funds. “My base case is that this is something we’re dealing with for a decade.” Daleep Singh, who served as a deputy national security adviser under Joe Biden and now works for asset manager PGIM, also sees a fundamental change. “This war should no longer be considered a black-swan event,” Singh says. “Military conflicts are no longer rare, nor is the weaponization of economic choke points.” He’s predicting a “face-saving cease-fire” that will reopen the strait in the coming weeks. But, he emphasizes, the war has been a net negative. “We’re clearly in a worse position now.”

Van Geelen, who asked me not to include identifying details about the analyst, is thinking constantly about his safety. “Obviously, it’s more dangerous than being in Manhattan,” he says.