The Architecture of a Wrong Worldview
There is a particular species of intellectual failure that is especially costly: the assumption so widely shared it ceases to be examined. For thirty years, global investing and policymaking rested on precisely three such assumptions — about energy abundance, American naval supremacy, and US benevolence as guarantor of the global trading order. Louis-Vincent Gave, writing in the aftermath of US strikes on Iran and the closure of the Strait of Hormuz, delivers a blunt verdict: all three are now rubble.
"The events of the past five years have shattered these assumptions." He means it structurally, not cyclically. This is a regime change in the operating assumptions of global capital.
The first assumption — that US Treasuries could be "transformed into energy at a moment's notice" — collapsed when Western governments froze Russian reserves. That unilateral act signaled to every central bank on earth that dollar-denominated reserves are a conditional promise. The rational response, which China grasped and US allies did not, was to accumulate hard assets rather than financial claims.
The second assumption, American naval dominance, was broken when the IRGC closed the Strait of Hormuz. Gave's observation is pointed: "even the most modern and fearsome navy in history is now neutered by the threat of cheap drones." The third — that the US was a "benevolent hegemon with an embedded interest in maintaining the global trading system" — absorbed what Gave calls a "body blow on Liberation Day and another severe punch to the face with the Greenland saga."
South Korea vs. China: Strategic Clarity on Display
Gave's most devastating illustration is arithmetically simple: South Korea entered the Iran crisis with 10 days of natural gas in storage. China entered it with 50. US allies "gladly assumed the opposite" — that Treasuries were safe, sea lanes were open, American protection was guaranteed. Markets priced that complacency faithfully: energy fell to roughly 3% of the S&P 500, and Exxon Mobil was ejected from the Dow. "For most investors and in most portfolios, energy became an afterthought."
Gave had argued in his 2021 book Avoiding the Punch that the correct default portfolio in a structurally inflationary world was 60% equity, 20% precious metals, and 20% energy. He was early. He was right.
The Selfish Hegemon
Gave gives serious analytical weight to a scenario most commentators refuse to model: the US declares victory and comes home, leaving the Hormuz mess for Gulf states to manage. Trump's remark aboard Air Force One — "Maybe we shouldn't even be there at all?" — is treated not as rhetoric but as policy signal.
The logic is coherent. The US is broadly energy self-sufficient; the Western Hemisphere is food self-sufficient. Washington could re-enact export controls on energy and food, impose domestic price controls, massively ramp coal production, and extend the implicit offer to the rest of the world: "Hey. You want cheap and reliable energy for your factories, assembly lines, data centers? Come build those in the USA!" Gave notes that Trump's willingness to break campaign promises is now established: "America's farmers and oilmen could thus soon experience the same levels of betrayal as 'America First' voters."
The growing WTI-Brent spread, he argues, is the futures market beginning to price exactly this scenario — what he calls "a Suez moment of sorts," structurally bearish for the dollar and damaging for US assets broadly.
The Energy Investment Quandary
Even granting that energy needs a larger portfolio allocation, the question of which energy is genuinely treacherous. Gave identifies two interlocking constraints.
First, windfall taxes. In Europe, that means special levies on profits. In the US, price controls and export restrictions. China is already imposing restrictions on fertilizer, jet fuel, and diesel exports. Gave concludes it "may thus be safer to own energy producers in Canada than in the US, in Australia than in China, and in Brazil and Colombia rather than in Western Europe."
Second, and more originally: uncertainty is simultaneously driving prices higher and preventing the supply response. Walk a mile in a CEO's shoes, Gave suggests — oil prices warrant drilling, but the war could end tomorrow and crush prices, governments could impose controls, or European tax authorities could confiscate the margin. "Growing political uncertainty discourages investment, which in turn means the adjustment mechanism from higher prices to higher production may be dramatically delayed in the current cycle."
Into this void steps coal. Korea, Taiwan, and Japan face a stark political binary: brownouts today or climate concerns tomorrow. "For elected leaders, the handy solution to the above predicament will be to follow China's lead and embrace the burning of coal." Coal names globally have already outperformed the XLE ETF over the past year. The problem: ESG mandates have made coal "about as popular as roast suckling pig at a bar mitzvah" — which is precisely the opportunity for investors unconstrained by those mandates.
Refiners, Data Centers, and the Trump-Xi Wild Card
Refiners may be the cleanest asymmetric play in the current environment. Crack spreads were already elevated before the Iran war for structural reasons: EV transition killed refinery investment; Russia-Ukraine brought deliberate targeting of refining infrastructure; and China's emergence as the world's largest auto exporter — 8.3 million vehicles in 2025, most of them ICE sold to first-time buyers in emerging markets — created demand for gasoline and diesel that "few had anticipated." With refineries at Ras Tanura, SAMREF, Kuwait, Haifa, and Ashdod now hit, "even if the Strait of Hormuz reopens tomorrow, crack spreads will likely remain wide."
On data centers: deals struck early in Trump's presidency to relocate AI infrastructure to Qatar, Saudi Arabia, and the UAE — cheap gas, friendly regimes — are now obsolete. The new premium is on political stability, pointing toward Quebec hydro or US domestic capacity. Big tech building stateside will need to build its own generation capacity alongside, making electricity cost a central political issue. That forces the solar question — and who makes solar panels at scale is, overwhelmingly, China. This creates the bridge to a Trump-Xi deal: RMB revaluation, Chinese solar exports, rare earth flows, CATL and BYD factory approvals in the US, relaxed sanctions on Russian and Iranian oil, Chinese agricultural purchases. Both presidents arrive at that table needing a win.
The Death of the Balanced Portfolio: Final Accounting
Since hostilities began February 28, equal-weighted balanced funds have returned -8.8% in Europe, -7.1% in Japan, -5.3% in the US, and -3.6% in China. Over five years, balanced strategies have underperformed US core CPI — up 24% — by as much as 40% in the case of Japanese assets. The verdict is unambiguous: "the balanced portfolio is dead and the true hedge to equity positions is no longer fixed income, but energy."
Chinese government bonds, notably, diversified equity risk when no other major bond market did — because China is "the only major economy with no meaningful inflation problem" and "one of the few major economies to have followed a rational, and consistent, energy policy over the past decade."
"Portfolio managers are not paid to forecast, but to adapt." No one can call the Middle East outcome. The task is resilience across scenarios.
Key Takeaways for Advisors and Investors
1. Retire the 60/40.
OECD bonds no longer hedge equity risk in a structurally inflationary world. The empirical record across Europe, the US, and Japan now confirms what theory argued.
2. Energy is the new portfolio hedge.
A 3% energy weight in a portfolio reflects a world that no longer exists. Gave's target is 20% — treat it as structural, not tactical.
3. Geography determines investibility.
For energy equity, favour Canada, Brazil, and Colombia — jurisdictions where windfall tax and price control risk is lower than in the US or Western Europe.
4. Refiners are scenario-resilient.
Crack spreads stay elevated whether the war ends tomorrow or runs for months. This makes refiners among the few genuine "heads I win, tails I don't lose" positions available.
5. Coal is the ESG blind spot.
The energy trilemma facing Japan, Korea, and Taiwan has one fast solution. Investors without ESG constraints should be in coal miners and the rail infrastructure that moves them.
6. Revisit China.
Chinese bonds worked. Chinese equities, solar, batteries, and rare earths sit at the centre of every probable Trump-Xi deal structure. The "uninvestible" label has cost investors dearly.
7. Latin America is the quiet winner.
Energy exports from Brazil, Guyana, Colombia, and Argentina; metals production in Chile, Peru, and Mexico independent of Middle Eastern supply chains; real rates that can still fall. Banco Central do Brasil was the only major central bank to cut rates during the crisis. Note accordingly.
*Source: Louis-Vincent Gave, "Shattered Assumptions And The Energy Quandary," GaveKal Research, March 23, 2026. *
