The Point of No Return

This is now week four of the Iran war with no end in sight. The pattern of the war has stayed fairly consistent from the start - the U.S. and Israel pound Iran incessantly with their air superiority while Iran blocks the Strait of Hormuz with their superior tenacity. The strategic miscalculation the U.S. military made was believing that after having attacked Iran last June that they can just show up whenever they want and start carpet bombing the country without any consequence. It was a foolish mistake and a strategic blunder. And now Iran has total control over the Hormuz without any contemplation of de-escalating. The only ships going through Hormuz are Iranian ships selling oil at a massive premium. Why would they de-escalate when they are MAKING MONEY from this war. They know they are going to get attacked regardless of what they do, so why not benefit financially? Why would Iran capitulate to two nuclear powers that have attacked them incessantly?

Over this past weekend Trump threatened to attack Iran's power plants and Iran countered with the threat to attack Gulf States power plants, so Trump quickly backed down further eroding his credibility. We are told this detente is for five days, but I doubt that plan will ever happen. Which means that Trump is running out of options. The U.S. is not going to put troops on the ground in mainland Iran, because the scale of the operation would be similar to Iraq and likely the same end result. So Trump's last option is to attack Iran's main oil terminal Kharg Island and use it as a bargaining chip to open Hormuz. It's very likely this five reprieve is a countdown to Kharg Invasion.

A Kharg invasion would escalate this war to a new level because it would cut-off most of Iran's oil exporting capability at least short-term and Hormuz is already sealed so oil could easily hit $150 from where it is now ~$100 (brent crude). U.S. war planners are convinced that such a move would shift the calculus of the war in U.S. favor but it would ALSO accelerate the collapse of global financial markets which are already imploding due to the war.

Which gets us to the financial markets:

Even without a Kharg Island strike, global energy prices (gas and oil) AND interest rates will move inexorably higher for the rest of the year. Which means the economic damage is done and we have now reached a point of no return even if hostilities ended this week. I believe that the U.S. is already in recession based upon recent weak GDP figures, and the imploding jobs market, both of which were already weakening before this war started. However, now because of the war, the t-bill market is only pricing in one rate cut for the rest of 2026. Make no mistake this war is a TOTAL economic disaster for the U.S.

Globally it's far worse. Central banks from the ECB, BOJ, BOE, Canada and Australia are all now planning to raise interest rates into an incipient global depression.

Ironically, I showed right before the war that oil was pointing to an incipient global deflation.

I made this chart back in January and I showed that oil was not following the rest of the AI commodity sector higher. And I asserted that oil is a better indicator of consumer demand than the AI investment bubble. But then we got the spike in oil and now central banks are all assuming that commodities are going to drive inflation.

Look at 2008, did it drive inflation back then? Straight up, and straight down.

Fooled again.

On Twitter I asserted that this can either go the way of 2008 or 1929. Slow or fast.

Slow means that we're already in a recession but the final markets collapse could be months from now. Which means that markets will meander lower to the frustration of everyone.

2008 deja vu.

Or, we get the crash sooner than later. Then we get a headfake "everything is saved" central bank bailout bounce. And when short covering ends, the markets roll over into the abyss.

1929 deja vu.

In summary, Kharg Island is 1929. And it's Trump's last good option.

At least that's what he is being told.

So buckle up. This is intermission.