The Choice To Go Up Or Down The Escalation Ladder Now Lies With Iran

The US would also have to decide if it can afford to cede Hormuz or will fight to keep it open when the SPR is seen near a tank bottom- was this discussed at the NATO summit, perhaps?

A tell for stepped up military statecraft would be a matching step-up in economic statecraft. Note the White House’s launch of ‘Freedom Fuel’ gas stations offering lower prices (via lower profit margins; or, at $3.67 a gallon, possible federal subsidies). If that scheme expands past an initial 25 sites it suggests more disruption in Hormuz ahead. However, that’s just a stepping stone to the NAPHTHA closed-loop energy system we’ve flagged the US might need to consider.

There are also longer term moves to avoid Hormuz. The UAE’s pipeline to Fujairah is underway; the Saudis may expand their East-West Red Sea pipeline by 2m barrels per day, allowing themselves and other GCC states to benefit; and Riyadh is exploring an IMEC route through Syria and Turkey - as Trump informed Congress of his intent to remove Syria from the state sponsor of terror list and was nice to Erdogan at the Ankara NATO summit; and following a state visit to Damascus by Macron and Erdogan literally giving the EU’s Von der Leyen and Costa guns.

For now, we stick with our base case that Hormuz tension blows over rather than blowing up. However, the odds of the latter happening sooner, rather than post-midterms as expected, have increased.

In energy markets, oil is up, but not hugely, with Brent at $79: but crack spreads are near record highs. Yes, lots of oil just flooded out of Hormuz, but global refineries already couldn’t process the backlog easily – add a new war there and things look far worse.

Crack spreads have also been driven by Russia banning exports of diesel until end-July in response to the devastating strikes against its oil refineries by Ukrainian drones: these are causing fuel shortages and have turned Russia from a net exporter to a net importer of refined products.

At the NATO summit — besides Trump threatening Spain with a trade boycott for being peaceniks — there was US backing for Ukraine‘s strikes deep into Russia and against energy facilities; Ukraine was also given permission to manufacture Patriot missiles itself to boost its air defences. Expect a lot more damage to Russian energy ahead, unless Russia comes to the table.

In related geoeconomic developments, the FT reports Trump-backed US rare earth mines are selling to Japan and South Korea – then again, South Korea and Japan might build US weapons and navy vessels in the near future.

In Europe, a leaked report has revealed France is seeking to widen Brussels’ Made-in-Europe policy: Paris wants such measures extended to shipbuilding and trains. Buy local schemes are even more effective economic statecraft than tariffs. The FT also carries an op-ed from former Italian PM Letta arguing ‘Europe must have the financial power to match its economic heft,’ and the continent’s savings should be used to invest in its own future, not someone else’s. Are we also going to see capital controls for the beating heart of the ‘liberal world order’?

Yet Tyler Durden Thu, 07/09/2026 – 10:00

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