How the Iran War Is Reordering Global Capital

Is the emerging markets trade over?

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The Iran War Is Reshaping Global Capital Flows

The war with Iran has changed the global landscape in a very short time — and it appears there’s no end in sight. On Friday, when asked when the conflict would be over, President Trump said, “When I feel it — feel it in my bones.” On Saturday, Trump told NBC that the U.S. may bomb targets on Kharg Island, the site of Iran’s main oil export facility, “just for fun”, after U.S. warplanes targeted military installations there on Friday.

The war has already created the largest supply disruption in the history of the global oil market, and capital flows are starting to reorganize around this new reality.

For the U.S. and other oil‑exporting countries, the 47% surge in energy prices means higher export income and higher corporate profits for oil companies.

• If prices stay close to $100/barrel, U.S. oil companies could register an increase of more than $80 billion in free cash flow this year.

The benefits are harder to see for taxpayers, who are paying more at the pump and footing the bill for the war. The first 12 days of the war have cost U.S. taxpayers more than $16 billion.

The conflict’s externalities are being felt most acutely abroad. In the Middle East, more than 3 million people have been displaced, and more than 2,100 have been killed.

The war is also rippling through the global economy. Europe and Asia are especially vulnerable because they rely on imported energy.

European markets have already lost more than $1 trillion in value, reversing what had looked like the region’s first real recovery in years. The EU’s economy chief warned that if energy prices stay elevated, economic growth this year could slow to 1.0%, down from the 1.4% forecast last year, and inflation could surpass 3%.

Asia is even more vulnerable, with about 80% of all crude oil transiting the Strait of Hormuz destined for the region. Governments are taking extreme measures to conserve energy:

• Thailand’s prime minister urged bureaucrats to take the stairs instead of the elevator.

• Bangladesh has closed universities and urged citizens to turn off their lights.

• Vietnam is asking citizens to work from home and limit car usage.

• Restaurants in India are shutting down for lack of cooking gas.

Just a year ago, global capital was flooding into emerging markets. Now, the war has made many of those investments look too risky. The MSCI Emerging Markets Index has lost over $1 trillion in market cap, while the dollar climbed to a three-month high last week — an early sign that investors are moving back toward the relative safety and liquidity of U.S. markets.

In the U.S., we don’t realize a lot of our success is unearned. We have two oceans protecting us, friendly neighbors on both borders, and we’re one of the most resource-rich nations on Earth. We produce more energy and food than we consume. The U.S. just doesn’t go out of business. Before we make a single decision, the deck is already stacked in our favor.

But those unearned advantages go only so far. We’ve assumed that controlling a third of global GDP means controlling the world. But our dominance wasn’t about size, it was about cooperation. We built the operating system on which 60% to 70% of global GDP runs, and that system works because nations chose to participate in it. That choice was never unconditional.

Our markets will be fine because capital flows are amoral. Money goes wherever it can get the greatest return, and as long as the U.S. remains the center of gravity for entrepreneurship, whether that’s AI, biotech, or space, the capital will keep coming.

The real long-term threat is talent. Young people are more moral than capital. The best and the brightest will start choosing London, Singapore, or Tokyo over the U.S. not because the opportunities aren’t here, but because their values no longer align with ours. That could have huge long-term impacts on our country.

For all the talk of American self-sufficiency, this crisis is raising an important question: How independent are we really? Yes, the U.S. is far more energy secure than many countries, but that doesn’t mean that America can unleash chaos abroad and assume it’s immune to the consequences.

For instance, we’ve become very dependent on global relationships. The Gulf states have become major backers of the American startup and tech ecosystem, pouring tens of billions into U.S. companies and promising even more. Our alliances with Europe and NATO have also been crucial to American economic and geopolitical strength. If Gulf countries are absorbing serious economic damage, are they really going to keep investing in the U.S. at the same pace? If Europe ends up paying a much steeper inflation price for a conflict that the U.S. started, does that strain our relationships? The real risk is not just higher oil prices. It’s that America may be overestimating how immune it is from the blowback.

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The Dirty Secret Behind the Chip Boom

Without semiconductors, we would have to entertain ourselves without TVs, communicate without smartphones, research without computers, defend ourselves without high-tech weapons, and boost company earnings without AI. We’re a nation built on technology and sustained by semiconductor chips.

Semiconductors, which are colloquially referred to as chips, are so important that Congress named an infrastructure bill after them (the CHIPS and Science Act). Between that, two other federal laws, and at least a dozen state initiatives, we’ve allocated over $90 billion to subsidizing the American chip industry. That’s about nine years’ worth of federal farm subsidies. Thanks to these initiatives, the U.S. is expected to triple its domestic semiconductor manufacturing capacity by 2032.

However, our need for semiconductors has made us willfully ignorant of their externalities.

Semiconductor factories, known as fabs, are prolific producers of toxic waste — but nobody wants to talk about it.

On the bright side, this collective ignorance has created a compelling investment opportunity.

The Dirty Details

Semiconductor factories churn out toxic slurries, acid gases, and polyfluoroalkyl substances (PFAS). This hazardous waste spills out into our drinking water.

Samsung’s semiconductor facility in Austin, Texas, spilled hundreds of thousands of gallons of toxic waste, including sulfuric and hydrochloric acid, into the Colorado River in 2022.

But it’s the PFAS, compounds that are essential to producing advanced chips, that are the hardest to get rid of.

PFAS are also called “forever chemicals” because they can take decades to decay in the body. They’re associated with a range of health issues, including hypertension, diabetes, infertility, cancer, obesity, autism, cardiovascular diseases, and kidney and liver disorders.

Their impact on fertility is particularly intense. Mount Sinai researchers found that exposure to PFAS can reduce fertility in women by as much as 40%, and a 2019 meta-analysis of six studies found that female fab workers had a 29% to 43% higher risk of spontaneous abortion than nonfab workers.

But it’s not just factory workers who are exposed. Millions of Americans are exposed to forever chemicals every day.

Conventional wastewater treatment doesn’t remove PFAS, so contaminated water passes through most plants into rivers, lakes, and groundwater that feed drinking‑water systems. Most at-home filtration solutions don’t remove them.

There are still no PFAS‑specific federal discharge limits for factories, and only a minority of states have them. That means that most fabs can still send PFAS‑contaminated wastewater to sewers or rivers.

Across the U.S., public water systems and states have secured $14 billion in PFAS settlements from manufacturers such as 3M and DuPont for contaminating local water sources.

In 2024, the EPA issued the first federal regulations on six types of PFAS in drinking water, scheduled to go into effect by 2029.. However, Trump’s new head of the EPA, Lee Zeldin, dismantled regulations for all but two types of PFAS, and pushed the deadline for compliance back to 2031.

This is curious, as Trump’s first administration was supportive of PFAS regulations. This was before the AI boom though, and before Trump realized that the growth story holding up the stock market was dependent on forever chemicals. God forbid human and environmental health get in the way of shareholder value.

States are moving faster. In 2025, more than 250 PFAS bills were introduced, and dozens of states have now passed regulatory guidelines on forever chemicals in drinking water.

The Investment Opportunity

In this economy, any company with a decent story is one Reddit post or CNBC hit away from becoming an overvalued meme stock. In other words, narrative increasingly drives markets, and the fact that “semiconductor factories are incredibly pollutive” is a doomer story is … well, an opportunity.

If the major AI companies were pop stars, the second-order beneficiaries, like HVAC, utilities, and data center construction companies, would be the backup dancers. Now, four years into the AI boom, all this talent is expensive and tired. The opportunity now lies in the stagehands that clean up every night after the performance is over.

Veolia Environment is one of those stagehands. It’s a $28 billion utility company that provides municipal water and waste services to more than 100 million people; but, more interestingly, it is a world leader in desalination and deals with hazardous waste.

If you own a nuclear power plant, Veolia will take your radioactive waste. If you own a semiconductor factory or municipal water facility and need to eliminate PFAS from your wastewater so you don’t get sued, Veolia provides those services.

Finally, it supplies an essential input to semiconductor manufacturing: ultrapure water. If you thought data centers needed a lot of water, you’re going to hate semiconductor factories.

Margins have been improving, and it is trading below its five-year average price-to-earnings multiple. Disclosure: I bought some Veolia shares back in January, but I’m still optimistic about its prospects. Of the 16 analysts who cover Veolia, 10 rate it a buy, 3 are overweight, and 3 recommend holding.

The Silicon Wave

In 1979, The China Syndrome, a thriller about a fictional nuclear meltdown starring Jane Fonda, came out just 12 days before the actual Three Mile Island disaster. Both the real crisis and the movie, followed by another nuclear disaster thriller called Silkwood in 1983, catalyzed widespread fear and opposition to nuclear power. By 1986, Gallup found that only 23% of Americans were willing to live within five miles of a nuclear plant, down from 42% in 1976.

In 2024, The Silicon Wave came out in China. It was advertised as the country’s “first TV show about semiconductors.” According to IMDb, the CCP-funded show follows a group of “idealistic tech professionals” who return from overseas to join the Chinese chip industry. Unfortunately for President Xi, it doesn’t seem to have caught on.

An American show about the semiconductor and AI wars would probably crush. (Casting note: Jesse Eisenberg should probably play Sam Altman, but Benedict Cumberbatch might work too.) The show would be dramatic, intellectual, and ultimately patriotic. It definitely wouldn’t mention that a side effect of this noble quest is cancer-causing chemicals, because that wouldn’t make for a good story.

But that’s the point: There are often opportunities hiding in what stories leave out. That is exactly why the Veolia opportunity exists.

It’s funny how powerful stories are. You grow up thinking that they’re for kids, and being an adult is about paying attention to “real life.” But actually, making “real life” decisions, like where to work, who to vote for, where to put your money, etc. — requires a continuous parsing of stories — both what you’re being told, and what you’re conspicuously not.

Bangladesh, Pakistan, Sri Lanka, Philippines are going to be in the news a lot more. They are highly energy-dependent, which makes them especially vulnerable to a spike in oil prices, and they also carry large amounts of dollar-denominated debt. If their currencies keep falling, that debt becomes even harder to service. If enough of those loans go bad, big European banks won’t be willing to hold them on their balance sheets. The fallout could spread well beyond these countries and tip the global economy into a recession.

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