Iran War Stalemate and Oil Market Pressures
Six months into the US-Israeli conflict with Iran, the Strait of Hormuz remains contested. Bloomberg traders report 7-8 million barrels per day now exiting, up from mid-July lows and roughly three-quarters of pre-war levels, aided by ship-to-ship transfers in the Gulf of Oman and pipeline diversions by Saudi Arabia and the UAE. Iran’s IRGC insists the waterway stays closed until the US accepts conditions including compensation and asset releases; Oman has reportedly halted cooperation on escorted transits. Diesel markets show acute stress, compounded by reduced Canadian oil flows amid bilateral tensions and damage to refining capacity.
Background includes China’s sharp import cuts (over 5 million bpd initially) and drawdowns from strategic stocks, plus record OECD SPR releases that have kept crude below earlier $120 peaks and mostly under $100 since June. Analysts estimate a lingering 2-4 million bpd global undersupply, with refined products tighter still due to Ukrainian strikes on Russian facilities and curtailed Chinese exports. US SPR levels have fallen below 300 million barrels, though structural limits allow further draws.
Key tensions center on sustainability: China’s stockpiles and SPR releases can bridge months but not indefinitely, while Iran’s maximum-pressure window ahead of US midterms collides with Washington’s claims of Iranian economic collapse. Markets have grown less reactive to official jawboning, yet prolonged disruption risks demand destruction and higher product prices feeding into broader inflation.
Sources: Naked Capitalism, Responsible Statecraft.
US-Canada Trade War Escalates with Smoot-Hawley Tool
On August 25-26, trade talks collapsed and both sides imposed up to 50% tariffs on roughly $20 billion of each other’s goods. The US invoked Section 338 of the 1930 Tariff Act—never previously used—citing Canadian “discrimination,” targeting auto parts, forestry, furniture and more. Canada retaliated against Wisconsin cheese, Maine seafood, Kentucky appliances and other items concentrated in politically sensitive states. Trump called Canada “one of the worst countries to deal with”; Prime Minister Carney accused Washington of seeking to destroy Canada’s auto sector.
Talks had neared a deal lowering US steel, aluminum and auto tariffs and reopening Keystone XL, but US industry lobbying and a late sovereignty-alignment demand derailed it. Canada had already removed US liquor from provincial shelves. The dispute builds on months of rhetoric about Canada as a free-rider and 51st-state threats that united Canadian opinion.
Uncertainties include midterm fallout in border states heavily exposed to cross-border supply chains (Michigan autos, New England seafood) and whether either side absorbs costs or passes them to consumers. Analysis notes the post-1947 trading system was designed precisely to prevent such tit-for-tat spirals that deepened the Depression; current moves reverse that logic at measurable cost to integrated North American production.
Sources: Naked Capitalism.
War, Tariffs and Rising US Bond Yields
Treasury yields on 30-year bonds have reached 5.3%, levels last seen in 2007, prompting rare interventions by Secretary Bessent including yen support with Japan and expanded long-bond buybacks. Drivers include $40 trillion US debt, a projected $2.1 trillion deficit, tariff-driven price increases estimated at 0.7%, elevated defense outlays, and Iran-war energy shocks that keep diesel near decade highs.
A parallel GAO report shows the military installation maintenance backlog at $285 billion—more than double 2022 levels—despite a requested $1.5 trillion defense budget. Bases report untreated mold, asbestos, water damage and inadequate dining capacity; services request only about 80% of modeled needs, accepting readiness and quality-of-life risks.
Contradictions appear between expansive war and tariff policies that raise borrowing costs across mortgages, business credit and federal interest expense, and simultaneous efforts to suppress those same yields. Foreign official buying of Treasuries has declined, leaving more price-sensitive private investors who demand inflation premia. Persistence of the Hormuz disruption and trade conflicts would further tighten fiscal and monetary constraints.
Sources: Responsible Statecraft, Naked Capitalism.