Words on Markets, Conflict & What's Next 

In this episode of Words on Wealth, CIO Tim Rocks speaks with Matt Gertken, geopolitical strategist from BCA Research, about the ongoing Middle East crisis and the potential paths to resolution. They explore the incentives driving peace negotiations and what a ceasefire could mean for oil markets and the broader global outlook. Matt also shares his perspective on the region’s long-term power dynamics, China’s energy security concerns, and why mounting political pressure on President Trump may shape what comes next. Tune in to find out more.

This episode is also available on Apple Podcast. 

Tim Rocks Hello and welcome to Words on Wealth. I’m Tim Rocks, Chief Investment Officer. We’re delighted today to have live and in person a very important man at the moment, Matt Gherkin, who’s the geopolitical strategist from BCA who we’ve used a lot for his insights on such important matters as well all geopolitical conflicts, but obviously the Middle East is front and centre for now. So this is live, there is a little button.

down the bottom of your screen where you can ask questions. So submit those and I’ll monitor that during the talk. ⁓ I also have some that have been pre-submitted. So I’ll ask those during the course of our conversation. And also just while I’m there, just a reminder, everything today should be considered as general advice. If you’re after personal advice, contact an advisor. Hello, Matt, welcome.

Matt Gertken Thank you very much, Tim. It’s good to be back with you.

Tim Rocks So let’s get straight in, perhaps start with the current peace negotiations. What chance an agreement in the short term and what does that look like?

Matt Gertken Yeah, thank you. Well, look, there are incentives for an agreement. The president has initiated this war. He has not been able to clear the Strait of Hormuz as quickly and efficiently as he may be hoped. And so he has sought negotiations and he has a midterm election looming in November where he hopes that the Republican Party can at least salvage the Senate, ⁓ even though they probably will not be able to retain control of the House of Representatives.

And that’s important for keeping control of his party and making sure that the last two years of his presidency are not a waste of time. ⁓ Iran has a different set of incentives, much more visceral, which is regime survival. They’ve had their highest tier of civilian and military leaders assassinated. And they’ve also seen a lot of their defense industrial base destroyed, several of their command headquarters destroyed.

And they’re under the threat of destruction of their economic capacity, where the president has threatened to blockade the country or also to attack export terminals for oil or power plants. So if Iran wants the regime to survive and president Trump wants a quick deal in order to reduce the economic pain for the U S economy, then there is a basis for a ceasefire. ⁓ but for reasons that I’ll explain, I would still be pretty skeptical.

As at this juncture right now, I’d say it’s about a 40 % chance. But over our 12 month timeframe, we had it at a 30 % chance. maybe things are looking a little bit better right now than we first estimated. But I still would not say that our base case is that we have a solution yet.

Tim Rocks Okay, well, let’s continue right on to that. Are you saying there’s a 40 % chance of a deal that will stand the test of time? Is that what your point there?

Matt Gertken Yeah, because at the juncture they’re in, and again, this is sort of 30 or 40 percent depending on our time frame, but right now it’s looking a lot like, say, 40 percent. This would require Iran to abandon their nuclear program, to abandon uranium enrichment on their soil. And that has been the demand of the Trump administration. So if they’re willing to satisfy that, the US is trying to coerce them through military power.

into abandoning their nuclear program. And if they’re willing to do that, then it would be a long term solution. In that case, the United States would be able to offer them a lot of things like lifting sanctions, investing in their economy, allowing other Western countries to invest in their economy. So there are some sweeteners or some attractive items, but it requires the regime to have trust in the United States because they would lose the ability to blockade Hormuz.

they would lose their nuclear program. They would be prone to American intervention later or Israeli intervention later. So they would need to really believe that there’s an ironclad security guarantee in order to give up their nuclear program. And the sad fact is that the relations are so toxic between the two countries that it’s very hard to get them to that point.

Tim Rocks Yeah. And is the other sort of 60%, is that more of a uncomfortable standoff that extends or do you actually think there’s a reasonable chance of re-escalation of some form of conflict?

Matt Gertken Yeah, good question. Well, I do think there’s a reasonable chance of reescalation. And the reason is because if Iran is not willing to give and let’s point out that there are more nuanced solutions on the nuclear side. so we can maybe at some point get into some of the details. But on the nuclear side, you have to have a deal that the Americans can accept because the U.S. has gone to war over the issue. So it’s going to be demanding a lot. It doesn’t want to withdraw its forces from the region unless it has.

a pretty robust nuclear cooperation agreement. And then on the Iranian side, you know, the issue is that they are

⁓ you know, they’re looking at this as a, a regime survival issue. They want to negotiate with the president so that they tie his hands and he no longer is attacking them. ⁓ but they also want to keep the energy price uncomfortably high so that they’re cultivating a change in American policy. They know that of course the American public is not generally in favor of the war. So, ⁓ I’m not sure if that answers your question, but, basically

You you’re looking at an environment where they’re talking in order to survive another day and continue to try to shift American opinion and try to get American policy to change. Whereas President Trump is actually trying to get an outcome here that he can, that he can, that can help define his legacy and that can give him a boost in an election that he otherwise has a big problem with.

Tim Rocks Yeah, actually a good question that just come in is on the role of Israel and this obviously Israel played a big role in starting this conflict. Will they just follow the US’s lead here or they have a independent voice or influence on this on the outcome?

Matt Gertken I would say they will mostly follow the US, but not entirely. I think that the, so of course we’re dealing with all these issues. We’re dealing with a lot of narratives, but when we look at the analysis, ⁓ if Israel sabotages the ceasefire negotiations, the oil shock gets bigger. The Republicans get wiped out of Congress. Democrats come in and Democrats are extremely unhappy with Israel, both over Gaza and over Iran. So in other words,

Israel would be shooting themselves in the foot by ushering in, especially the Netanyahu government, would be shooting itself in the foot by ushering in the opposition in the United States if they prolong the economic shock and hurt the president’s election. The other thing is that President Trump himself would be so angry at them that he would cut off some of their defense funding or some of their technological access, which would be harmful to Israel at a time when few other countries or political parties are really willing to take their side.

Tim Rocks Yeah, yeah. Okay, so now let’s let’s assume there is a ceasefire in the next little while. If that happens, how long will it take for things for the oil market to normalize for the straight to go back to something close to the type of flows that it had and for perhaps the you know, the damage infrastructure to allow for free oil exporting?

Matt Gertken Yeah, right. So, okay, first things first. And I know we’ve talked about some of these issues, but as of right now, even though the market, the financial markets are feeling good and optimistic sentiment is improved, the U.S. is declaring a blockade against Iran and there is not yet an agreement. So the market could be way ahead of itself here. But let’s say, like you said, let’s just take for granted that the ceasefire is

continues to be implemented because as of right now, they’re not really attacking as much the two sides. ⁓ So let’s say they continue to, in a literal sense, cease fire, meaning that ships can increasingly transit. Yeah. And so we’re witnessing every day larger and larger numbers of ships transiting, including very large crude carriers. ⁓

Markets will continue to be enthusiastic in that environment. ⁓ And it may take. You know, I’ve heard it likened to ⁓ school children where they’re all walking in a line and they’re going fine as long as they’re walking. But then when you stop them, they all start wandering in different directions and it gets complicated and it gets hard to start them up again. So basically about two months, the best estimates I’ve seen suggested in a two month period.

If the ceasefire is holding, traffic could start to normalize. It probably won’t go all the way back up to where it was. Like we saw with the Red Sea, it didn’t ever fully get back to where it was. So I think there’s going to be some long term, you know, erosion there. But to get to 70 percent of what the previous traffic was might might take a few months. And that’s assuming the best case in terms of no more fighting. Yeah. And some of the

lingering effects in the energy markets are going to be pronounced. mean, not only oil, also natural gas, because for example, the Qatar LNG facility that was attacked, that is estimated to take two years to repair. Maybe it would only take one, but the point is your LNG facilities are, in this case, your production has been more heavily damaged. Could take longer for that to normalize. So there’s going to be a lot of after effects and aftershocks.

But the market will look through a lot of those if the cause is removed. The cause of pain is the shutdown of the straight. So if that cause is removed, then the market will be able to look forward in time and anticipate that over the second quarter, there’ll be a lot of normalization in the traffic.

Tim Rocks Yeah, yeah. Okay, I’m getting a lot of really hard questions to ask you here, but we’ll see how you go. So can you put your crystal ball out and think about what the Middle East might look like in say, one year’s time or two years time? Do you have a thought about what the new normal is in terms of the power dynamics between Israel, the Arabic countries and

Iran and what that looks like.

Matt Gertken Well, okay, if we backpedal a little bit, can, I don’t want to just go over history, but I think it helps to do forecasting. So in the 21st century, which we’re one quarter of the way through, we have seen the destabilization of the region ranging from Lebanon all the way to Pakistan. that’s an important point, meaning that there is a shatter belt. There’s a shatter zone where these

older regimes did not successfully transition from the Cold War. Remember that in this case, many of the leadership in the structures were still Cold War structures. Syria is a good example. Iraq is a good example. Sometimes they were attacked by like the United States attacked Iraq. Now here’s what happened when the US knocked out Iraq. ⁓ it destabilized the region because the balance had been between Iraq and Iran.

And the US in order to withdraw its forces needed to set up a provisional government in Iraq. And we needed to deal with Iran where they were effectively going to have a sphere of influence in Iraq. And that made their Gulf Arab neighbors very uneasy. But we told them, OK, in exchange, you can give us your nuclear program. Or let’s put it this way. You can put a cap on your uranium enrichment. That was the 2015 nuclear deal.

Now, because the Americans were so divided politically at home, that nuclear deal, it was never turned into a treaty. was the Democrats didn’t support it, let alone the Republicans. And then when Trump came into power, he could just tear it up and throw it away because it was an executive agreement. now the problem is that that led to this war that we’re having right now. So when you look at the region, what you’re seeing is an environment where the U.S. periodically, because it has the capability, sheer capability,

under different administrations, different ideologies, continues to intervene in the region, trying to shape the region in a way in which the US and its allies and partners are the dominant players. And the primary risk to that hegemony was the idea of an Iran that was nuclear armed and backed by Russia and China. The problem is that Iran may not emerge stable out of this. They had already, their economy had already collapsed.

They had five million people out in the streets. So you see what I’m getting at. And if Iran collapses or goes into some kind of fragmentation, it’s going to be much worse than Syria because the IRGC is much more capable than the Syrian Armed Forces. So that could be an ongoing civil war. It could last 10 years. Who knows? So what I’m saying is that we’re seeing a fragmentation across this large swath of territory and it forces the Gulf Arabs.

to spend more on defense, it forces them to remain allied with the United States. ⁓ And we, you know, what we can, the only thing we can sort of predict with confidence is that right there. You’re not going to have the, those who believe that Saudi Arabia or others are going to abandon the United States, it would not be a great time to do that. You’ve just seen a huge display of American military power and you’re going to face an even more chaotic region.

Tim Rocks Yeah, yeah, yeah. Okay. So, so in other words, it’s yes, remains complicated for a long time with the does that mean the potential for flashpoints continuously throughout that?

Matt Gertken Yeah, mean, if Iran, so first and foremost, if Iran does the deal that Trump is trying to orchestrate, then you then the Iranian regime actually survives. Yeah. And in that case, we’re not in that case, the Shatterbelt basically, because what that means is that then the Iraqi regime might survive because remember, the Iraqi regime is still extremely fragile. Yeah. But if Iran’s regime is allowed to survive with a new security guarantee from the United States.

then the Iraqi regime is more likely to be stable. And then in fact, the region could somewhat normalize. And what we will have seen is like Mohammed bin Salman and Mohammed bin Zayed, who’ve been trying to develop the region economically. Well, their view might actually prevail because Iran is now sort of engaging and integrating a little bit more in the global economy and there’s not an active war. But ⁓ obviously, all of that depends on this deal succeeding. If the deal fails,

you have chaos in Iran, Iraq will then become a Saudi Iranian battleground, which will destabilize Iraq, and that Shatter Belt effect will be amplified.

Tim Rocks Right, okay. Yep, that’s very interesting. ⁓ So just one quick, another question has come up. So do you think that the US would allow in this negotiation for tolling through the straight and also allow the sanctions and easing of sanctions for Iranian exports?

Matt Gertken Yeah. So, ⁓ first of all, yes, if they give away their nuclear program or if they can come to some kind of nuclear agreement, then that would involve significant sanction relief. And that would be part of that. Basically Trump helped to change the personnel, but he did not change the regime. And then the regime abandoned its nuclear program in order to get sanction relief and then began a new process of economic

engagement with the outside world. And in fact, that would mean that no matter how much people may hate to say this, that would mean that President Trump acted as a catalyst to simply force this ancient regime to, you know, this, this, this, ⁓ it’s really not very ancient, but, ⁓ this older regime to evolve in a way that, doesn’t head toward more conflict.

You know, but, sanction relief would be a big part of that. And also he’s offering sanction relief to Russia as well. And of course people criticize him for that. But on the other hand, if, if, if there is a ceasefire and Russia takes the ceasefire because they get sanction relief, which helps them take an off ramp and transition away from the war, then again, from an investment perspective, these are not the worst outcomes from an investment perspective. That means that the, first of all, that engagement is working.

like that the US is continuing to engage even with its enemies. And second of all, it means that there’s a economic avenue for behavior going forward as opposed to growing conflict or growing military behavior. And the first part of your question, ⁓ I think I might have forgotten the first part.

Tim Rocks No, that’s right. No, I think you have answered it. It’s about whether they’ll be allowed. The toll was the other thing.

Matt Gertken the toll book. So quickly on that, because it’s important. So ⁓ my view on that. So the US has a grand strategy. And what is it? It’s an open door policy everywhere around the world. The US demands access. It gets to go there. And the US just violently opposes the formation of regional empires because a regional empire could exclude the US from that region and also eventually could challenge the US on the global stage. ⁓ Now.

If Iran were able to control Hormuz, you know, constantly and control the flow of traffic in and out and exact tolls, ⁓ that would challenge American grand strategy. So on the surface, we would expect that the Americans would eventually try to prevent that from happening. ⁓ In other words, if President Trump allowed it to happen for six or seven months, well, that would be because of the election. That wouldn’t be because of a change in American grand strategy. But here’s the thing.

Other countries agree with that strategy, no matter how much they may dislike President Trump or they may resent this war or they may resent the fact that he did not confer with his allies. A lot of allied countries have the same policy. They don’t want to be told that they can’t transit the international waterway. And then finally, think about Saudi Arabia. Is Saudi Arabia going to accept a world where they have to ask Iran’s permission to export oil and import food? No. ⁓

they won’t accept that. So ultimately, if the cost of a toll is cheaper than the cost of a war, it’s amazing the kind of ad hoc things that can continue to exist for a long time. But my strong inclination is that the outcome here is a coalition of countries demanding that Iran allow free navigation in the international waterway.

Tim Rocks Yeah, yeah. Now I’ve got a couple of questions on the input, perhaps economics and political implications for, for China and Asia. ⁓ Maybe hone in what you think is the most interesting there. You know, maybe that is on the politics. How China’s clearly playing a role in the in the the background here. ⁓ Does this come does China come out of that better or worse? And we’ll just just any thoughts on that? Right.

Matt Gertken Well, and as always, I say, you we are doing geopolitical analysis here. There’s a certain technique to that, right? So in other words, there’s a lot of opinions, but what we can say for sure is that China is insecure. They’re threatened by the fact that they import over 40 % of their oil from this region and the American Navy is declaring a blockade over the region. Now that may not really be enforced.

And it may only really apply to Iran and a few of its ships. It may never even be implemented. ⁓ But inherently, the whole dynamic is insecure for China. Also, China was not able to build alternative supply chains. They did make big advances on renewable energy, which helps to take some of the edge off of this energy shock. But they did not build the pipelines to Russia and Central Asia that they really needed to build.

to avoid this problem. Since the Ukraine war, they had the option of doing that, but they really haven’t moved as fast on that front as they might have. So they’re insecure, they’re energy insecure, they’re militarily or navally insecure, but also they’re witnessing that this could become a problem in the future when they try to carve out their own sphere of influence when they need to

demonstrate power projection capability. But the United States is still very capable because even if, even if you view this as a terrible strategic blender by the United States, which some do, ⁓ you can’t say that it’s been a military operational failure or tactic because the military operations have been excellent. It’s just that it’s just that apparently on the strategic level, there was a ⁓ overestimation of how to deal with the Hormuz situation. So anyway,

The point is that a more insecure China will triple down on the policies we’ve seen, which is modernizing their military, trying to reform their military leadership, ⁓ trying to build energy security, renewable and through relations with Russia. ⁓ you know, and then ultimately putting pressure on their neighbors so that their neighbors don’t go around thinking that America is the only game in town. In fact, China has to put some counter pressure to show the neighbors.

that they need to take its interests into consideration as well. They can’t just rely on Americans to fly in and do a lot of military moves.

Tim Rocks Yeah, yeah. Yeah, I mean, it does feel like one of the long term perhaps market economic consequences of this, will be much greater spending on energy security, energy infrastructure, energy independence, as well as I guess, on the defence side. So yeah, that’s a good long, long term investment thing.

Matt Gertken Well, and I think you’re right, because first of all, that’s what you buy into in terms that is the investment theme is, ⁓ you know, exploration, ⁓ materials, and the ⁓ and the sort of inputs that go into this behavior that countries are adopting this national security oriented behavior, ⁓ because they need to promote their own industries if they’re worried about more trade shocks and supply shocks, they need to promote the redundancy of industries or like supply chain resilience, they need to promote

Rearmament, as you said. Now, here’s the thing, reduces the global pool of savings that’s available. And we know that this behavior is happening. This is already far gone. Many of you, of course, have even been discussing these themes for a while because these themes have been going for long enough that they’re very solid, but they’re also still in a way gaining momentum in that, you know, in their earlier years. ⁓ So, for example, Japan and Germany both rearming.

even though they were effectively pacifist states, at least to some extent. ⁓ Also their neighbors then rearming. The other element is exploration. If you don’t want to be over reliant on Hormuz, you might then need to take another look at Latin America and Africa. ⁓ And then there’s ⁓ one last thing. If you’re having to spend more of your savings at home and more of your savings securing your own choke point, whether your choke point is Hormuz,

or semiconductors or rare earths, you want to spend to secure your own choke point and you want to spend to have the capability to break through your opponent’s choke point. Yeah. All this behavior means that like the United States is not going to be able to rely so much on its Gulf partners or Japan or China to buy treasuries. There will be a decline in in the savings base.

that has been such a powerful effect scooping up excess American debt.

Tim Rocks Yeah. All right. I feel like we’re running out of time a bit. There’s one other question I think you alluded to at the start. Broader implications for US politics is has Trump lost too much support now? Is this how terminal for is this for at least his influence over the Republican Party and what he can do for the rest of his term?

Matt Gertken In a way, yes, because as hard as it, you people, you know, Trump has been around now on the scene really for 10, 11 years, and it took the media and the academic elite and a lot of international partners a long time to accommodate themselves to the reality that Trump is president and he’s influential. ⁓ Having said that, just as people are getting used to President Trump and not that you can really get used to it, but ⁓ they’re starting to get used to

Well, actually, he is going to start fading. Like every president before him, he’s going to become a lame duck after the midterm election. And he and he’ll fight against that. So twenty twenty seven could be a dangerous year. And I think, in fact, I think we’re already seeing this effect because remember, he only has a two seat majority in the House of Representatives, so he can’t really do much. So in a way, he’s already gridlocked and he’s already doing aggressive foreign policy to try to maintain some relevance. ⁓

But that’s going to continue in 2027. But the point is that that clock is remorseless. That is the clock that shows that within two years he will be exiting. The Republican Party will be having an internal fight over who to succeed him. And basically the world will have to accommodate to whatever comes next, no matter how hard he tries to fight against it. It’s impossible to prevent this.

this overwhelming constitutional force, which is the term limit. And of course, there some who might be thinking right now, well, won’t Trump just ignore term limits? But see, you can’t unless you have control of the military. So he would have to have full personal consolidated control of the military. But remember, we saw in China, Xi Jinping communist country already a dictatorship. It took him 10 years to remove the term limits. So I don’t think it’s going to happen in the US.

I think instead what you’re going to see is that Trump will actually start to lose control of his base and he’ll start to lose control of the narrative. It could create some fissures in the Republican Party and I’ll conclude there because I’m not going to make a prediction yet for 2028. But what I will say is that there’s going to be a big contest over which direction the party should take going forward. And meanwhile, the Democrats will be wide open for a young ⁓ entrepreneur, know, younger and more entrepreneurial.

figure to emerge.

Tim Rocks Yeah. Well, like, great. Thanks very much, Matt, we should leave it there. We’ll continue to watch your observations and read your reports. And sounds like it’s going to be complicated for a long time. So we’ll need to get you back on.

Matt Gertken Okay, well I’ll take that as a good sign. Thank you very much.

Tim Rocks Okay, thanks a lot, Matt. See you.