Operation Epic Folly Part V – Interesting Rhymes
May you live in interesting times: The 2026 Iran conflict and a (long) verdict
This is the final conclusion of the a series of five posts:
Part I took a look at the Great Depression era
Part II covered the Cold War
Part III examined the collapse of Socialism (East Bloc)
Part IV dug into the modern era until shortly before Iran 2026 happened
Now, let’s dig into that:
Even More Interesting Times – Operation Epic Fury & Markets
— Daily Chart: Feb 26 - March 28 with major events marked. Click to get a readable, full zoom version
There’s a lot going on here, with these events marked as “significant”.
It’s a dense timeline with a lot of “whiplash” in the markets and something new happening every day, and if it’s just a Truth social post.
Notable in the charts:
Brent crude dislocates from WTI crude, a status that will get worse the longer the Strait stays closed or is contested. Crude in Asia/Europe diverges from WTI spot prices.
USD-EUR up-channel: strangely enough and maybe counter-intuitively - the EUR gets priced lower (where in my opinion it should be relative to the current USD) - it never managed to get under 1.14 USD to the Euro (1.14 USD = 1 EUR / 0.87 EUR = 1 USD), which is crazy low in light of the rate regime being way lower in Europe. This has been the case ever since Apr 2025’s “Liberation Day” 10% drop. My suspicion is this will likely unwind upwards in favor of the USD and will dislocate USDEUR shorters getting caught unaware - these are the guys depressing the USD right now.
The markets: they just don’t know what to make of uncertainty, resulting in severe +/- 10% regular volatility moves across a vast array of stocks. Yesterday’s flavor gets to be tomorrows most-hated stock according to price swings, based on whatever narrative gets pummeled down your eyeholes in the mainstream media. Truth is: Nothing’s safe, the only positive sector currently being “energy” - And every trader will hate macro analysts saying “told you to buy energy”. But that’s the case here - to be fair, usually it’s not a great buy unless you are a buy-and-hold-and-collect-dividends type of buyer.
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Operation Epic Markdown?
Let’s leave aside all the human suffering in Iran and the adjacent regions, and us humans suffering fools in politics:
The markets didn’t know what hit them, but I guess Iran had a pretty good idea “who” on February 28.
At the US trading open on Monday, March 2 markets seemed at first pretty unimpressed safe for the oil price spikes in panic positioning often observed when initial market chaos hits the tickers – and outside some manic volatility spikes in all energy-related stocks the rest of the market seemed very “calm” on the surface. This just shows that inertia carries stocks a long way until realization hits on a broader base that the conflict might actually influence companies in unforeseen ways.
The initial spike unwound on Tuesday, March 3, and stocks were hit with a broad wave of sell-offs, including said energy stocks mean-reverting back into their prior ranges. Great buying opportunity if you had a plan and a clear picture of which macro areas the conflict most affected.
Just one example of a stock I follow:
SM Energy (merged with Civitas in early 2026)
-SM Energy chart, 5 min resolution (line chart for easier visibility)
+10% high on March 2 open.
-10% low 4 hours later, ending at roughly -8% during EU day trading.
👉 A paradise for options sellers.
Same classic “whiplash” picture across a wide array of energy stocks – uncertainty expressing itself in wild volatility spikes (VIX > 30).
Until the uncertainty of a Hormuz closure got replaced by certainty on March 4, when a lot of infrastructural attacks followed out of Iran, indiscriminately - or discriminately, as you will - hitting a set of refineries, storage tanks and similar targets inside and outside the Kargh area on Saudi Arabia’s side, which is the loading/unloading dock for basically all oil and gas shipments out of Hormuz.
—Spike in WTI line chart during Mar 2 US day session
Energy (Oil) has been on a “tear” if you will – and WTI/Brent crude spiked to well above 112 USD/bbl on the March 2 Hormuz closure – only to relent all its “gains” at the end of the session – the craziest spike outside the oil embargo 1970s and the May 22 spike, which was Russia-Ukraine conflict induced.
Without overstretching my point; the current scenario unfolding looks like a rhyme with the 1973 period, followed by what’s now known as the stagflationary recession of the late 70’s-80’s. If this comes to pass, we would be looking at a dismal decade of real returns in stock markets, based on all historically available data that looks at forward returns when starting investing in such an environment - or staying invested fully throughout without actively managing your positions. Like a lot of the “buy and hold ETF crowd” are trained to do.
I can’t see any other way out of this but inflation as a valve for releasing all the spending pressure – and this time we’re not in a position to lower rates to spin up the neverending QE machine of 2008 + 2021 without getting a massive inflationary shock.
The other side of the dial is massive rate hikes as Paul Volcker, probably the last true of the “central bankers” taking their money stability mandate seriously. I think many people either never researched into this or simply forgot that he did crank the rate up to 20% (!) at peak inflation in the 80s.
Boy, was that a dampener on President Bush senior, who definitely hated the guy – when he should have loved him instead for actually taking his mandate seriously and deflating the dollar massively. Sure, it created a hard recession, but as every party bender needs to come to a bitter end, so did the massive inflationary period of the late 70’s end in a massive hangover.
As a reminder: our global economies didn’t get such a crass hangover any time in the past 17 years. It was 2008 since the so-called “Great Financial Crisis” deflated the overleveraged and risk-ignoring banking sector and blew up the most pertinent risk abandoners (Lehman) as the first domino to potentially topple the whole financial complex.
The recession that never was
Instead, we got something else: COVID. They locked down the global economy – in lockstep – unheard of before and never executed in such a directed, unified manner, and unleashed QE. The influx of injecting huge amounts of new money into the banking sector cranked M2 up for a massive bout of “future inflation”. The one we’re currently enjoying.
And if you add oil scarcity to an inflationary shock, it’s 1973 all over again.
Here’s how I see this unfold:
Epic Fury Folly vs. 1973 Oil Embargo — Key Takeaways
Supply disruption comparison:
1973: -4.4M bbl/day (7% global), +287% price
2026: -21M bbl/day (20% global), +32% so far
Why the “smaller” response: SPR exists, shale flexibility, EV demand destruction – the holy conglomerate that currently keeps the oil genie in the bottle.
Inflation context:
1973: 6.2% pre-shock → 12.3% (1974) → peaked 14.8% (1980) = 8 year normalization
2026: 2.8% now, if oil sustains $90+, likely 4-5% by Q3
Conservative forecast – all things “being equal”. Which is economist speak for “I don’t want to think about any other outcomes and variables changing” - which never holds true in the real world.
Expect a few more surprises down the road to midterms and/or coming out of EU - Ukraine vs. Hungary, anyone?
Here comes the important part people hate to think about – the 1980s aftermath patterns:
Second oil shock (1979) made things worse
Volcker 20% rates → deep recession but clean reset
Trade wars followed inflation shocks
2026 risk: Debt/GDP 120% means Volcker option unavailable
What does it all mean?
Let me try to wrap this all up in a personal verdict. I don’t pretend to have the stone of wisdom or being clairvoyant – so it might play out totally different, but “all things equal”, this is where we stand:
The US is in the middle of breaking apart the old US-led hegemonic system into a clustered world – in-between the “west” that was previously the US and its allies we now have a “delusional middle” in the Europeans who are a) slow b) too idealistic to see they need to be way more decisive and act cohesively and c) too fragmented inside their bloc to actually do that.
I’ll break it out by zones:
The US – Bye-Bye, Hegemon
America is acting on its own behalf, as promised by MAGA, like it or not wherever you are. With all the fallout that we can already see and witness every day. It’s energy-secure (for now) and is intent to make this energy self-sufficiency their front-and-center policy. Whether this results in a stable “onshoring” I have my doubts as to how long this actually takes – my guess is years, maybe a decade to fully rebuild what was lost in globalization.
I don’t think Team Trump can do what he promised because frankly, they overpromised. As usual if you listen to Americans in their grandeur prose – there is simply no “small victory” for America. It’s all like Texas in that respect. I also don’t think neither MAGA voters nor “Dems” aficionados - to me two sides of the same broken medal - understand the predicament their country truly is in due to roughly 45 years of ever-expanding balance sheet debt, QE experiments by their central bank and no resolutions to be had in their partisan process. It didn’t matter if team Red or Blue was on the rudder, the tanker’s course was set steadily towards an invisible iceberg that no one admits is there.
And with all the rapid reality checks and changes, that’s the rock-and-hard-place a guy like the new Fed chair appointee Kevin Warsh wouldn’t want to be in. But he now is being put into this position to by POTUS.
I am not sure he cares, or is allowed to care – I’m thinking no bad thoughts – so my guess is the board of Fed governors might just do the unthinkable and actually lower Fed rates putting out a “the economy is suffering” messaging as based on their “labor” mandate. My opinion is that a central bank should not have “employment mandates”. They have to take care the currency is stable, no matter what. If that means the economy enters a hard recession, so be it – that’s the hard Austrian School and most people can’t bear the thought of a “cleansing recession”, since everyone keeps believing it will end up in a “great depression” scenario. The economy got their party being paid by the future (debt) - the piper asks for more payment the longer the party keeps going.
What’s the payment? My answer to that at this stage: the amount of QE & money added created a “bubble everything” economy. A lot of people can’t see that or don’t want to hear it - or think about it too hard - but that’s where I believe our great leaders across the globe took us. Adding debt without actual, real growth in your respective economy does that. The only thing they grew is the welfare, grift and absolutely bonkers spending levels to satiate the many hands that are in the honey pot of government and for voter appeasement. Which brings me to…
EU(rope) – Needs to grow up, fast
The EU or let’s call them by their continent, the Europeans are a broken mess. Driven by blind ideology, misaligned goals in their 28 (UK) 27 nations. They can’t decide on a common marketplace for stocks as much as they can decide how bent a banana needs to be to be “saleable” in the EU. They create legislation mandating bottle caps to be attached to a bottle to “save the environment”. That’s the biggest outcome of their fever dream that actually reaches people in their daily lives and what sticks in people’s head when someone says “EU”. Their respective leaders are mostly elitist network ineptocrats, swept into power because they are the ones wo want go into politics in this shark tank filled with goldfish thinking themselves barracudas - everyone else stays away and tries to make a living. Their leadership is so utterly seeped in ideologist agendas with “net zero” as their only visible guiding light - resulting in regulatory overreach depriving wide swaths of the whole continent of a competitive environment while pretending to save the “climate”. If anyone ever manages to ask whether “the climate” even needs saving, or that many wouldn’t be alive to feel the mean temperature in 50 years from now or complain about a sweltering hot summer while reading “50 Tips to stay cool in the hottest summer since 2000 years” brainrot in the mass media.
If you will be alive in 2085, I am sorry to tell you from the present times: I don’t think it matters if it’s 1.5 or 3 degrees “warmer” on average. This is “climate”, and in the very long run it’ll just be an average of maybe a few extremes. If you focus on averages, you’ll be average. Figures for EU.
Now do something fun and relay the above to a European “Green” - who are almost all the same and exchangeable across almost all existing political uniparties wherever you go in most of Europe - and they’ll denounce you and your offspring for being a “climate change denier” or call you even worse things very likely. Their reply basically is a good showing of their intellectual prowess in a spectacularly self-revelatory way. All that doesn’t matter though once the power goes out or oil and gas do get cut off in a prolonged Hormuz closure, which is a very real threat right now. Energy gets repriced to the upside – Brent already is diverged by a good +30% from WTI when the market throws a tantrum. European gas is already up in the “wazoo” area.
This chart tells you the true story of where the “Europeans” are going.
If they had a truly functioning bloc in the EU and its leadership, they might pull off a reinvention into a powerhouse of their own, seeing the US is “doing their own thing” right now. But they don’t, and they won’t very likely - and their leadership is comprised of mostly people who want to do regulatory work for a living. A roster of philosophy, political and other lily pad academics who think working with your hands is something best left to the dirty people. If you’re unsuccessful in “national politics” in Europe but you didn’t get caught stealing babies or denounce climate change as a fraud, there’s a high chance your party will ship you off onto an anonymous list so you can bring your talentlessness into the Brussels apparatus in full force. People feeling great “directing stuff” within Brussels will thusly inflict way more policy damage - to the detriment of those shipping them off in national politics by mandating bottle caps to be attached to bottles, telling everyone to go “net zero” by 2050 (with no clue if that goal is actually achievable or makes any sense, physically speaking) - making everyone’s life harder by the day.
It’s truly maddening to see how immune Brussels pundits are to the current physical realities – or how utterly unimaginative they are in simple forecasting or maybe listening to people who know better. I’m sure they have a “think tank” somewhere which sometimes dares to advise them against their own agenda setting, maybe even frequently. That mainly seems an exercise in futility and I am sure the phrase “politically impossible” is uttered a lot for these consultations.
I am sure some people asked to rethink energy policy (hard) and start fracking within Europe’s confines to escape the death spiral of rising energy prices for all – even in Germany there are untapped resources of shale gas lasting supposedly hundreds of years if developed. Alas, I am afraid first the lights have to truly “go out” somewhere and a lot of real, hard pain has to be suffered by people largely responsible for ticking the wrong box for all the wrong reasons in the ballots without realizing their dire mistake until it’s too late. It might be the next generation suffering for their ignorance, not them, so it’s cool for them maybe – but I worry about the consequence wrought upon their children and grandchildren which many will state they care deeply about by voting for whom they’re voting for.
It’ll take another good while in my view for the current stalemate of climate zealotry to end. As long as you have people in power favor “renewables” like wind and solar versus hard, reliable baseload facilities, the energy politics of the past twenty years will bear their toll. If and when actual energy politics change back to long-term affordable and stable sources, slowly, states and companies can grow to be competitive again and actually attractive for investment. The social welfare ingress currently witnessed across a broad swathe of EU countries is unsustainable, falls on fewer and fewer tax payer’s shoulders and the juice is squeezed out of many of them. The only way out of this is to make local economies and citizens energy secure without them bleeding money out of their pockets for expensive energy that is deprived because “Brussels willed it so”.
And if this sounds dramatic, try to live in one of the metropolitan regions in Europe like Berlin, Paris, Brussels, Copenhagen, Stockholm or some other glorified “dream city” you read about in the “Top 20 cities to live” drivel in media and try to make ends meet by having a normal 9-to-5 - and you’ll realize it’s not what the prospectus and some internet hipsters traveling there for 10 days of “exploring Europe” make you believe.
Unless things materially change, literally speaking, the EU will just dig a deeper hole. But the hole be well regulated by Brussels.
APAC, India & Russia – a potential new bloc to go their own way
This leaves us with the “rest of the bunch” in the room. As proven already manifold, China and Russia are perfectly capable of building their own monetary system, if pressured to the point of being cut off from SWIFT as a “sanction by the west” shooting its own foot, knees and whatever other appendages their sanction guns can reach without blowing their brains out.
As it stands currently, the sanctions work in driving the wedge in so completely that I can’t see a sensible way to get out of the rut of condemning and blame-putting and get back to diplomatic and political relationships that deserve the name in-between large swathes of “the west” and Russia.
As long as that wedge is there, the west is only sanctioning its sorry self into oblivion all outside the continental US who has them by their crotches, selling them energy for a healthy mark-up since they don’t want the cheap energy from next door. Russia and China together with India are respectable industrial powerhouses who can, in any rut, go it alone if the collective west doesn’t want to go it together.
They already started down the road by developing their own settlement system. They don’t need SWIFT or whatever else the collective west uses as a weapon against even its own citizens by intransparent means with “private banks” being the executors doing the account closure or use it as a political weapon against the differently opinionated.
Russian funds are still frozen in the EU and the west… so naturally Russia is strongly opinionated about the safety of “the west” as an investment market. But: why would anyone trust the banks not to do the same at the push of a button to just about anyone inside the bloc if it fit into their current policies?
Hence I wouldn’t be amazed for the BRICS payment system to actually “work” to the amazement of the collective west waiting for their sanctions to finally hit anyone else but themselves.
What’s the end game?
All this geopolitical insecurity and reshuffling does only one thing: it increases everyone’s debt load because politicians, if painted into a corner – even or especially if they did the painting themselves – will tap into the debt pool to “make their countries safe and strong again” [insert other political platforms and platitudes here if you want]. This also begs the question why they’d let their countries get insecure and weak in the first place, but that’s probably just me and my weird brain telling me that.
Highly increased spending because you need to buy oil and gas at a solid markup and rebuild industries that your previous policy “phased out” by starving them of cheap energy will undoubtedly unleash the inflation genie. In a darkly reminiscent “late 70s” stagflation style. Together with increased energy uncertainty thanks to “Iran’s Nuclear Ambitions” as a cool story to send the combined forces of the US Army and Navy to the desert people. Who knows how long this engagement in Iran will take. Months if Gulf War I is any indication. Years if it’s similar to the Afghanistan or Vietnam blunder – so my best guess is anywhere from 3 months to 3 years from here on out.
Make no mistake: even if “victory is declared” in a true “Mission Accomplished” style stunt after the 9/11 “War on Terror” by hanging a banner from the sweltering mess that the Gerald R. Ford carrier group currently seems to be and helicoptering in a triumphant Trump declaring “MAGA” has been achieved in Hormuz - the repercussions of the broken confidence in US’s ability (or willingness) to be the global hegemon they set themselves up to be are far-ranging.
Q: Who trusts the US after all the stunts pulled in the last two years alone?
Then, even if the Strait of Hormuz is cleaned of any lingering mines and open in one week from now, the damage is done. Ras Laffan refinery seems to be offline for longer than most currently account for. This refinery is responsible for a large share of global LNG output - the Strait of Hormuz handles a very large share of APAC’s oil on top of that - with Diesel and jet fuel raffinates as the main fallout reportedly - as seen by fuel shortages appearing in Australia. I guess this is the “other” part on these charts?
— Statista: Oil Flow through the Strait of Hormuz
All this puts APAC into a pressure cooker scenario where they will absolutely outcompete the net zero pundits in Europe for their precious gas cargoes and their fuels as well - prices in core Europe’s core economy, Germany, are already at +30% from before the conflict breakout, thanks to the state taking a hefty amount of taxes, fees (energy, emissions fees etc.), bringing the price per gallon to a roughly $12 equivalent as of the moment of writing this. You know for Europeans the prices are marked in liters. If you saw that gallon price on a US gas station, would there be protests on the streets calling for immediate action or would everyone just grumble a bit and move on?
Verdict
I see no good way out of all this but a pressure release through the valve of gas price increases (short term and mid term). Even with the Strait immediately opened in the coming week(s), the lag in bringing supply back online will drag this on a long time into the foreseeable future. This will depress the economy further for all, and the ripple effects of depressed economies are far and wide and sure to be felt across the globe - don’t think because you’re sitting on the continental US your stuff won’t get more expensive. That’s not how a globally interlinked, highly financialized and commoditized economy works.
Going by this new “trickle 20 tankers through as great news event” this might be a while.
— Daily Tanker Allotment News…
If Hormuz stays closed or contested for a longer time than four weeks from now, we’re looking at a hitherto unseen constraint in global energy anywhere outside the continental US as supplies on the water dwindle and get refined. This means rising prices and a lot of windfalls and grifting through taxes if affected nations do not decide to take back their energy taxation that makes this even worse in the face of rising input prices.
Some do openly think about curbing stifling energy taxes for citizens… some leave the tax levied while entertaining socialist-inspired economic parlor tricks to take even more from the companies on top of the regular, unchanged fuel taxation.
Buckle down the hatches, be mindful of where you put your money if it’s not energy, infrastructure, defense, commodities … or war bonds, maybe. Only half kidding and not hoping it comes to that.
Stay vigilant and prepare accordingly.
