Using options to play a shift to nuclear energy resulting from Mideast war
The U.S.-Iran war has fundamentally altered the security landscape in the Middle East. While the U.S. and Israel have reportedly achieved significant tactical milestones — most notably the assassination of Supreme Leader Ali Khamenei — Iran’s strategy has pivoted from direct military engagement (where it is severely outmatched) to geographic and economic horizontal escalation. Investors should carefully consider what that means. This is not a political judgment. I will leave it to others to decide, particularly once more facts are known, whether the strikes were justified. Because perspective matters, it is unlikely that any observer can be entirely “bias-free”. To the extent that I am predisposed one way or another, I should offer that my opinion is that military conflicts are almost always more complex, more expensive in terms of lives and treasure, longer lasting than those who initiate them expect, and the “victories” often Pyrrhic. The long-term repercussions of military action may only be known many years later as historians observe not just how it turned out for the parties to a military engagement, but also how that engagement shapes policy elsewhere. Alliances, security considerations, and military conflict do not take place in a vacuum. What is happening now will not just have short-term economic and military implications; it will also shape the strategies of nations around the world. Will it encourage or discourage economic warfare? Will it encourage or hasten nuclear proliferation? Or discourage and delay it? Will it increase secular liberalism or strengthen theocratic authoritarianism? Investors are obliged to identify different outcomes, assign probabilities to those outcomes, and assess the ramifications for valuing risk assets and constructing robust portfolios. Put simply, neither the supply, nor the demand, nor the price of oil, for example, entirely depends on the motives or justifications of the actors, although all three may be directly affected by their actions. I hope all readers, regardless of their point of view, find it valuable to consider these events using probabilistic scenario analysis. One can evaluate as many scenarios as one likes and assign one’s own probabilities, but I’ve provided a simple example below. Things to think about… The “Hormuz Leverage”: Iran has functionally closed the Strait of Hormuz. Even with the U.S. Navy sinking a significant portion of the Iranian fleet, the channel is currently untraversable, commercial insurance is largely unavailable and Iran has already demonstrated a willingness and ability to strike ships transiting the Strait. (Note: Early Monday, Treasury Secretary Scott Bessent said on CNBC that the U.S. is allowing Iranian oil tankers through the Strait of Hormuz.) Decentralized Resistance: The elevation of Mojtaba Khamenei signals regime continuity, despite rumors that he is injured. Historically, as seen in Vietnam and Afghanistan, decapitation of leadership rarely ends a conflict if the underlying ideological and paramilitary structure (the IRGC and Basij) remains intact and shifts to insurgent tactics. Presumably, the strategic assessment was that eliminating leadership might foment internal rebellion against the regime, but even if the regime’s opponents feel emboldened, they are considerably outgunned. The regime has weapons; its internal opponents largely do not. It’s possible that an “Iran in chaos” similar to Libya post-Gaddafi, Iraq post-Saddam, Syria post-Assad, or even Venezuela post-Maduro emboldened the administration. Perhaps key decision-makers believed that almost any outcome was preferable to the seemingly intractable situation they were in. The Lebanon Front: The expansion into the 2026 Lebanon War creates a two-theater conflict. Israel’s threat to “take territory” in southern Lebanon provides Iran with an enduring proxy war that drains Western resources without requiring Iran to win a single conventional battle. The Tanker War (1980–1988): Much like today, Iran used low-cost mines and speedboats to disrupt the global economy despite U.S. naval superiority (Operation Praying Mantis). It proved that a weakened power can still hold the global economy hostage. The Vietnam War: Countries with military advantages often lose in the long term. In Vietnam, the U.S. won nearly every tactical engagement, yet the North’s “incentive to drag it out” eventually broke the political will of the West. 2006 Lebanon War: Hezbollah’s ability to survive a massive Israeli air campaign serves as the modern blueprint for Iran’s current “Axis of Resistance” strategy — surviving is winning. Iran’s current incentive is to maximize the cost of the war for the West. By targeting the United Arab Emirates, Kuwait and Saudi Arabia rather than just Israel, or U.S. aircraft carriers, it is attempting to force the West’s regional allies to sue for peace. Unless there is a “Black Swan” event — such as a total internal revolution — this conflict may persist as a low-intensity, high-cost war well into 2027. Whether this encourages countries around the world to more aggressively pursue nuclear weapons, they are certainly being reminded yet again — as if the war in Ukraine and the sabotage of the Nord Stream pipeline weren’t signals enough — that securing energy independence is an economic and strategic imperative. Fossil fuels rely too heavily on a politically unstable region. Countries need alternative energy, some from “renewables” and likely significantly more nuclear generation. Last Wednesday’s CF Industries article highlighted a relative advantage in a world of disrupted, region-specific natural gas/LNG prices without assuming huge shifts in the fertilizer market. Today, however, we’re examining a longer-term shift towards nuclear that could result from the conflict. Investing in the raw material is the most direct way to play a supply-demand imbalance. If you believe the nuclear renaissance will outpace mining capacity, this is the most aggressive play. This would involve bullish positions in companies like Cameco (CCJ) , which offers leveraged exposure to the spot price of uranium . For those who want to avoid “mining risk” (labor strikes, floods or geopolitical issues), the Sprott Physical Uranium Trust buys and holds the physical ore, or for diversified exposure across the whole fuel cycle, the Global X Uranium ETF (URA) is a standard benchmark. One way to begin working into a position is with a cash-secured put (short put). By way of example the May 1st weekly 48.5 puts (below) provide a standstill yield of more than 7% of the strike in less than two months. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. 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