Apr.29

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Wars Have Consequences

It turns out, when you go to war, that has an impact on many things, usually in a bad way. Who knew? Well, besides everyone who is not Donald Trump or Secretary of Defense Pete Hegseth, that is.

The Iran War could end tomorrow, or could still be going when Trump leaves office. And whatever the case may be, its impacts will be many and varied, and will not fully reveal themselves for years, or maybe decades. That said, we thought we'd run down a few of the things that are already becoming apparent:

• Gas Prices: We've beaten this drum many times already, and we will surely beat it many times more. There have been a couple of pretty big developments on this front, though, so it's worth mentioning now. First, gas prices hit a 4-year high yesterday, On the day the Iran War began, the U.S. average was $2.98/gal. Yesterday, it was up 40%, to $4.18/gal. It was $4.23/gal. this morning. Second, things are likely to get worse. Between the Iran War and the greater demand that comes during the summer months, gasoline futures also reached a 4-year high yesterday. It takes a few weeks or a month for that to percolate down the line, so $5/gal. by June 1 is a real possibility.
  
  
• The Military: When people sign up to be soldiers these days, they may not expect to get shot at. And they particularly don't want to get shot at in a war that does not seem to serve any purpose. So, despite the administration's claims to the contrary, the military establishment is in the process of taking a big hit right now. The number of careerists filing for retirement has doubled compared to this time last year, and the number of soldiers deciding not to re-enlist is way up. Also way up is the number of soldiers looking for an early discharge for medical or other reasons. And the departures skew towards soldiers in highly skilled specialities, like cyber, AI, and logistics. It turns out that in the private sector, they can avoid being shot at in an aimless war, not have to work for the crazy person who runs the Pentagon, and earn a salary that is, on average, 50% higher than their military pay. Not a hard call, we would say.
  
  
• Electronics: Saudi Basic Industries Corporation (SABIC) produces 70% of the world's purity polyphenylene ether (PPE). PPE is a key component in circuit boards. Iran bombed SABIC in response to being attacked by the United States. SABIC is not back online yet, which means that electronics manufacturers are now facing PPE shortages. Prices are up 40% already, and that will eventually travel down the line and make electronic goods more expensive.
  
  
• Solar: If there's any development that captures the Iran War in a nutshell, it's this one. The instability in the petroleum markets has sparked renewed interest in solar energy. The world's leading producer of solar panels is China. And in March, China had the biggest month it's ever had in terms of solar panel sales, to 68 GW of capacity shipped abroad. To put that in context, that is more than double what China sold in February, the month immediately before the Iran War. For those keeping score at home, that is movement toward green energy (which Trump hates), to the benefit of China (which Trump also hates). And the Chinese have been preparing for this moment; they have the capacity to more than quadruple solar panel production, if and when that is needed.
  
  
• Mortgages: The people and entities who buy government securities expect big-time inflation later this year. So, they are demanding higher rates of returns for treasury bills. That reverberates down the line, and affects the interest rates that banks charge customers. Yesterday, the average rate on a conventional 30-year home loan rose to 6.46%, which is the highest it's been in over a year. And if current trendlines hold, mortgage rates will reach a 20-year high in just a month or two.

It's not a secret that the impacts of wars are many and varied, but it helps to provide a few specifics to give a sense of things. (Z) has a lecture on the long-term consequences of the then-new technologies that played a major role in the Civil War. Perhaps he will write that up sometime soon as a different way of making this same point. (Z)