most important escalation

Good morning everyone 🌅

Monday. Week three of the Iran war has begun.

I spent part of my weekend reading every update coming out of the Gulf and honestly this is the most pivotal stretch of the entire conflict so far. The US just struck Iran's most valuable piece of real estate. Oil is above $100 again. And the game of chicken over Kharg Island could determine whether this war ends in weeks or drags on for months.

Let me break it all down.

🏝️ KHARG ISLAND. THE MOVE THAT CHANGED EVERYTHING.

On Friday night Trump made one of the most significant decisions of this entire war.

US Central Command carried out what it described as a large-scale precision strike on Kharg Island, hitting more than 90 Iranian military targets including naval mine storage facilities and missile storage bunkers, while preserving the oil infrastructure.

Why does this matter? Because Kharg Island is just 20 miles off Iran's northern Gulf coast and has historically handled the majority of the country's crude exports. For two full weeks of this war, the US left it completely untouched. Until Friday.

Trump framed it as a warning shot with a very clear ultimatum. He wrote on Truth Social: "Our weapons are the most powerful and sophisticated that the World has ever known but, for reasons of decency, I have chosen NOT to wipe out the Oil Infrastructure on the Island." He then threatened to immediately reconsider that decision if Iran continues interfering with ships in the Strait of Hormuz.

Iran fired back with its own ultimatum. Iran's Foreign Minister said his country would attack facilities of US companies in the Middle East if its energy infrastructure is targeted. IRGC also threatened to strike multiple cities in the UAE, claiming the US used UAE facilities to launch the Kharg attack.

So here is where we stand. The US holds a gun to Iran's biggest economic artery. Iran holds a gun to every Gulf oil facility in the region. Both sides are saying don't pull the trigger. Neither side is blinking.

Pete's Take 👇

This is the most dangerous escalation of the war so far. Not because Kharg Island was hit, but because of what COULD happens next. If Iran attacks a major Gulf oil facility like Saudi Aramco in retaliation, we are talking about oil at $150 or higher. If Iran backs down and reopens the Strait, oil drops 20% in a day. The entire trajectory of 2026 markets hinges on which of those two things happens first. Indeed a game of chicken at its extreme.

🛢️ OIL ABOVE $100 AGAIN. THE THIRD WEEK PREMIUM IS REAL.

Brent crude rose 1.5% to $104 a barrel on Monday while WTI traded just below $100. Both benchmarks have now soared more than 40% to their highest levels since 2022.

Let that number sink in. 40%. And this is not a meme stock.

US gas prices reached an average of $3.70 a gallon this Sunday according to surveys, a 24% increase since the war began. That pain is now at every petrol station across America. Every family filling up their tank is feeling this war in their wallet. (EV perhaps?)

The IEA's record 400 million barrel release? Still not enough. At normal Strait of Hormuz flow rates of around 20 million barrels per day, the released oil covers only about 20 days of typical flows. The release can soften the shock temporarily but it remains limited as long as the Strait stays closed.

And on that front, US Energy Secretary Wright admitted the US Navy is "not ready" to escort oil tankers through the Strait, though he said it will likely be able to do so by end of month. Once again showing the reluctance to send troop into harm’s way.

Pete's Take 👇

End of month means mid to late March at the earliest before any meaningful tanker convoy crosses. That is two more weeks of near-zero Strait traffic. Two more weeks of the IEA reserves being drawn down. Two more weeks of oil above $100 feeding into inflation numbers that the Fed will have to respond to. The IEA release bought time but time is running out.

⚔️ US CASUALTIES RISE. TRUMP SAYS "WHEN I FEEL IT IN MY BONES."

All six crew members aboard a US refueling aircraft that crashed in western Iraq were confirmed killed. The crash brought total US service personnel killed since 28 Feb to 13. An additional 5,000 Marines and sailors are being deployed to the Middle East.

When asked when the war would be over, Trump said: "When I feel it in my bones." 🤣 

There is no timeline. There is no exit plan that has been made public. There is no ceasefire being negotiated. What there is: Israel's military telling everyone it is preparing for at least three more weeks of airstrikes with thousands of targets still to hit.

Trump's plan to reopen the Strait? He told reporters he is hoping China, France, Japan, South Korea and the UK will send warships to help escort tankers through. A naval coalition he has not yet secured.

Pete's Take 👇

Three more weeks of strikes minimum from the Israeli side. A Strait escort operation not ready until end of March. A new supreme leader in Iran who has publicly vowed to keep the Strait closed. An oil market pricing in prolonged disruption. And a Trump-Xi summit on 31 Mar that remains the single most important diplomatic event on the calendar. Buckle up. Week three is going to be another wild one.

📊 WHAT TO WATCH THIS WEEK

Fed rate decision meeting (18 and 19 Mar). Any Kharg Island retaliation from Iran. Progress on the multilateral naval escort coalition.

🎯 Pete's Investment Takeaway

Day 16. Here is the honest picture.

This war is not ending this week. It is not ending next week. The most optimistic scenario puts a ceasefire in late March or early April. The most realistic scenario is that we are still talking about this in April.

In that environment, here is what still makes sense.

Energy stocks with strong dividends remain solid. The dividend does not stop because of geopolitical volatility. ExxonMobil has raised its dividend for 43 consecutive years through oil crashes, pandemics and wars. That does not change because of what is happening in Tehran this week.

Gold above $5,200 is your hedge against uncertainty and the inflation that is now baked into the next two CPI prints. I will buy some under $5k.

Defence stocks continue to benefit as every Gulf nation rapidly scales up air defence procurement.

The sectors to stay patient on: tech, airlines, cruise lines, consumer discretionary. They bounce hard when peace comes. But peace is not here yet.

And the single most important question for your portfolio right now is not whether the war ends. It is whether Kharg Island's oil infrastructure gets hit. If it does, all bets are off and $150 oil becomes a real conversation. If it does not, we grind between $90 and $110 until diplomacy catches up with the military.

Position for the scenario you can see. Not the one you hope for.

Position. Don't predict.

Happy Hunting!

Pete
Invest with Pete

🚨‼️ By the way, I’ll never PM anyone on telegram or any other social media platforms. If you receive any “Pete” messaging you, these are scammers impersonating me. Pls beware!

The information provided in this newsletter is for informational purposes only and does not constitute financial advice. Readers should seek their own independent financial advice before making any investment decisions. Please note that while Pete is a portfolio manager, the opinions expressed in this newsletter are his own and do not represent the views of any organization. Always perform your own research and due diligence before investing.