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Welcome to The Geopolity’s What We’re Watching (3W), our daily look at the interconnected worlds of Geopolitics, Economics and Energy. Curated from the world’s leading sources of information, our analysis and commentary is designed to help you make sense of the events driving the major developments in the world.
According to the New York Times, the US military has been extremely successful in escorting crude oil tankers through the Strait of Hormuz. Ship operators register any planned trips through the strait with the US military, and then the US uses ships, helicopters and planes to intercept Iranian attacks. It has helped over 1,000 ships transit the strait, according to Central Command. Since May, the US military has got millions of barrels of oil through the Strait, NYT says, some 5 million barrels per day, using the southern part of the Strait on routes close to Oman.
At 3W, we are highly skeptical of this claim. It is quite well known the Saudi’s diverted 4 to million barrels per day of crude to its Red Sea port of Yanbu, while the Omani’s say they are pumping 1.5 million barrels per day overland to Fujairah, bypassing the Strait. If all this were true and correct, it means more than 10 million barrels of crude oil have been coming out of the Arabian Gulf, every day, since May. Couple this with the significant reduction in Chinese purchases of crude oil, and the end result would be that there should be no shortage of crude oil in the market at all. Yet, at the same time, the cracks for refined products are at all-time highs – over $100 per barrel for diesel, writes Reuters, something CNN calls a “red light” flashing.
This can only occur in one of two scenarios. First, refined product supply drops significantly compared to demand, while the price for crude oil remains low due to supply – demand balance. Second, refined product supply drops significantly compared to demand, while the price for crude oil remains low due to market manipulation. As to the first scenario, crude oil inventories should in this case be flat or even rising, if the US Centcom assertion about an open Strait of Hormuz were true. It is quite well known this is not the case. Crude oil inventories have been plunging, says the International Energy Agency. Also, if the Strait were open, and that enabled crude oil prices to remain suppressed, one would think that at $100 cracks the Arabian Gulf countries would use it to ramp up throughput at its refineries and export some of the resulting products – clearly that is not happening. All this calls into (strong) question the US Centcom’s assertion, in our 3W view. Also because countries continue to seek Iran’s support to get their oil out, as in the case of Iraq, writes Reuters, something which wouldn’t happen if they had easy access through the Strait under US military escort. Most likely, therefore, the “news” about the US military’s success in keeping the Strait open is a propaganda narrative designed to keep the markets calm, as the US absorbs the reality of having lost its War on Iran, and with it the Strait of Hormuz, and thinks through how to respond to this new and unforeseen situation.
the “news” about the US military’s success in keeping the Strait open is a propaganda narrative designed to keep the markets calm
This is less of a “crazy idea” if one keeps in mind that it is in fact quite well known that the US has been manipulating the crude oil market throughout its War on Iran. Axios writes that over time, Trump’s efforts to manipulate the crude oil market has become ever less impactful. At 3W we therefore expect the “major US military success to keep the Strait open” mentioned above to have little to no impact on crude oil prices when the markets open on Monday, and certainly no lasting impact.
At 3W we note the “news” comes on the heels of further signs of a brewing crisis in the US bond market. We previously explained why a few weeks ago the US bond market forced the US Treasury to intervene in order to support the Japanese Yen. Despite this move, by last Monday the 30-year US Treasury yield had moved to levels not seen in over 19 years, threatening to raise the costs to fund the government debt that’s already at a record, writes Barron’s. In response, US Treasury secretary Bessent then announced he would be buying up US debt in order to bring yields down again. The immediate market response to announcement worked in his favor, but since then the effect has tapered off again. This is because none of the Treasury’s actions target the root problem: the $40 trillion US national debt. Bessent is temporarily stemming the momentum of yields, but not changing the fundamentals. In this situation, 3W notes, the last thing the US wants is price inflation due to increased energy prices, as this is likely to lead the US Fed to increase its benchmark interest rates. This is the motive for US interference in the energy market.
According to Ray Dalio, writing on LinkedIn, the US interference in the bond market is actually consistent with the classic template for financial crisis. In the US, Dalio writes, government debt service is now so large that it has become unaffordable considering the other things a government should spend money on, and can no longer be “rolled over” as it outweighs global demand for US Treasuries. In this typical pre-financial crisis situation, interest rates move up, leading to government intervention. The latter involves money printing, to finance the purchasing of bonds to bring the interest down, which reduces trust in the nation’s currency, thereby worsening the trend the government intervention tries to counter – interest rates increase further when trust in a financial system erodes. 3W notes that according to Reuters, the Treasury’s intervention has indeed negatively affected financial market trust in the US dollar. Dalio notes that the US government spends 40% more than it takes in via taxes, $7.5 trillion versus $5.5 trillion. With few (politically acceptable) options to turn this fundamental situation around, a collapse of the US bond market is essentially inevitable he says, with the only question remaining is “when?”, not “if?”.
US interference in the bond market is actually consistent with the classic template for financial crisis
Unfortunately for the US, the US Treasury market is not the only part of the larger US bond market that is experiencing distress. The wave of debt issuance funding the artificial-intelligence buildout is also testing the limits of investor demand, writes Reuters. AI hyperscalers’ debt issuance has reached $220 billion in 2026, roughly $207 billion higher than in the comparable period last year, when it totaled $12.5 billion. Investors are now are increasingly demanding higher yields to accommodate the flood of issuance. Amazon’s recent long-dated $25 billion bond sale priced at roughly 120 basis points over Treasuries. Last year, the spread would have been roughly half of that. This development has raised concerns that a tipping point could emerge if AI spending continues to escalate, and is not matched by at least similar increases in cash generation.
It is in this environment that the US finds itself stuck in the quagmire that is its War on Iran.
The latest “cunning plan” coming out of Washington is to further sanction Iran. US president Trump has threatened “tremendous economic consequences” for any nation that does business with Iran, without offering details, writes The New York Times. NYT notes this announcement comes after the US has imposed debilitating sanctions on Iran’s economy and its leadership for some 50 years already. As a result, today, the only countries still doing semi-official business with Iran are China and Russia. Both are unlikely to heed Mr. Trump’s warning. US Trade Representative Jamieson Greer told Axios in an interview that in over 25 years, China has never responded to western requests regarding its economic activity. Unsurprisingly, therefore, Chinese foreign ministry spokesman Lin Jian told reporters on Friday that “sanctions and pressure will not help resolve the issue” and that “China opposes illegal unilateral sanctions that have no basis in international law and are not authorised by the UN Security Council,” writes Channel News Asia. Meanwhile, the UAE, Turkey, Pakistan and Iraq do mostly covert, indirect, under-the-radar business with entities in Iran, using styles and means designed to prevent detection. It is unclear how this part of Iran’s foreign trade will be affected by the latest warning, since it is designed to avoid US sanctions.
At 3W we truly struggle to imagine how sanctions could deliver the US a decisive victory. If this were possible, would the US not have used this lever, rather than going to war? Is this not the normal course of action in geopolitics, that one tries to achieve by economic means what one cannot achieve via diplomatic means? And that one resorts to military means, considering the costs involved, only if one cannot achieve its aims via diplomatic or economic means? Perhaps the US policy makers are extremely smart, seeing something that no one else can see at this stage… Or perhaps they are extremely stupid, clutching at straws, believing in their own propaganda, because they cannot yet mentally accept the reality of defeat.
This makes the real question today, who will blink first and offer significant compromises, the US or Iran?
Bloomberg writes that Iran’s president has urged an end to the war with the US, since he fears the economic implications of the current stalemate. “It would be better to end the war today, when we have power and dignity, and with the whole world acknowledging our victory,” Masoud Pezeshkian said. Bloomberg notes that Pezeshkian, Foreign Minister Abbas Araghchi and lead negotiator Mohammad Bagher Ghalibaf have been vocal advocates of ending the war through diplomacy and prioritizing economic recovery since the signing of a now-collapsed ceasefire.
Other Iranian officials, specifically those leading the country’s national security institutions, believe they have more to gain from withstanding US economic pressure and maintaining control over the Strait of Hormuz than they do from making major concessions in a negotiated deal, writes The New York Times. 3W notes this latter group is quite clearly in power, since they correctly forewarned events over 2025 and 2026.
The New York Times is pushing the narrative that the new US sanctions regime is already having a big impact on Iran. Mohammad Bagher Ghalibaf, who is Iran’s lead negotiator, told a gathering of business leaders in Iraq that his country will be planning to deal with the situation that has been created, focusing on enabling trade via overland routes, writes NYT, which calls this statement an admission that Iran is hurting. Elsewhere, NYT writes Iranian are already “feeling the toll” of the US’s economic warfare.
At 3W we also believe that iran is undoubtedly affected by the US actions, both military and economically. But, since Iran has 50 years of experience with being sanctioned, coupled with the unwillingness of its main supporters Russia and China to end their support of Tehran, we believe Iran is unlikely to end up blinking first in the current standoff. Instead, it will try to absorb the pressure, while increasing the pain on the US. For this reason, Iran threatened its neighbours that if they support the US “economic warfare” on Iran, Iran will target them militarily, writes The Associated Press. Those neighbours would then be considered enemies and “we will target their interests,” said the leader of Iran’s Supreme National Security Council, Mohsen Rezaei. Bloomberg writes this risks Iranian attacks on energy infrastructure across the Arabian Gulf, in particular the infrastructure used to bypass the Strait of Hormuz. In our 3W view, however, the Iranian threats are also directed at the countries upon whom it depends for its overland trade with Russia and China.
Our 3W focus, therefore, is on the financial crisis brewing in the US, and the economies of its main allies. That will indicate how long this standoff will last.
On this subject, Qatar is rapidly approaching crisis. It has been forced to halt its liquefied natural gas production for six months already, as a result of which it has had to slash government department budgets by up to 30 per cent and cut funding for overseas aid by about 85 per cent, writes The Financial Times.
If the US can manage these pressures brewing in its economy and the economies of its allies, the world will be in for a long standoff. If it cannot, and the bond market stress makes this the most likely outcome in our 3W view, the War on Iran will be for the US what Afghanistan was for the Soviet Union – the military defeat that set off a chain of events that eventually ended the Soviet Empire.