As President-elect Donald Trump announced his nominees for the top positions on his national security and foreign policy teams, one theme stood out: A confrontational approach in relations with Iran and a high degree of willingness to utilize military action against the Islamic Republic. Despite Trump’s extremely hawkish cabinet-level selections in his foreign policy and national defense teams, financial markets are badly unprepared for a potential war with Iran.
In this article, I will expand on this video which reviews each of Trump’s most important picks in his national security and foreign policy teams in order to gain insight on what Trump’s policies toward Iran (and their ongoing conflict with Israel) will mean for global financial markets.
The Cabinet Picks and Their Stance
Trump’s nominees form a team that is overwhelmingly pro-Israel and hawkish on Iran. Key figures include:
- Brian Hook: Head of Transition Team, State Department. Hook is widely seen as an Iran hawk. He oversaw the design and implementation of the Trump Administration’s policy of “maximum pressure” toward Iran.
- Mike Waltz: National Security Advisor. Just a few weeks ago, Waltz publicly suggested that Israel’s response to Iranian missile attacks had been too weak and that he would have favored attacks on Iranian oil export facilities, and Iranian nuclear facilities.
- Elise Stefanik: UN Ambassador. Arguably the most pro-Israel member of the US Congress, Stefanik can be expected to aggressively defend any future Israeli military actions against Iran and its proxies in the region, such as Hezbollah and the Houthis of Yemen.
- Mike Huckabee: Ambassador to Israel. Huckabee is strongly pro-Israel, denying the existence of “Palestine” and supporting West Bank settlements, seen by many as violating international law. He backs annexation of “Judea and Samaria (West Bank), the “Greater Israel” project, and recently stated West Bank annexation is possible under Trump.
- Pete Hegseth: Secretary of Defense. Strongly pro-Israel and a hardline Iran hawk, Hegseth criticized Trump’s assassination of IRGC General Soleimani as insufficient, urging strikes on Iran’s nuclear sites, infrastructure, and ports. He supports Israel asserting sovereignty over the West Bank ("Judea and Samaria") with annexation as the goal and backs building the “Third Temple” on Jerusalem’s Temple Mount.
- John Ratliff: CIA Director. Ratcliff is on public record, saying that Iran cannot be deterred diplomatically. In his own words, Ratcliffe says that the Iranians can only be deterred is to “put a foot on their throat“.
- Marco Rubio: Secretary of State. Rubio argues diplomacy cannot stop Iran from getting nuclear weapons. He advocates military action and supports regime change. A strong Israel ally, he backs annexing the West Bank ("Judea and Samaria").
These choices suggest that Trump is actively preparing for a potential war against Iran – a war that US and global financial markets are woefully unprepared for.
Two Perspectives on Trump’s Strategy
The fact that Trump is preparing for a war with Iran does not mean that he intends to go to war with the Islamic Republic. Trump’s selections of notable Iran hawks can be interpreted in two ways.
- Peace Through Strength. One interpretation of Trump’s approach is that these personnel choices are designed to project strength and deter Iran, possibly avoiding war through a show of force. By signaling readiness, Trump might aim to negotiate a favorable deal without actual military conflict.
- War as a Fait Accompli. A contrasting view is that the decision for military action has already been made—either by Israel or jointly with the U.S.—and Trump is assembling a team to execute this war effectively. Under this scenario, Trump’s selections for his foreign policy and national defense team are signaling a willingness to strongly back support a prior decision to strongly back Israel in a war against Iran.
Market Implications
The readiness of Trump’s team for potential conflict sharply contrasts with the complacency seen in financial markets. Equity valuations are near record highs, and implied risk premiums are at historical lows, reflecting minimal perceived geopolitical risk. Similarly, oil sector equities trade at historically low valuation multiples relative to the broader market, signaling little expectation of supply disruptions.
As described in detail here, a war between Israel and Iran materializes, it would likely trigger significant global consequences:
- Oil Market Disruption: A major war between Iran and Israel could severely impact oil supplies, leading to a major increase in global oil prices.
- Global Recession: Economic shocks from such disruptions might result in a worldwide economic downturn.
- Market Declines: Equity and bond markets could see sharp corrections, particularly given their current elevated levels.
Are Markets Underestimating the Risks?
The incoming Trump administration has clearly been selected in preparation for a potential military conflict with Iran. However, global financial markets appear to be distinctly unprepared for a military conflict with Iran. As a result global financial markets are unusually vulnerable at the present time, as there is a massive disconnect between actual risk and the risk premiums reflected in financial market valuations and prices.
Conclusion
Whether Trump’s appointments represent a strategy to avoid war or a belief that one is likely, President Donald Trump’s selections for the top positions in his foreign policy and national security teams indicate very clearly that the incoming Trump administration is clearly preparing for a war with Iran.
Is your portfolio prepared?