Quagmire of the Vanities

Key Points:

• Donald Trump claimed the Iran war is progressing better than expected, but the conflict has become a quagmire largely driven by his refusal to admit defeat, leading to a prolonged and weakening U.S. position.
• The closure of the Strait of Hormuz and attacks on shipping routes by Iran’s allies have disrupted oil supplies, causing oil prices to hover around $100 per barrel, with the effective cost to consumers being much higher due to refining capacity shortages.
• Refining capacity constraints, exacerbated by the Iran war and Ukraine conflict, have caused petroleum product prices to rise sharply, resulting in an effective oil price closer to $140 per barrel when considering the crack spread.
• The surge in energy prices, combined with new tariffs imposed by Trump, threatens to reverse recent inflation improvements and likely will lead to higher interest rates, increasing financial pressure on families and businesses.
• With reports of the U.S. military escalating its presence in the Middle East amid Trump’s “revenge mode,” there is a risk of further conflict escalation, which could worsen both economic and human consequences.