20% Of Global Oil Cut Off; Which Assets risk Collapse? | Louis Gave
Summary
- Geopolitical Shock: The Strait of Hormuz is currently closed due to war involving Iran, cutting off ~20% of global oil. While spot prices have reacted, the long end of the oil curve remains complacent, expecting a short conflict.
- Asian Divergence: Asian markets (Korea, Japan) are crashing because they are heavy energy importers. In contrast, US markets are rebounding, showing complacency regarding the energy shock's potential duration.
- China Thesis: Contrary to consensus, China is not the biggest victim of the oil blockade due to strategic stockpiles, Russian pipelines, and high EV penetration.
- Portfolio Construction: The 60/40 portfolio is dead due to a structural bear market in bonds. The new model is 60% Equity, 20% Energy, 20% Gold.
- Macro Outlook: Expects inflation to accelerate (energy squeeze), forcing the Fed to cut rates despite inflation (prioritizing financial stability), which leads to a steeper yield curve and higher gold prices.
Trade Ideas
90% of Persian Gulf oil goes to Asia. Korea, Japan, Thailand, and India do not have the domestic energy production or the pipeline alternatives that China has. These economies are "energy transformed." Higher oil prices and skyrocketing tanker rates act as a massive tax on their growth, crushing margins and weakening their currencies. Korea specifically is also seeing profit-taking after a massive run-up in 2025. Short Asian energy importers who are the direct victims of the Hormuz closure. Oil prices collapse back to pre-war levels rapidly.
The Strait of Hormuz is closed, blocking Persian Gulf oil. Spot prices are up, but the "back end of the curve" hasn't moved much, implying the market expects a quick resolution (US bombing Iran into submission). Louis believes the market is too optimistic. If the war drags on (e.g., decentralized Iranian command continues attacks), oil supply remains choked. A prolonged blockade forces oil toward $90-$100+, repricing the entire energy sector higher. Long Energy (Commodity and Equities) as a hedge against the conflict extending. A quick diplomatic resolution or decisive US military victory reopens the strait immediately.
Governments are shifting to "more government spending on deeply unproductive stuff i.e. warplanes, tanks." The geopolitical shift away from "Pax Americana" to a multipolar, conflict-ridden world necessitates massive re-armament. This spending flows directly to defense contractors. Long Defense Prime Contractors. Peace treaties or sudden de-escalation of global conflicts reducing defense budgets.
Louis advocates for a portfolio allocation of "20% precious metals." He argues gold is a hedge against "wrong monetary policy" and 0% interest rates, not just inflation. If the oil shock causes a recession/instability, the Fed will cut rates (prioritizing stability over inflation). Lower short-term rates combined with higher long-term inflation expectations (steepener) is the perfect environment for gold, especially as Western investors haven't fully participated in the rally yet. Long Gold to replace the "40" (Bonds) in the traditional portfolio. The Fed stays hawkish and keeps rates high to fight energy-induced inflation.
We are in a "structural bear market for bonds." Inflation is sticky, and governments are spending on "unproductive stuff" (warplanes/tanks). Bonds no longer work as a hedge (diversifier) for equities. In a world of supply shocks and war spending, inflation erodes real returns. Louis explicitly states you cannot beat inflation with bonds and expects the long end of the yield curve to rise. Short Long-Duration Treasuries (or avoid entirely). A severe deflationary crash or depression drives a flight to safety into Treasuries.
US markets have "underwhelming momentum," are the most expensive in the world by valuation, and have extremely crowded positioning (everyone is overweight US). The US market is pricing in a "perfect outcome" (quick war resolution). With valuations this high, there is no margin of safety for a geopolitical error or a resurgence of inflation that squeezes disposable income. Avoid US Equities in favor of Energy and cheaper Emerging Markets (China). The "US Exceptionalism" trade continues due to AI/Tech dominance regardless of macro headwinds.
China has the cheapest cost of capital, labor, and electricity, with very low investor positioning. Louis notes China is less vulnerable to the oil shock due to Russian pipelines and EV saturation. While the rest of Asia (Japan/Korea) suffers from the energy shock, China's relative resilience and rock-bottom valuations create a massive divergence opportunity. Investors fleeing expensive US/Asian markets may rotate into the unloved Chinese market. Long China as a contrarian value play. Global recession drags down Chinese exports despite internal resilience.
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This The David Lin Report video, published March 04, 2026, features Louis Gave discussing EWY, EWJ, INDA, USO, XLE, LMT, RTX, ITA, GLD, TLT, QQQ, SPY, FXI, MCHI. 7 trade ideas extracted by AI with direction and confidence scoring.
Speakers: Louis Gave · Tickers: EWY, EWJ, INDA, USO, XLE, LMT, RTX, ITA, GLD, TLT, QQQ, SPY, FXI, MCHI