As I sat down to write this month’s publication, I felt it was necessary to address the latest developments around the U.S.-Iran situation. The current framework appears unlikely to deliver the two hardest U.S. objectives: meaningful regime constraints and the removal or destruction of Iran’s enriched uranium. I’m not confident the current peace framework will deliver either. As I noted in Energy Shock 2, it was increasingly likely Trump’s only realistic option would be to walk away—and that appears to be the path the administration is taking.
More importantly, the implications matter. The world is now clearly in an inflationary boom cycle.
Looking back at the past six months of these publications, one theme has been consistent: inflation is sticky. War is inflationary. Peace is supposed to be deflationary. This time might be different. While successful long-term price stability could eventually prove disinflationary (especially with AI), the near- and medium-term forces—precautionary stockpiling, reconstruction, defense rearmament, and the sheer scale of AI infrastructure—point to sustained upward pressure on prices and capital costs.
Here are just a few recent headlines illustrating how embedded inflation has become in daily life:
Why Concerts Keep Getting More Expensive
Apple hikes prices as AI fuels inflation
Business Group on Health Survey: 9% Health Care Costs Increase for 2026
42% of homeowners say insurance costs have gone up ‘a lot’, survey finds. Here’s why
Restaurant chains are in a losing battle with inflation
Outside of some weekend flare-ups, a framework for de-escalation in the Middle East has been reached and the Strait of Hormuz is reopening. Yet inflation feels more embedded than ever. Why? Here’s my take.
Energy Security & Rebuild
Assuming the Strait of Hormuz continues to stabilize in the coming weeks, nations dependent on Gulf energy will almost certainly reevaluate their policies. The first step will be replenishing oil and natural gas reserves drawn down during the crisis (including the U.S. Strategic Petroleum Reserve). The next step will likely be increasing stockpiles “just in case” something similar happens again.
These same countries will also accelerate alternative energy development—solar, nuclear, and yes, coal where resources allow. New pipelines bypassing the Strait will be needed, along with expanded Saudi west coast ports and rebuilding of damaged Qatari infrastructure. We’re talking billions in new energy outlays that won’t be available for other uses.
Commodities & “Just in Case” Stockpiling
The developed world avoided a deeper energy shock thanks to existing reserves. Those buffers now need rebuilding. It seems logical that countries and companies will stockpile key commodities more aggressively going forward—oil, natural gas, fertilizer, and others—given that drone warfare has turned every narrow chokepoint into a potential vulnerability.
This same logic applies to power grids. Countries that breathed a sigh of relief when the Strait reopened will still ask: what if it closes again? Expect accelerated capital investment in alternative energy and grid hardening.
U.S. technology companies are already reevaluating data center projects in the Middle East. I expect many of those to be canceled or scaled back, with new capacity announced in the Western Hemisphere instead. After all, Trump has emphasized securing the hemisphere (Cuba being the latest example). Tech firms originally sited these behemoths near cheap energy; security and reliability now carry greater weight.
The Data Center Supercycle
McKinsey estimates global data center buildout will require roughly $6.7 trillion between now and 2030. About a quarter of that may come from tech companies’ own cash flow, with the balance funded through debt and equity markets—on the order of $1.5 trillion per year. These are enormous, eye-popping figures. Today’s AI-related capex boom is on a scale that rivals or exceeds the late-1990s internet infrastructure boom.
Defense Spending in the Drone Age
Warfare has changed. Ukraine and the recent Iran conflict both demonstrated the asymmetric power of drones—even against more capable adversaries. The U.S. has shown what AI-enabled systems can do on the battlefield. The traditional defense industry, built around expensive hardware, will face real adaptation pressure as cheaper drones proliferate.
The bigger story is the leverage a smaller state can now wield. Historically, maritime powers held the advantage over land-based ones. That dynamic is shifting. The Russian Navy has suffered heavy losses in the Black Sea, and the U.S. Navy faced real constraints keeping the Strait open. Cuba offers a stark illustration: recent reports indicate it has acquired more than 300 military drones capable of reaching U.S. territory (Guantanamo and potentially southern Florida). Three hundred drones are a mosquito bite to U.S. military power, but they illustrate the chaos even a small actor can create. Expect nations worldwide to allocate capital toward drone production capacity “just in case.” Defense budgets are likely to rise across the board.
Government Fiscal Policies
Few governments anywhere appear willing to tighten their belts while deficits remain elevated. In the U.S., fiscal guardrails have eroded as policymakers on both sides have prioritized growth amid already-high debt levels. Across the G7, deficits generally range from 3% to 7% of GDP, with the U.S. running one of the larger shortfalls (recently near 6%). This is inherently inflationary.
Immigration & Labor Supply
One of the clear mandates from the 2024 election was stricter immigration enforcement. U.S. demographics are challenging—aging boomers and lower birth rates among younger generations mean the economy has been adding very few net new workers. Other Western countries are also tightening immigration. All else equal, reduced labor supply growth is inflationary.
Putting It All Together
When you add these threads up, one thing stands out: there will be massive demand for capital in the months and years ahead. Trillions globally will be required for:
- Drone industrial capacity (rare earths, manufacturing, etc.)
- Commodity and energy stockpile replenishment
- The data center and AI buildout
- Electrical grid upgrades and alternative energy
- Middle East reconstruction (new pipelines, ports, infrastructure)
This is not a billions story—it’s a trillions story. It raises as many questions as answers. But for now, the environment looks like an inflationary boom, and investors should position accordingly.
