I've kept the Iran threads in TMTB chat infrequent recently and so I will make this my only one for this week. I wrote about off-ramps last weekend — although it feels like ages ago, this is just 8 days old:

Here are some follow up thoughts.

I've been turning over how this ends — or doesn't — in Iran. A few threads I can't shake:

1) The US has no meaningful naval presence in the theater.

Six ships. No minesweeping. No escort capacity worth naming. And frankly, none of it would matter — the Red Sea proved that. Drones running on Chinese GPS (harder to jam) have fundamentally rewritten the asymmetry. This war was ill-planned in ways that go well beyond an unreplenished SPR, and those failures are only now surfacing.

2) This ends only when the pain becomes unbearable — in Tel Aviv and at the American kitchen table.

Pain in Tel Aviv is a function of US support, the one currency Bibi cannot afford to lose. He's largely achieved his political objectives.

Pain in the US runs through two channels: wealth (401Ks) and the gas pump. The market — yes, the Mag 7 — has barely flinched in the grand scheme. Sustained pain in both channels will turbocharge anti-Israel sentiment on the left (already a powder keg) and fracture the right (see Tucker, et al.).

3) This is a fight with a meth-head.

I said it a few days ago and I'm more convinced now. You can keep punching, but a meth-head will keep biting. They have less to lose. And when you're locked in with someone like that, the only way out is through. I think the US has come to the same realization.

4) China is a price-taker of Oil and Molecules.

I know many here have pushed back on this. I've quietly wrestled with that pushback. But I don't think China features in IRGC calculus at all. China is happy to buy oil at a $10–15/bbl discount. Iran is happy to sell at 2x prevailing prices. China provides GPS. China provides satellite imagery but really the drones don’t need that.

5) Supply disruption math — and why it matters more than you think.

Many here are more bearish than I am on disruption magnitude. I claim no edge. But here's the arithmetic:

Global consumption runs ~100 MBD (60 seaborne, 40 pipeline).

Hormuz carries ~20 MBD of that. Back out the East–West Saudi pipeline (6–7 MBD) and Iranian barrels already flowing to China (~2 MBD), and you're left with roughly 14 MBD stalled/disrupted.

I think market is currently pricing in ~2 MBD of disruption.

At 3–5 MBD, you get stagflation — ugly, but the world keeps turning.

At 8–10 MBD sustained over 12 months? It's no longer about the price of oil. The world simply does not function. There is no historical precedent for it, and I don't think enough outside the energy complex truly grasp that. Among non-energy people, I still find myself in the minority.

At that level of disruption (10-12MBD) demand destruction is so severe that quoting a barrel price becomes almost meaningless. I don’t think that’s the modal outcome.

And by the way — precious metals get killed in that scenario. Indians aren't buying gold when the country is rationing oil.

Side note: watch at 20min and 25 sec how Brad Gerstner describes the off-ramp for Iran. For a very smart person, he’s incredibly misinformed about how the global oil and refining industry works when he says the US can effectively “take care of itself” because it produces 20MBD and consumes 20MBD. Scary. His roughly represents the view of most of Tech investors (my tribe). That US produces light sweet crude and the entire US refining industry refines heavy sour crude. That export bans will be required else US will export O&G across the atlantic if Petrol is $7/litre in Manchester, England. That diesel prices (and transport of food) would 2x if global oil prices > $150+. I generally think people like me, who spend time thinking about AI capex and the future of SaaS and SBC mechanics and HBM memory shortages know roughly the same as a high-school kid does about what affects the price of strawberries at our local wholefoods.

6) Why would the IRGC just…stop?

Assume Trump walks away. De-militarizes air assets, sails out the few ships. Why would the IRGC stand down? You've already punched the meth-head. They've now realized they can sell oil at $100 to China, have Russia supply new drones with labels in Farsi (concealing origin), and inflict pain on the US — and by extension, on Israel — simply by existing. Win by not losing. Why would they stop the drone strikes? I think Washington knows this, which is what makes the situation so intractable.

Attacking oil infrastructure at Kharg would be an own-goal. It sends 2MBD out of the market temporarily, deprives 90 million people (who dislike the regime) of sustenance, and directly confronts China ahead of an all important summit. Attacking the non-oil infra at Kharg isn’t going to scare that IRGC.

I find this constant fetish of ‘shock-n-awe-bombing’ troubling as it doesn’t work (albeit, those CENTCOM videos are impressive). You can’t Thor-hammer your way in places you need a scalpel. And Trump doesn’t want boots on the ground. If you think the GCC is going to ‘pick up the fight’ after the US leaves, you need to read a bit of history.

7) Iran is nearly the size of Western Europe. This isn’t Venezuela.

IRGC can hide mobile Shahed launchers on trucks dispersed across a vast landmass. Maybe fifteen launch sites, spread wide. Taking out drones at scale is functionally improbable — and the recent strike in Dubai/DIFC is proof that Hegseth, who inspires little confidence, is mispresenting Iran's drone launch capability and US' interdiction capability.

This matters because Israel is going to get more desperate. Bibi can sense Trump wants out. He didn't sign up for a lawn-mowing exercise.

Whatever you say about the incompetence around him (sans Rubio, who is good), Trump has good instincts. I am surprised he’s let Bibi put him in this position.

Bibi has Trump interested until the 400kgs of 60% enriched Uranium is still in IRGC possession and I don’t think you’re going to procure it from the air at this point. Even if Mossad knows where it is, you need boots.

8) The alternative to an off-ramp is too catastrophic to model — which is why I keep thinking the world will find an offramp.

It has to, I can't be caught so short risk. I’m less concerned about my Brent upside than I am about a hard U-turn in equity risk on some “mission accomplished” headline.

Redrawing supply chains so Hormuz doesn't control a third of global seaborne oil will take years. It'll happen eventually, but not soon enough. Oil volatility is north of 100 (check the OVX — it's front-month, but you get the point). Oil is saying this is circa 2022 disruption levels (coz, as Paul McCartney said “we can work it out”). But the Oil volatility curve is saying this is way worse than 2022.

The problem is how much pain is required to force a U-turn? I'm trying not to get over my skis. Being "long war" is an awful position to hold and emotionally draining. But what can Trump actually do? Difficult for him to walk away with the Hormuz unopen, with Uranium unseized, and call it a “Win.” He could, he’s a wildcard.

Even if he walks away, why would the IRGC immediately relinquish leverage? Eventually, I could see them cease drone strikes. Because they want power and total control and for that they need to survive. But it won’t be quick.

I don't think Trump is fully in control. He’s short time value, IRGC is long.

This is what offended me 10 days ago about comparing tariffs to kinetic war. It's why i used the framing in past posts about ‘single-player symmetric optimization (w.r.t trade war) and multi-player divergent optimization (w.r.t. kinetic war in the middle east).

The bullish risk case is that the future is so bad that the present can't last; however, it takes a painful second to realize your finger is touching a hot stove before you retract it.

Anyway, have a good weekend. Hoping this all works out soon.