8. iWar3 – Mapping the Players
African Warlords
US Tea Party
Authoritarian
Democratic
Extremist Legit Govt
GOP/Dems
Al Qaeda
Taliban
China
Government
Occupy
Wall Street
Latin America
Drug Cartels
Iraq
Government
source: HiddenLevers, Foreign Policy
ISIS
9. Conflict Contained
Iran + US + Syria
stable Iraq good
for all three
recent uptick in
Oil burns off
US involvement
only diplomatic
oil fields NOT
in hands of
ISIS extremists
Iraq govt
more inclusive
or replaced
sources: HiddenLevers, New Yorker,
$95usd
Oil = 95usd
iWar3
Civil war,
not anti-US
insurgency
10. US Strikes Raise Tensions
firepower will
not fix Iraq
situation
Overt US actions
ruin Iran detente
Arab Spring
113usd high
Iraq matters
more than
Russia Ukrazy
Oil = 115usd
sources: HiddenLevers, New Yorker
$115usd
Israel will not
get involved
11. War Engulfs Gulf
Iraq govt gone
failed state
Oil all-time high
$135usd
look for burning
oil fields
Easy tell
Baghdad
in ISIS control
sources: HiddenLevers, Fox News NY Times
Lebanon
civil war
15 years
Oil = 150usd +
distinct from
Iran nuclear
threat
$135usd
12. Scenario: Middle East TurmOIL
Good
conflict
contained
Bad
US strikes
raise tensions
Ugly
war engulfs
gulf
If the conflict remains
in Syria and outside
of major Iraqi oil
fields, the market
eventually forgets.
Absent further risk to
oil fields, US strike
only raises oil risk
premium mildly.
If oil fields in
southern Iraq or
Kurdish-Iraq are set
aflame or taken
offline, oil prices will
spike substantially.
14. Middle East Oil Shocks – Never Forget
sources: HiddenLevers
Levers OPEC Embargo
Iran
Revolution
2011 Arab
Spring
iWar1 iWar2
Oct ‘73 - Mar ‘74 Apr ‘79 - July ‘80 Jan ‘11 - Feb ‘12 July ‘90 - Oct ‘90 Mar ‘03 - July ‘08
Oil +135% +166% +30% +95% +335%
S&P -17% +20% +5% -15% 46%
Gold +76% +182% +29% +10% +179%
10 Year Rates +11% +21% -44% -8% 0%
USD Index - - - - -29%
+135% +30%
15. Middle East Oil Shocks – iWar1 + iWar2
sources: HiddenLevers, CNN
iWar1 1990-91
- spike: US invaded Iraq
- retreat: Iraq pushed out of Kuwait
iWar2 2003-08
- spike: ME tension + rising
speculation + USD down
- retreat: Iraq drilling ban ends +
oil bubble pops + financial crisis
+95%
+335%
16. US Withdrawal from Oil Addiction
sources: US Dept of Energy EIA, USA Today
Shale oil explosion is driving US oil
production back toward all time
high
Oil imports have fallen below 9M
bbl/day from peak of 15M
Production has risen so much that
White House is ending ban on US oil
exports
17. US Withdrawal from Oil Addiction
source: Our Finite World , Oil & Gas Journal
Total US miles driven
down 3% from 2007 peak
while GDP up 7%
Less driving + better mpg
oil demand down 15%
from peak
US fuel economy rising
after being flat for
decades
New govt standards
require 54 mpg for 2025
model year
18. Iraq + Oil Status – Recap
US + Iraq both Oil Exporters oil shock history = history
US oil addiction over
--> better policy decisions
burning oil fields move the needle
21. Good Oil Exposure – High Oil Correlation
Get investment ideas across industries, ranked by Oil Beta
22. Macro Picture – Global Deflation Risk
sources: HiddenLevers, Economist
technology automation commodities sinking
first world baby bust decreasing birth rate
sluggish GDP growth
So far, deflation trumps
geo-political worries
23. HiddenLevers Use Cases
scenario
Oil Prices
scenario
Global Deflation
iWar3 – Iraq + Oil Status
macro theme
High Oil Beta
Funds
data center
Commodities
scenario
Middle East
TurmOIL
24. • Universal Search
• Core Model Improvements – Monte Carlo
• Annuities Support
• Black Diamond Integration
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