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CONTRIBUTORS

Kim Catechis

Senior Investment Strategist, 
Franklin Templeton Institute

How to think about ‘Schrödinger’s Straits1’ (open and closed at the same time)

As global investors, we are constantly assessing and monitoring the relative attractiveness of countries as investment destinations. We are used to dealing with unexpected events, and are relatively good at quantifying the impacts, when these occur. In this situation, we are trapped in no-man’s land, with clarity on the importance of the Persian Gulf as a meaningful supplier to the world economy, but no visibility on the timing of the potential resolution of the Iran war. Consequently, shipping companies have no confidence in regional freedom of navigation, and the world economy is prejudiced as a result.

In this paper, we consider the conundrum in terms of Schrödinger’s thought experiment by focusing on two elements: energy (oil, liquefied natural gas [LNG], petrochemicals and fertilisers), and geoeconomics.

Regardless of the duration of the conflict around the Strait of Hormuz, the long-term impact will likely be measured in a radical prioritisation of security, resilience and a recalibration of supply chains worldwide. Along with an effort to accelerate non-fossil fuel power generation among the ‘electrostates’ and a review of existing oil and gas resource portfolios in the petrostates, this war will trigger a massive reallocation of capital. We will probably see a lot of bad decisions and hopefully a number of good ones, which will create great investment opportunities.

Endnotes

  1. Erwin Schrödinger is considered one of the founders of Quantum Mechanics. But he is best known for the thought experiment called ‘Schrödinger’s Cat’. It takes a cat and places it in a closed box with a device that has a 50% chance of killing the cat in the next hour. At the end of the hour, logically the cat is either alive or dead, but Schrödinger suggested that until the box is opened, the cat can be considered both alive and dead at the same time, since the chances of survival are 50%.

 

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