The Memo Of Misunderstanding

“The Strait is open” is a comforting headline, but we don’t think it’s an investing thesis. We dig into the new US-Iran memorandum that’s being sold as a breakthrough and explain why the fine print, the missing signatures, and the political incentives make it look more like a memo of misunderstanding than a real peace agreement.

We talk through the biggest fault lines: Israel and Hezbollah aren’t bound by the document, election pressures can reward hardline behavior, and public threats can sabotage the quiet diplomacy that usually moves negotiations forward. We also unpack why a 60-day clock and a 14-point checklist feel designed for extensions and messaging rather than completion and enforcement.

Then we bring it back to markets. Oil prices, inflation, and economic confidence all hinge on what actually happens in the Strait of Hormuz: whether ships sail, whether insurers price the risk down, whether mines are truly cleared, and whose definition of “open” wins out. We also examine the impact of sanctions relief and released assets, and we end with a bigger warning for anyone who follows geopolitics and portfolios: if chokepoint coercion becomes normalized, copycat blockades in other critical lanes, including Taiwan, could turn volatility into the baseline.

If you found this helpful, subscribe, share the show with someone who follows markets, and leave a review. What signal would convince you that the risk in Hormuz is genuinely fading?

Straight Talk for All - Nonsense for None

Please check out our other podcasts:

https://skepticsguidetoinvesting.buzzsprout.com

Disclaimer - These podcasts are not intended as investment advice. Individuals please consult your own investment, tax and legal advisors. They provide these insights for educational purposes only.

Transcript

Welcome And The Confusing MOU

Steve Davenport 0:02

Hello, everybody, and welcome, Skeptic's Guide to Investing. I'm Steve Davenport, and I'm here with my friend Clem Miller, back from the Great White North, drinking his mulsons and eating his fried fish and looking at puffins. Um I I think that a lot has happened since Clem left, and this podcast is gonna be about the MOU, , or as I like to call it, mom, the memo of misunderstanding versus the memo of understanding. Um I think that mom is a better name because mom actually captures what I think has been a very confusing week. We've heard about the straight opening, and Trump said it's gonna happen on Friday, and the mines don't mean anything, and it's it's just gonna be open because we say it's open. And we haven't seen the flow of carriers, we haven't seen insurers believe that it is really open. And I think we've you know continued to see questions about whether Hezbollah and Israel are actually gonna follow in this um piece, if we want to call it that. It's a piece of something. Um I think that when we look at this, Clem, um, I just think there are red bell, red, red alarm bells going off everywhere here. You know, it's 14 items in this memo, and I don't know if I believe two or three of the items could be achieved. Never mind, 14. But where do you look at this and say, well, it's good for the world because things have calmed down and we it looks like we're gonna get to um a reopening of the strait and a control of Iran and control of the nuclear, control of their ballistic missiles, and a peaceful existence with all of its you know, Middle East neighbors. Is that where we're going in 60 days? And can we get there in 60 days? No and no. Oh am I being too skeptical to call it a memo of misunderstanding?

Clem Miller 2:25

No, it's exactly what it is. Um so let me let me start by saying that it's possible that things could have been a lot worse, right? We could be in a situation now where there's continuing warfare with lots of missiles being tossed around, Iran at the Gulf, Iran at Israel, Israel attacking Iran, etc. etc. So I think I think things could be a lot worse. So let's say that, right? Uh on the other hand, things could be a lot better. Uh it could be that there's no uncertainty at all about whether the straits are open. Um right now there's still a lot of uncertainty about that. Things could be better, it could be that that uncertainty has been removed. Uh it could also be better if it was clear that the potential for additional violence between Israel and Hezbollah were diminished, right? That would have been better as well. So, you know, we're now in a situation where all this memorandum of understanding does is it creates, I think, an extension of the ceasefire that had been in place before with a requirement that the two sides talk about certain issues. And that's I think all that it is, right? It's not a peace agreement, right?

Steve Davenport 4:16

It's not it's it's well he signed it in Versailles, so doesn't that mean it's like don't you understand the symbolism of him signing it in Versailles?

Clem Miller 4:30

Well, you know, the the symbolism of that is actually one of, you know, Versailles, the Versailles agreement ending World War I actually was one of the leading causes of World War II, historians say. So yeah, it's not a great symbol to sign an agreement in Versailles. I I I think we have to to say that. But I don't do I think it was intentionally signed in Versailles. No, I think it's just where Trump happened to be at the time. And so, you know, he you know he just got it done. He just he just got it done. He wanted to get it done, so he got it done. So I would say it's neither the worst scenario nor is it the best scenario. But there are certain things that are being um claimed

Why A Ceasefire Is Not Peace

Clem Miller 5:20

about this about this agreement, about this memorandum of understanding or misunderstanding that are just plain just plain wrong. Um and of course are being construed differently by the Iranian side as well as by the US side. And you know, I don't trust stuff that comes out of the White House on this, , but I don't trust stuff that comes out of Tehran on this either. So I don't trust either side in terms of what of what they're saying. Uh you can look at the words of the agreement and you know draw some conclusions about what they about what they mean. My understanding is that the the Farsi version of the agreement actually looks a little different than the English one and has some different different technology or different words. That sometimes happens. Uh and and the the Farsi language one makes it look like it's much more of an Iranian victory over the US than and than it it is. But I I think I think the major problem with the memorandum of misunderstanding is that it while whereas it wraps Israel and Lebanon, or I should say Israel and Hezbollah into the agreement, it actually was not signed by Israel or Hezbollah. But so Israel is under no obligation to do anything that the U.S. agreed to in that agreement, and Hezbollah likewise is under no obligation to do whatever Iran committed it to do in that agreement. So everything that that Israel and Hezbollah are doing or are not doing, you know, whether they're lobbying missiles at each other or taking each other's territory or or you know, agreeing to ceasefires, all of that is sort of an independent track from what's going on with the U.S. and Iran, even though it's become sort of a condition that you know Iran has imposed um on the the execution of the agreement. So if that fighting between Israel and Hezbollah continues, erupts, gets worse, I don't see how this 60-day ceasefire period will be successful in accomplishing anything, really, if if that all happens. And and and the one thing you have to realize about about the Israeli Hezbolla situation is that Benjamin Netanyahu, he faces an election this fall. And he's got you know, he's got partners in his coalition that are much more extreme. I mean, he's pretty extreme, but there are coalition partners who are much more extreme than than he is. And in order for him to win and be still become prime minister, he needs to satisfy, keep satisfying those you know the extreme elements in in his coalition. Um so you know, I and I don't I don't so I I don't know that we're gonna see any change in in outlook or whatever coming from Netanyahu. And so actually some of those some of those um of his coalition members have actually criticized Netanyahu for buckling under to Trump. And Trump all of a sudden has gotten a very negative rating in Israel.

Steve Davenport 9:20

So you know I think, yeah, I mean I think you're going down one path of this agreement that I think is has its falling. Yeah, I think the other thing is that this is a 60-day agreement, and I don't think call me negative, call me skeptical, I don't think we're gonna get through all 14 items and have an agreement, , a permanent agreement of in place by 60 days. I think all we're doing is putting a number out there of 60 days, and then what's gonna happen is we're gonna turn around and say, we're making a lot of progress, and we're just gonna extend this 60-day peace period to 90 more days. And that 90-day period, Clint, is gonna just happen to get you past the Israeli election and the US election. Yeah. So there will be peace for this period, but I think the word peace and I think the word understanding are again being used in a in a way that no language really could could justify. I don't care if it's a you know what language it is, I don't think peace and I don't think understanding are the two words that should be around this agreement. I think it's gonna be likely that we're we're never gonna get this done in 60 days. We even if we had the best, if Kissinger and the other very greatest, you know, um negotiator were in the same room and we didn't let them eat, we didn't let them drink until they got it done. I don't think we would get this done. I don't think it's possible with the experience level of the people on the Trump side and the experience level of the people on who already negotiated with Obama

Israel Hezbollah And Election Pressure

Steve Davenport 11:10

and the you know the original deal. I think that we will find ourselves with almost the same agreement in many terms, but there's one more item, which is who controls the strait? And that item won't get resolved. So I don't know if we can go back to the original Obama agreement because now it's a new world, and that new world includes access and control of the strait. So do you think 90, 60 days? I mean, give me a probability in 60 days that this issue is resolved. Zero. Zero. I would put it at zero also, and let me just add one item that I think is missing from some of this. We're in a state of peace now while we negotiate. Trump on one of his interviews recently said if they don't sign up and follow all the items in this memo, I'm gonna take over Carg Island, and I'm gonna take over their oil business, and we're gonna take 20% of it for the U.S. to give back the costs that we've spent to bring this peace to the Middle East. Does that seem like it's gonna be a A, a good influence on the talks, B no influence on the talks, or C going to cause the talks to break up because threats are no way to negotiate?

Clem Miller 12:41

I think the Iranians completely understand, even if some Americans don't, right? I think the Iranians completely understand that Trump is a BS artist and that the things that he says are really for domestic consumption in the United States. The Iranians do the same thing.

Steve Davenport 13:08

Doesn't his tough talk kind of tell you that he might be trying to get some of that Israeli support? Because if he talks tough, they say, well, could be, could be.

Clem Miller 13:20

I don't I don't I don't think that that Trump necessarily does this for the Israeli public, , but he does certainly does it for the U.S. public.

Steve Davenport 13:31

Yeah.

Clem Miller 13:32

To to try to to show, well, I'm the tough guy. I mean, he will misrepresent all sorts of things, you know, the color of the reflecting pool, okay, for example, right? Uh, but any number of things. So I the the Iranians clearly have got to know that. So they know that he is a , you know, that he acts as the person he's always been, right? But don't actions that are unclear and inflammatory don't they add do they add to your credibility or detract? Oh, they detract from it. I mean the whole idea, you know, the the the international negotiations work best in a way that involves, I hate to say it, back rooms, right? Quiet diplomacy. No public diplomacy, not not putting out messages on Truth Social or X every day or two. That doesn't, you know, that doesn't work, right? It's it's it's quiet diplomacy in backrooms that really gets gets answers. And and we're just you know, we're seeing some of that, but it gets frustrated by by what happens um you know publicly with Trump's announcements. He you know, he trips over his own feet, so to speak, when it comes to you know international politics.

Threats Vs Quiet Diplomacy

Steve Davenport 15:20

Yeah, I mean I I'd like to so we've covered where does Hezbollah and Israel's actions. We've covered some of Trump's comments on social media and whether they're helpful or not. We've covered the spectrum of some of the things going on to this agreement, and we've covered the idea of hey, this is probably just a game that we're playing for 60 days, and we're probably gonna look to something that extends it past November 15th when the US election is, so that Trump can say, I created peace, I created a safer, you know, and and walk towards some of these other issues that he should have been focused on, like affordability. But let's talk a little bit about affordability in this memo. And how does this, how do you think this comes out? Is is oil just gonna keep going down? And are we gonna be in a place where we're not gonna have the inflationary impact? So therefore, the amount of damage from this war was limited because we're we're not gonna we're not gonna have to worry because oil is gonna go down, and when it goes down, the economy's gonna benefit. Is there any is there any strength to that argument?

Clem Miller 16:41

So I think that I think you know, even though the price of oil has come down a bit, right? Um I don't think we can count on it staying down as a result of this agreement. First of all, you have to have crews that are willing to take ships out of the Gulf and at you know some risk to their personal safety. Uh you have to have insurance companies that are willing to insure these ships, you know, at a certain price. Uh and you have and all of this is set against a general sort of heightened risk premium that I don't think will go away. Uh I think you know, you've got you know this you've got a new world now where there's got to be at least some risk premium attached to shipping that goes through channels

Oil Prices, Inflation, Risk Premiums

Clem Miller 17:40

that are pretty narrow, like the Strait of Hormuz or Babylon Dub or Strait of Malacca. So there's got to be some increased uncertainty or risk premium associated with that. So do I think um do I think prices are gonna stay low? I I I don't or do you do I think they're gonna drop further and stay down? No, I I don't think so. Um what could happen, I don't think this is a near-term thing, is that if oil prices stay up high enough, you could have some erosion of demand and some um incentive, profit incentive for developing alternative sources or more alternative sources.

Steve Davenport 18:27

Yeah.

Clem Miller 18:28

So I don't know, you know, if I mean to me, it strikes me that oil prices in the 80s are not going to do a lot for inflation. They're gonna keep inflation high, but they could create this long-term erosion of demand and and long-term um incentives for other alternative energy sources. I think if you get oil prices back down into the 60s or low 70s, then I think inflation will likely come down. Um and um and we'll see something of a boost in um also in um the economy.

Steve Davenport 19:11

Yeah, one of the items that I think we're ignoring is um the mining of the street. And this whole issue about is it is it going to be are the mines going to be removed, are the mines going to be cleaned up, is it gonna be, you know, five pathways or six pathways or channels within the street, or are they just gonna be two? And I look at that whole issue, and yesterday they were reporting that it Iran has taken and put in trash bags that look a lot like the markers for mines, and they put these all throughout so that half of the area that people are thinking is actually mined is actually nothing there, it's just trash bags. But they're because of the channel and because of the the lack of wanting to use their the radio system, there are these people who are avoiding stuff in the street. That so I heard that the estimate was it would take two to three months to fully fix and undo all the mining. I mean, if if we don't have the mines removed, isn't the the idea of a clear strait and a strait that's open for business, isn't aren't those two ideas just completely opposite? Yeah. Is a mine straight, is the sign that the mines have been removed gonna be the ultimate thing that the strait is actually open? What we'll tell you when the strait is opened.

Clem Miller 20:46

Okay, so we always say straight is open, but what does that really mean, right? When the Iranians say straight is open, they mean we're allowing ships to go through if they pay a fee to us. That's what the Iranians mean by the strait is open. What the U.S. means by the strait is open is a return to what happened before the war, where ships could go in and out, and it was basically international waters. And so those are two totally different context concepts. You know, Iran is basically saying, well, we tell you when the strait is open, right? We we get to open and shut the door, and we charge a fee, and we can actually let some ships in and let some ships let some ships out, right? We don't we don't have to, you know, abide by that, right? There's no, you know, there's no treaty of, now I'm gonna get a little technical. There's no treaty of Mantru, M O N T R E U X, which was the treaty that governed that governs ship traffic through the Straits of Turkey.

unknown 21:59

You know,

Clem Miller 22:00

Dardanielle and Bosporus. You know, that treaty allows ships to go through without paying a toll and even allows um limited warship traffic as well, but allows commercial shipping to go through. There's no treaty of Montreux for the Strait of Hormuz. And so, you know, Iran thinks that it can fill that gap and essentially treat the Strait of Hormuz as you know, Suez, as Egypt treats Suez charging a fee, as Panama treats the Panama Canal charging a fee. So Iran is thinking, well, yeah, okay, okay, we didn't build this strait, but we're gonna take advantage of it and and charge a fee. And that's

Mines And What “Open” Means

Clem Miller 22:50

why in this agreement they talk about coordinating with Oman, because Oman is on the other side of the strait.

Steve Davenport 22:57

But well, that was my next thing was it it really has to be a a joint agreement because you could. I mean, I don't know how I don't know how many, how much distance do you think, if it's a 21 miles, how much is considered the you know the property of or the area of control of that country that's on the shore? Is it the first three miles are considered your territory and then it becomes international waters after that?

Clem Miller 23:26

What's the well right now, okay, so there's there is something called the law of the sea treaty, and I don't pretend to be an expert in that, um, but territorial seas are out to 12 miles. And and so and so if you have if you have overlapping 12 miles, and by the way, that 12 miles includes little islands too. If you have a little island, then your territorial seas wrapped 12 miles out around each little island, right? Okay. So undoubtedly, in undoubtedly, there are territorial seas from Iran and Oman that overlap, right? And so in that case, there are provisions in the Law of the Sea Treaty for dividing up that you know those those seas and deciding which seas belong to whom. So the whole world, if you look at one of these territorial sea maps, you know, you'll see that the whole the whole planet, right, is divided, except for the high seas, the so-called high seas, are divided up into these territorial sea zones. Plus, not to get even more complicated, something called the the um economic zones, right, which go even further beyond, I think maybe 200 nautical miles, something like that, beyond that. And that's why various little island countries have been able to establish control over large fisheries, like in the Pacific Ocean and so on, because they have these these extended economic zones. But but back to the Strait of Hormuz, clearly there's got to be some dividing line between Oman and and Iran. And my understanding, I remember looking at a map, I don't have it in front of me, but the two main shipping lanes, one direction and the other direction, through the Strait of Hormuz, are really in Omani waters, not in Iranian waters. So if um so if Iran um blocks those two shipping lanes, there's an alternative that runs through Iranian space, Iranian territory. And that is where Iran is directing ships right now is through its territory. Past something called Larak Island, L-A-R-A-K Island. Oh, yeah.

Steve Davenport 26:10

So one of the things I think we haven't mentioned is the US was preventing any ship that was going to Iran from getting into the strait. And they were basically blockading Iranian ability to make money from its oil. And that's where I think this idea of who controls the strait is a little bit you know ambiguous because even if Iran says the strait is open, we're not gonna harm any vehicle, you know, if the US continues to have its fleet there and prevent Iranian ships from docking or refueling, then they're gonna control the income that um and I guess when we talk about income, should we mention you know the the funds that have been confiscated and the the idea of this $300 billion dollar rebuild fund? And that's the last issue we're gonna talk about with this memo bunch of things.

Clem Miller 27:09

Memo misunderstanding. Okay, so I at this point, I mean, everybody's focusing on this $300 billion, but I think that's just like a pie in the sky thing that was thrown out there that that has no relevance at this point. I'll tell you what really has relevance at this point, and that is the fact that we removed sanctions on Iran's ability to export oil. Uh, there were very extensive financial sanctions imposed on Iran's ability to export oil, and we've removed those. And that is a huge, huge deal because now Iran can earn a lot of money from those export that the exports of um exports of oil. On top of that, there were um, and this this the reporting on this is a little fuzzy, but there there's actually been some assets, I think 25 billion maybe, that have been released of Iran's assets that have been released. Um, I think maybe they were held in Qatar or the UAE, and and there was some negotiated agreement to release some of those.

Steve Davenport 28:23

So there has been it's it's not clear to me though, whether I heard about that 25 and I heard there were two tranches, and there were performance things that had to be accomplished before they would be released. Yeah.

Clem Miller 28:46

Well, I I have no doubt that that's untrue. What that's that's that that's just typical BS coming out of the White House to say that oh, there's a word like BS in the White House in the same sentence. That's you're a crazy man. Right. If if if if the law if you're saying that they could be brain boosts, it's for domestic consumption to say that to say that releasing Iranian funds to Iran benefits the United States. That is just a complete twisting of reality to say we're giving somebody else funds, but no, no, it it doesn't really help them, it helps us. Yeah, I mean that makes sense at all.

Steve Davenport 29:37

I thought you went away and got relaxed and had fresh air and had a whole new perspective on life, Clem. You're you're coming back with as much I don't know what I want to use the C word, but

Sanctions Relief And Frozen Funds

Steve Davenport 29:50

cynicism as I've seen. I mean, you're telling me the White House is not telling the truth.

Clem Miller 29:59

You know, it more like more I I don't want to get too far into this, but okay, all right. Uh I I I mean, I would say that one has to be extremely skeptical, if not cynical, about a lot of things that come out of the White House.

Steve Davenport 30:15

Okay.

Clem Miller 30:16

Uh and this is , you know, to say that that the US is benefiting from giving Iran mu its its own money back is you know, its own seized money back is just like way beyond a description of actual reality. It's just what what are they gonna tell us next? That it's good for us that the Strait of Hormuz is closed.

Steve Davenport 30:46

I I was gonna go with they're gonna tell us that by increasing the price of oil, they're gonna help promote other technologies and energy that are gonna make us stronger in the end. So they're really doing what's to strengthen America and make America better.

Clem Miller 31:01

Well, they they're not gonna say that. And I mean, first of all, that has the benefit of being true, actually, right? So that's number one. Number two, not only are they gonna avoid saying something that's true, but they are against renewable energies, so they can't say something that is going to inadvertently promote something that they're against. So okay.

Steve Davenport 31:28

I mean that's it seems like a a gray area, and I think that this whole thing, I mean, I feel like there's a lot more gray here than there is black and white. And I think that the language in the in the in this in this memo of misunderstanding is you know it is at it most, you know, obtuse. And I think the combination of items, they just put it as a wish list and not really a list of things they can accomplish. Um, so my my feeling would be as we wrap up the memo of misunderstanding, is um be careful out there, be carefully trying to understand who's gonna win and who's gonna lose. Because as we've seen with the price of oil, it can be down one day and then up the next because of um, you know, a stray bomb or somebody who's you know runs a mission, even though Trump says don't do these missions. Uh Netanyahu, you know, is is is is got his own reasons for what he's doing. So the one thing I would ask people to do is to think about how this affects the elections in Israel and the US. And that to me is the key variable in these things. Not necessarily the price of oil, not necessarily the fees that they're getting from the shipping lanes. I think you got to look at what people are actually doing. People in Qatar are now talking about developing a pipeline. Others are gonna do pipelines to various spots. Um, I think we haven't seen the end of this. Um, and my last comment on this is if we think there's a problem today with what happened in the Strait of Humuz, just imagine what would happen if there were a blockade in the Strait of Taiwan. Um 80% of chips in the you know, the small or nanowafer chips go through the Strait of Taiwan. There the way that Taiwan, the island is, um, the Taiwan, the the Chinese side of Taiwan is where you know troops would land and things come and go. The other side is is very steep and cliff-like. So therefore, if we had a if we think we have a problem today with volatility and in semiconductors, imagine Taiwan says we're gonna institute

The Taiwan Blockade Wake Up Call

Steve Davenport 33:55

a blockade until the government of Taiwan agrees to come back, like aka Hong Kong as a part of China. And that's where I think the real risk is because what we call copycat behavior is very popular in international politics. So somebody can get it to work in in Hormuz, they can get it to work around Majorca, they can get it to work in Taipei. Yeah, exactly. I think I think that's the way I would end this, and that's one of the reasons I would say to people be cautious, be careful out there. Um, as they used to stay on Hill Street Blues.

Clem Miller 34:37

Clem, do you have anything to add on the memo? Well, I think I think the Taiwan point is an excellent point at which to finish this.

Steve Davenport 34:44

All right. Thanks, everybody. Please share this podcast with everyone you know and everyone you like and even some people you don't like, um, because we want everybody to get on and talk about these issues. And we're not giving you answers, we're trying to give you education because we think that there's a lot of misinformation out there. And we hope that we've made these issues a little bit clearer, and we hope you enjoy our podcast.

Final Takeaways And Listener Requests

Steve Davenport 35:10

Please let us know what you think and what we can do better. Have a good day, everyone.