The Frontier

Luke Gromen, founder of FFTT LLC, a macro-thematic investment research firm, aggregates public data to identify economic bottlenecks, which are situations that cannot continue due to constraints.

Gromen argues that a prolonged closure of the Strait of Hormuz would be fatal to the global and US economies due to critical shortages of oil, gas, sulfuric acid, fertilizer, and rare earths.

Gromen predicted a nonlinear breakdown in supply chains by mid-April following the conflict, noting that even a single missing component can halt product manufacturing in a globalized, highly levered world.

Even if the Strait of Hormuz reopens quickly, physical constraints in restarting plants, like those for aluminum, mean serious disruptions would continue for months, worsening daily if closure persists.

Gromen criticizes policymakers' and markets' complacency regarding supply chain breakdowns, suggesting a cynical motive to maintain market calm and avoid seeking unfavorable peace terms for the US.

The initial minimal market reaction to the Strait of Hormuz closure was short-lived, with oil prices rapidly exceeding $110 a barrel before policy interventions.

Secretary Bessant unsanctioned Russian and Iranian oil in sequence after prices surged past $110, an action Gromen describes as a desperate attempt to loosen supplies despite strategic conflicts.

Gromen suggests politically connected entities may have front-run oil markets, citing a $500 million short position after a Trump tweet about Iran and a $950 million short position before a ceasefire announcement.

The "blockade of the blockades" by the US was likely an optics move to manage perceptions and provide leverage, as strategically, Iran was winning by simply maintaining the closure.

Gromen believes China's potential cutoff of rare earth exports to the US ended the war, as the US military cannot produce interceptor missiles without Chinese rare earths.

Dr. Murphy noted that the US is a net importer of crude oil, refuting the idea that it could easily replace supplies cut off by a Strait of Hormuz closure.

Gromen asserts China holds leverage over the US due to dominance in rare earths and electrical equipment, resulting from a patient long-term investment strategy while the US engaged in unproductive wars.

China viewed the US response to the 2008 financial crisis, particularly quantitative easing and devaluation, as a 'financial attack' on their US bond holdings.

China ceased buying US bonds in late 2013, instead recycling dollars into hard assets like mines and ports globally, and committed to dominating future industries through its Made in China 2025 initiative.

Gromen notes that a quorum of US military components are made in China, creating a strategic vulnerability if the US requires China to produce missiles aimed at itself.

Luke Gromen argues the weaponization of the dollar through sanctions, like kicking Iran out of SWIFT in 2012, has strategically backfired by pushing Russia and China together to develop alternatives.

China responded by launching its China International Payment System (CIPS) by 2015, which is more comprehensive than SWIFT, handling messaging, settlement, and full payment services.

China has established offshore yuan clearing banks in major gold hubs globally (London, Switzerland, Dubai, Singapore, Hong Kong) and has tested the e-yuan in oil and gold markets.

Gold has already supplanted Treasuries as the largest reserve asset for global central banks on an adjusted basis, signifying a shift away from dollar-denominated reserves at gold's current value.

To obtain yuan for trade, countries must sell dollars, buy gold, and then sell that gold to China for yuan, a system already in place for transactions with nations like Iran.

For four of the past five months, non-monetary gold has been the United States' largest single export, primarily destined for China, Hong Kong, Switzerland, and Gulf countries.

Gromen suggests this gold outflow indicates China may have already activated a switch, demanding gold for critical goods like rare earths instead of dollars or Treasuries.

Gold limits government and central bank power, an insight famously shared by Alan Greenspan before his tenure as Fed Chair, as gold prevents unlimited debt and financialization.