Professor Steve Hanke explains the UAE’s May 1st OPEC departure through three converging factors: long-term expectations of declining real oil prices (incentivizing faster depletion under his 1987 optimum production model), Saudi-UAE animosity, and the “straw that broke the camel’s back”—the US-Israeli war on Iran creating insecure property rights in the Gulf. He calls the Trump administration “a gang that can’t shoot straight” since OMB Director Russell Vought admitted having no estimate of war costs, and reveals via the February 11 White House meeting that CIA Director Radcliffe called Mossad chief Barnea’s regime-change presentation “fanciful” while Secretary Rubio called it “bullshit,” yet Trump went ahead anyway. Hanke maintains gold remains in a secular bull market targeting $5,000-$7,000, dismisses dedollarization as “a lot of hot air” since only 14 currency kings have existed in 2,500 years, and predicts the Fed will hold rates steady while inflation stays elevated due to accelerating broad money supply growth from commercial banks (which produce ~80% of US broad money).
UAE optimum production model: Hanke’s 1987 model dictates that if real oil prices are expected to fall, you deplete reserves faster; if property rights become insecure, the higher discount rate on future revenues also incentivizes faster current pumping. Both factors now apply, making OPEC’s quotas intolerable for the UAE.
Iran wins regardless of military outcome: Hanke argues Iran will control the Strait of Hormuz and cast “an enormous shadow over the Gulf” regardless of war propaganda, while Russia benefits from supplying substitutes (oil, aluminum, helium, fertilizer ingredients) and China wins biggest geopolitically as countries pivot toward BRICS. The US dollar is “king” with 70% of paper dollars held outside the country since the US is the only nation that has never canceled its currency.
Gold trajectory unchanged: Currently around $4,500, Hanke maintains his $5,000-$7,000 target with the secular bull intact, noting the recent pullback is normal consolidation after the rapid rise above the 200-day average. Central banks have backed off but China is back buying “big time.”
Inflation stays out of the bottle: Hanke insists “inflation is always and everywhere a monetary phenomenon,” not an oil price thing, with commercial bank loans rising rapidly and capital/reserves giving banks more firepower. Strong bank earnings reports two weeks ago signal more inflation ahead, not the 2% target.
Fed balance sheet shrinkage proposal: Hanke and Matt Sekerke published a Wall Street Journal piece advocating moving Fed assets into a special resolution fund on the congressional side (similar to a sinking fund) to shrink the balance sheet “almost overnight” rather than the current pace which would take ~10 years. He says the proposal is “still on the stove bubbling away” with the White House.
Martin Armstrong argues Western leaders lack any strategic thinking and care only about winning the next election, citing his 1981 Treasury meeting where officials calmly accepted doubling the national debt because “we’ll be paying back with cheaper dollars,” and noting interest expenditures now exceed military spending. He warns his computer model forecasts conflict escalation from June onward across the Middle East and Europe, with the EU rigging elections (Scotland, Italy, Romania, Hungary) to remove obstacles to war with Russia, and predicts a sovereign debt crisis potentially starting in the Middle East as Gulf States borrowed heavily during COVID’s $6.50 oil and now can’t sell oil to service debts. Armstrong identifies Netanyahu (educated in Philadelphia, connected to neocon founder Irving Kristol) as a dangerous figure operating on end-times prophecy, predicts the US will enter recession into 2028 while Europe enters depression, and forecasts a major political revolution around 2032 as people realize “the system doesn’t work.”
February 11 White House meeting reconstruction: Armstrong corroborates the same meeting Hanke described, where Mossad chief Barnea presented decapitation strategy claiming the Iranian regime would fall in days, CIA Director Radcliffe called it “fanciful,” Secretary of State Rubio called it “bullshit,” and only Defense Secretary Hegseth backed Trump’s eventual decision to proceed. Armstrong compares it to Dick Cheney predicting weeks for the Iraq War that lasted eight years.
Sovereign debt crisis starting in Gulf: COVID-era borrowing at $6.50 oil left Gulf States vulnerable, with Iraq the worst case where China lent heavily under contracts that transfer oil assets on default. Iran’s strategic attacks on Gulf production prevent debt service since “if you can’t sell the oil, you can’t pay the debt”—UAE already requesting swap lines shows existing stress.
Strait of Hormuz triple threat: Beyond oil, the strait carries fertilizer and crucially sulfuric acid (needed to mine copper and nickel), plus undersea cables connecting east-west banking. Armstrong reveals the UAE banking system went down for seven days during Iranian missile strikes on the $30+ billion AI center hosting Amazon and OpenAI, with most media not reporting it.
EU democratic engineering: The EU rigged elections in Hungary to remove Viktor Orban (the only leader blocking war with Russia under unanimity rules), then Ursula von der Leyen moved to change the rules so single countries can no longer block EU decisions. Armstrong calls NATO “a retirement home for neocons” advancing the 1991 Wolfowitz Doctrine of suppressing all global rivals.
Three types of inflation distinction: Armstrong identifies currency inflation (devaluation effects), demand-pull (speculative), and cost-push (rising production costs), arguing the current environment is cost-push from energy/fertilizer disruption rather than demand-driven. He notes Europe consumes 50% of GDP via government versus 35% in the US, explaining why European growth runs at half the US rate and why the EU has “no hope whatsoever of recovering or ever competing.”
Matthew Piepenburg of VonGreyerz argues silver is in a “perfect setup” with five consecutive years of 200-million-ounce supply deficits, claiming the January Silver Friday margin hikes were a forced bank bailout when COMEX registered silver versus open interest hit a 7-to-1 ratio and 20% of available silver left in a single week. He predicts $300-$400 silver as a question of when not if for patient long-term investors, while explaining that gold’s failure to spike during the Iran war reflects forced selling—Turkey selling 10% of gold holdings via Swiss swaps to buy higher-priced oil, Saudi Arabia and GCC states selling 50+ tons to import food and products, plus levered ETF tourist liquidations and hedge fund algorithmic stop-losses. He warns the bond market is “everything,” with rising yields acting as “shark fins” threatening a credit crisis, and identifies the Harvard Endowment taking billion-dollar loans against illiquid private credit holdings plus $15 billion in gated private credit redemptions as eerily reminiscent of pre-2008 subprime conditions.
Silver supply-demand mismatch: Five straight years of 200 million ounce supply deficits, 70% of silver is byproduct-mined (cannot be increased by mouse-click), and lease rates spiked above 8% versus the historical sub-2% norm Piepenburg saw across his career. He measures silver returns in barrels of oil and real estate rather than fiat, expecting record compression in the gold-silver ratio (currently elevated, target 20s-30s or below).
War’s forced gold selling explanation: Turkey sold 10% of gold via Switzerland swaps for higher-priced oil after the strait disrupted shipping, Saudi Arabia and GCC nations sold 50+ tons not for oil but to import food and products, while levered 2-3x ETFs that “rebalance daily” caused massive liquidations and shadow banks tracking identical algo signals hit stop-losses simultaneously.
Petrodollar war thesis: Piepenburg frames Iran as fundamentally an “oil war, dollar war, US Treasury war, petro dollar war”—China gets 45% of its oil through the strait, so squeezing Iran also squeezes the US’s biggest economic adversary. He cites Kissinger’s “to be a friend of America is fatal,” noting Iran needs only to endure long enough to crash the global economy and weaken (not end) dollar hegemony.
Bond market as everything: With US public debt at $39-40 trillion, a 10-year yield breaking 4.6%-5% would replicate the 2023 banking failures (which were really bond market failures). Even before the war, US interest plus Social Security plus Medicaid was running 20% above incoming tax receipts, while the Japanese carry trade dies as JGB yields rise after 30 years near zero.
Pre-2008 echoes in private credit: Wall Street is repackaging subprime private credit loans into asset-backed securities (under Fed investigation), the Harvard Endowment is borrowing billions because it can’t sell its private credit book, $15 billion in gated private credit redemptions exist, and Moody’s reports private credit/equity funds are now borrowing to manage liquidity needs. Piepenburg cites a Buffett indicator at record highs, cyclically adjusted PE at 39, Palantir at 300x P/E, and notes insiders have been dumping since June 2024.
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