The US-Israeli strikes on Iran and the killing of Ayatollah Khamenei have sent markets scrambling for the familiar playbook: oil up, gold up, risk assets down. The short-term reaction is Pavlovian, as Andrew Hunt puts it in this weeks What We Are Working On video. No-fly zones, tanker insurance withdrawn, the Strait of Hormuz effectively disrupted. But beneath the obvious headlines, Hunt sees a more nuanced picture emerging — one where central bank liquidity may paper over the immediate shock, even as deeper fragilities remain.

We assign a 35–40% probability to an extended air campaign lasting one to three months, making it our most likely scenario. Under this path, oil settles in the $90–110 range, the S&P 500 gives back 5–10%, and inflation pressures rebuild. A rapid de-escalation via Omani mediation (20–25% probability) would see oil spike to $85–95 then retreat, with equities recovering within a month. The tail risks — full regional war or prolonged regime change — carry lower probabilities but far more severe consequences, including Brent at $120–150 and potential global recession. This is all quite speculative as no-one really knows but perhaps out helps to think about different states off the world and put some numbers on them. Hunt’s central message, however, is that central banks already have their playbook ready. The Federal Reserve, already conducting quantitative easing at pandemic-era scale, is likely to ramp bond purchases toward $100 billion a month. The US Treasury may release cash from its general account. The People’s Bank of China continues $100 billion monthly in foreign exchange intervention. European liquidity growth is at its fastest in nearly a decade outside the pandemic. Combined, Hunt estimates a quarter of a trillion dollars of global liquidity injection over the next four weeks. That should be enough to stabilise markets after any initial sell-off and may even produce a tradeable rally.

But the medium-term picture is less comforting. Before the strikes, Hunt had already flagged mounting stress in private credit markets, a reversal of Chinese and European capital flows into the US, and an AI investment boom that was consuming capital without yet generating revenues. Higher oil prices and geopolitical uncertainty make foreign investors even less likely to fund America’s current account deficit — a vulnerability that was already emerging. Credit spreads were widening and private credit landmines were detonating before a single missile was fired.

For Australian investors, however, Hunt sees something closer to resilience. Australia’s population growth of 1.5–2% annually is creating genuine demand-side inflation that will keep the RBA relatively hawkish even as other central banks ease. He draws a parallel to German reunification in the early 1990s: an influx of consumers stressing productive capacity, with supply-side catch-up taking years. The result is an economy that marches to its own beat — higher rates, a firmer currency, and a relatively stable picture that international investors can understand. In a world full of AI driven uncertainty and geopolitical unknowns the Australian economy, underpinned by reliable population growth, is something of a known quantity. Sometimes boring is good.

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