Cogito Ergo Non Serviam
US, Iran Exchange Fire
The United States and Iran continue fighting each other during the ceasefire that allegedly came into effect in April. The Iranians appear to have shot down a US helicopter in the Strait of Hormuz, despite the White House claiming Iran has no military left. So, Mr. Trump felt he had to retaliate, striking several targets in Iran, including two reservoirs leaving many non-combatants without drinking water. Iran, therefore, let fly some missiles that hit US bases in the Gulf. If Mr. Trump wants to escalate, here is his chance, but it is TACO day everyday at the White House. Trump Always Chickens Out is why this will peter out here.
Neither the US nor Iran (but not Israel) wants the war to really start up again. Iran really has taken a pounding, and their belief that they are winning is based on the simple fact that they have not been knocked out. They would prefer no more punches be thrown. The United States has not suffered militarily but has completely lost the economic war. Gasoline is above $4 a gallon, and the inflation rate announced this morning is at a 3-year high of 4.2%. If the Strait of Hormuz does not open soon, the reserves of oil that have cushioned the blow so far will fade.
JPMorganChase put out a report a month or so ago saying that June is when the world hits its operational stress level this month. “operational stress levels refer to a state where commercial and strategic oil inventories are drawn down so low that the physical system (such as pipelines, storage terminals, and refineries) can no longer absorb supply disruptions without severe logistical difficulties.”
If the Strait is still closed in September, the market will reach its operational floor. This will be the most serious energy event since the Second World War if it occurs. Below this level, the physical system for pumping, refining and distributing oil products starts to fail. Pipelines will not have enough pressure to move the oil.
Stephen Innes, writing for Investing.com, stated, ". . . once inventories breach that operational floor, there are no buffers left to lean on. The system shifts from managing flows to enforcing discipline, and that discipline comes through price. Either supply returns, or demand is forced lower, and history shows the latter tends to arrive faster, and far more brutally, than anyone is willing to admit upfront."
This is what economists call "demand destruction." Demand for a product is at 100 widgets at a given price. The price rises because of a supply shortfall, and as a result, buyers who still want 100 can only afford 80.
In other words, things are bad, but if the Strait does not open by September, October at best, the price of oil will shoot up and demand will drop. That unleashes a partial global recession. If the world is lucky, it is only partial affecting only the poorest consumers.
Both the Iranians and the Americans know this (although whether the US president cares to know it is another matter). That is why Iran is being strategically patient. While things are bad in Iran, they are not going to get appreciably worse if the oil market blows up. In a sense, Iran has the strength from having nothing left to lose. It is also why the American president is desperate to end the war. He cannot afford his ballroom and reflecting pool if the economy crashes.
The sticking point is the Iranian nuclear program and its 450 kilos of highly enriched uranium at 60% U235. Mr. Trump has failed to change the regime, and the degradation of the Iranian military appears to have been irrelevant to the conflict. Mr. Trump can have the Strait open tomorrow if he and the Iranians can agree on steps toward ending the US blockade and Iran opening the Strait. Mr. Trump has nailed his colors to the mast on the HEU, though, and he is not going to get it.
The best advice is to buckle up because the ride is going to be extremely bumpy, whether the missiles fly or not.
© Copyright 2026 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.
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