From the preceding month, the PCE price index for April increased 0.4 percent. Excluding food and energy, the PCE price index increased 0.2 percent.

From the same month one year ago, the PCE price index for April increased 3.8 percent. Excluding food and energy, the PCE price index increased 3.3 percent from one year ago.

There is no mystery as to why inflation has returned: the United States, like the rest of the world, is experiencing an energy price shock as a result of Iran’s illegal closure of the Strait of Hormuz as part of the war between the US and Iran.

What is remarkable is that, somewhat contrary to expectations, the impacts of that energy price shock have not extended beyond energy prices into other goods and services, despite the rise in a variety of commodities prices and inputs.

Energy price inflation pushed the headline PCEPI number higher year on year, yet month on month consumer price inflation eased at the headline level, at the core level less food and energy, and for energy prices themselves.

One result of this fairly muted response to the continuing war with Iran was that Wall Street was able to project April’s PCEPI inflation numbers almost exactly.

That the inflation numbers were fairly easy to project is confirmed by the Cleveland Fed’s inflation nowcast projecting April’s numbers with the same accuracy.

Despite the ongoing war with Iran, the PCE Price Index, the Federal Reserve’s favorite consumer price inflation gauge, showed inflation cooling month on month, resulting in a slower increase year on year.

Despite the ongoing war with Iran, consumer price inflation per the PCE Price Index is more of the same in April that printed in March.

If the Strait of Hormuz remains closed, that will not remain the case indefinitely. Cost pressures are building in the economy, and at some point we will see broader price increases for more than just energy prices.

We are not seeing them yet.

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Little Room For Corporate Media Hype

The April PCE inflation data ironically gave corporate media little with which to spin their typically anti-Trump narratives. While corporate media headlines snarked about inflation rising at its fastest pace in three years, the buried lede was that April’s rise was less than March’s.

Economists polled by Reuters had forecast PCE inflation increasing 3.8% year-on-year. The PCE price index rose 0.4% month-on-month in April after shooting up 0.7% in March.

The nuance—ignored by corporate media—is the impact of cooler month on month inflation numbers.

A cooler month on month metric means that inflation’s rise year on year slowed in April rather than rose.

We should not pretend that April’s cooling indicators mean the worst of the price shock in energy is necessarily behind us. Consumer price inflation is still here, and the year on year numbers are higher than late summer in 2023.

We should, however, acknowledge that inflation has yet to heat up as it might, should the standoff between the US and Iran in the Persian Gulf persist.

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Energy Price Inflation Eased On Stabilizing Oil Prices

The elevated inflation metrics for April tell us that prices are indeed higher, with energy prices leading the way month on month, with April’s percent increase less than half of March.

The reality is that energy prices overall were showing signs of stability, albeit at a higher level than before the war with Iran.

Oil prices had actually been inching downward in the first part of April, before rising at the end of the month.

The price stability of early April helped move market prices for gasoline and diesel lower, with the increases not emerging until the last week or so.

Even the EIA’s retail price data for gasoline and diesel fuel showed stability during April.

The stabilization trend was confirmed by private reporting of retail gas prices.

There is an important distinction to be made between prices that are high and prices that are getting higher. For most of April, energy prices, and fuel prices in particular, were high but did not go higher until the end of the month.

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Food Price Surge

The one clear inflation pain point for April was the surge in food price inflation.

However, the month on month surge, while the highest since President Trump took office in January 2025, did not translate into a notable year on year increase.

Food prices rose significantly in April, but even so the longer trend is still one of stability. While current stability is no indicator of future pricing, it once again leaves us at the point of “not yet” when considering the worst case ramifications from the energy price shock which began in March.

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Goods And Services Eased

The clear sign that the energy price shock has yet to move beyond energy prices was the significant cooling of non-durable goods price inflation.

Even though durable goods prices ticked up in April, non-durable goods declined, and were joined by service prices.

Year on year, non-durable goods increased again, after being the only core category to surge dramatically in March.

Durable goods, which had been rising since well before the war with Iran began, changed little year on year.

Most significantly, month on month inflation for energy goods and services greatly outpaced nondurable goods and services.

Within the US, the energy price shock has been contained to energy prices.

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It Can’t Last

While energy price inflation is a significant discomfort to people, especially as it translates into retail gasoline prices, that the surge in energy prices has not translated into higher prices for other goods and services, broadly speaking, is itself noteworthy.

It is particularly noteworthy because, unless there is a peace deal struck between the US and Iran that reopens the Strait of Hormuz to shipping, that can’t last.

Globally, closing the Strait already means that stagflation is stalking the world’s economies.

Not only are energy prices up, globally, but key industrial commodities are rising as well.

Copper reversed its price decline towards the end of March and is continuing to rise.

Tin showed a similar trend towards increase beginning in late March.

Molybdenum has shown far less volatility, but it also has move sharply higher.

We will have to wait until the May data for both the Consumer Price Index and the Producer Price Index come out to see how much these non-oil manufacturing inputs are contributing to consumer price inflation within the United States.

We do not need to wait to see that these are real cost pressures. Commodities are industrial inputs, as a rule, which is to say that an increase in the price of various commodities is an inescapable increase in the cost of producing a variety of goods and services.

While manufacturers may opt to absorb those cost increases before passing them on to consumers, that will only last so far. If the inflationary price trends among various commodities continues, those cost pressures will result in consumer price inflation for a variety of durable and non-durable goods.

The energy price shock is for now limited to energy prices. That will not last indefinitely. It can’t last indefinitely.

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More Of The Same Inflation…For Now

With the war with Iran ramping up at the end of February, my assessment of the February PCE data was that is was the end of “more of the same”. For pre-war prices, that was absolutely true.

Ironically, the April PCE data has been largely a repeat of the March data. Once again, we have “more of the same” inflation, but with an energy price shock in the mix.

We have energy price inflation, and that is creating headline consumer price inflation within the PCE data just as it did within the CPI data. We also have food price inflation.

Beyond that, we are not yet seeing much in the way of new inflation pressures.

With rising commodities prices, it is only a matter of time before those trends translate into higher consumer prices. It may very well prove to be the case that May will be the month we see the energy price shock from Iran’s illegal closure of the Strait of Hormuz translate into a true stagflation phenomenon.

Globally, we are already seeing supply constraints for oil, for natural gas, and for a variety of industrial input commodities. Stagflation occurs when supply constraints push prices higher, particularly when it happens on top of a weak, underperforming economy. Iran’s lawlessness has provided the global economy with the supply constraints necessary to catalyze stagflation globally, and it is only a matter of time before those supply constraints begin to impact the US economy.

The April PCE data is hardly good news as far as inflation is concerned. 3.8% inflation is a sharp reversal from where inflation was just two months ago.

Yet the April PCE data does offer one significant bit of comfort: It is, in most respects, a milder repeat of the March data.

The April PCE data is more of the same war-inflected consumer price inflation data. We will not see “more of the same” indefinitely. We may see an end to “more of the same” in a few weeks with the May inflation data.

Consumer price inflation has indisputably risen, and risen by a lot. Energy prices have increased by as much as 50%, and fuel prices by even more than that.

Yet the stagflation shoe has not really dropped for the US economy—not yet. If the standoff in the Persian Gulf continues, or if hostilities are resumed, that shoe will drop, but for now we have the paradoxical “comfort” of “only” having to contend with energy price inflation.

The April PCE data is not at all good news. It is, however, a far cry from the worse news that we will soon be seeing if there is not an outbreak of peace between the US and Iran.

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Yet oil prices are not rising, as Wall Street seems largely convinced that the Strait of Hormuz will be reopened literally any day now. Iran and the US will come to terms, the Strait will reopen, and everything will revert back to the way it was before the start of Operation Epic Fury.

At least one investment bank, however, is ditching the hopium, presumably for a more sober and judicious assessment on the Middle East. In that assessment, the Strait of Hormuz stays closed for at least now, which will eventually push oil prices to new highs.

“We think the Strait of Hormuz remains largely closed for months yet, meaning shortages become more urgent and oil hits new highs this Summer,” according to a recent note from the investment bank’s energy and macro teams.

While the implications on oil prices of a prolonged closure of the Strait are both obvious and closely followed, what gets lost in the focus on energy products are the efforts Arab nations in the Persian Gulf have made to diversify their economies. Oil flows are disrupted, but much more flows through the Strait than just oil.

Even more economic output depends on access to oil from the Persian Gulf.

As the standoff between the United States and Iran continues, and with the US rejecting Tehran’s latest “draft Memorandum of Understanding,” a reality of rising commodities prices and constrained supplies is settling over the global economy.

Stagflation is stalking the global economy. Demand destruction must follow, but how much will be needed to restore balance?

The Strait Of Hormuz Is Closed For Business

Make no mistake: no shipping has transited the Strait of Hormuz since right after the start of Operation Epic Fury. All publicly available shipping data points to the same conclusion: the war between the US and Iran has slammed the door shut on Persian Gulf shipping.

Data released between 11-13 May 2026 indicates that commercial traffic through the Strait of Hormuz remains far below pre-war levels, as measured by vessel tracking and trade data cited by the Center for Strategic and International Studies. Daily tanker and cargo ship transits remain far below those recorded prior to the United States/Israel offensive on Iran in November 2018. While some vessels may operate with automatic identification system signals switched off, publicly available traffic data show no broad recovery in flows.

The collapse of cargo traffic through the Strait was immediate and complete, as confirmed by IMF Portwatch shipping data.

The near total collapse in tanker traffic also confirms that the US Navy blockade of Iranian shipping is also having an effect. With next to no tankers transiting the Strait, Iran’s closure of the Strait means Iran is also not shipping any oil.

Yet dry bulk cargo vessels, of which quite a few had been moving through the Strait before the war, have also ceased to transit the international waterway.

The Strait of Hormuz is closed. It does not matter what sort of ship one considers; all classes of cargo vessel are denied transit passage through the Strait.

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Oil Prices Are Stable…For Now

Despite the closure of the Strait and the denial of Persian Gulf oil flows to the global economy, energy prices have broadly stabilized and even been trending down recently, as markets respond ever hopefully to the latest news reports on the peace talks between Iran and the US.

While stabilizing prices are, on the face of it, a good thing, what is not good is that the stability (such as it is) comes when oil prices are more than 40% above pre-war levels.

That stability, however, is somewhat illusory, as it comes as countries are releasing large amounts of their strategic oil reserves to buffer the oil supply shock that began when the Strait of Hormuz was closed.

The United States has released much of the oil recently added to the Strategic Petroleum Reserve over the past thirty-two months.

Notably, US commercial stocks, while having been drawn down, are still within the same broad range as they have been. While the releases from the SPR are significant, the SPR itself is far from the only oil inventory the United States can access on demand.

Separately, the IEA responded to the first announcements of the Strait’s closure by coordinating among its 32 member nations a release of some 400 million barrels of oil from reserves—one-third of physical reserves, and nearly one-fourth of total oil reserves.

IEA members hold emergency stockpiles of over 1.2 billion barrels, with a further 600 million barrels of industry stocks held under government obligation. The coordinated stock release is the sixth in the history of the IEA, which was created in 1974. Previous collective actions were taken in 1991, 2005, 2011, and twice in 2022.

There is a limit to how much buffering is possible with releases from strategic oil stockpiles, however. Oil reserves might be large by nearly every standard imaginable, but they are finite. The lower oil reserves get the less buffering is feasible, and the greater the inflationary pressure on oil prices.

Already, energy analysts are growing wary of how much longer strategic reserve releases can contain oil prices.

The message from this week’s SPR and commercial inventory data could not have been clearer. Combined crude inventories fell by 17.8 million barrels, the largest drawdown since records began in 1982. In effect, Washington is buying time. The administration appears to be using strategic reserves as a temporary liquidity bridge while diplomats attempt to engineer some form of stabilization with Tehran before the physical market begins forcing a much harsher adjustment through price.

The longer the Strait is closed, the closer oil markets get to the point where the buffering of strategic oil releases breaks down, at which point oil prices move sharply higher.

We have already had one oil price and supply shock. If this war continues long enough, we will have another one, and almost certainly it will be a greater one.

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Aluminum, The “Other” Middle East Export

While oil somewhat understandably grabs the economic headlines regarding the war between the US and Iran, the disruption of another commodity is creating its own economic turmoil: aluminum.

As countries such as the United Arab Emirates and Qatar have sought to diversify their economies, one industry they have moved into in a big way has been aluminum smelting.

Three of the top 15 aluminum exporting countries in the world are now situated in the Persian Gulf.

1. Russia: US$9.6 billion (12.3% of total aluminum exports)

2. United Arab Emirates: $7.8 billion (9.9%)

3. Canada: $7.5 billion (9.5%)

4. Malaysia: $5 billion (6.3%)

5. India: $4.2 billion (5.3%)

6. Norway: $4.16 billion (5.3%)

7. Australia: $4.07 billion (5.2%)

8. Bahrain: $3.5 billion (4.5%)

9. Netherlands: $2.7 billion (3.5%)

10. Iceland: $2.2 billion (2.8%)

11. Qatar: $1.93 billion (2.5%)

12. Italy: $1.86 billion (2.4%)

13. South Africa: $1.78 billion (2.3%)

14. Indonesia: $1.6 billion (2%)

15. mainland China: $1.56 billion (2%)

Taken together, the Arab countries of the Persian Gulf account for roughly 9% of global aluminum supply, all of which is bottled up in the Persian Gulf, courtesy of the IRGC.

While oil prices have moved down in recent days, aluminum prices have risen steadily since the war began, even as oil prices have not.

The catalyst for the price increases is not hard to fathom: the outbreak of war almost immediately impacted aluminum production in the Middle East.

The closure of the strait has already forced some smelters to curtail operations. Qatar’s Qatalum said on March 12 it would reduce production by about 40%, while Aluminium Bahrain said it was shutting down about a fifth of its capacity on March 15. Industry executives have warned that if the strait remains closed, further production cuts will be unavoidable — potentially pushing prices above the 2022 record.

While China has sought to leverage the supply disruptions in aluminum with increased production, markets are now becoming fearful that even China may about to trim aluminum production, pushing prices even higher.

Chinese authorities are now moving to rein in that over-production as inventories swell. A smelter in Baise, Guangxi province, has already cut output of molten aluminum, Mysteel wrote, without providing estimates of volumes affected. The steel and oil refining industries will also be targeted, the Ministry of Industry and Information Technology said in a statement on May 13.

The behavior of aluminum prices tells us what will happen to oil prices should the buffer of strategic reserve releases become exhausted. There is no strategic reserve of aluminum, and so wartime disruption of Middle East production has resulted in a steady and ongoing rise in aluminum prices. When supply is constrained and not buffered, when scarcity is artificially introduced into the market, prices of anything will rise accordingly, without fail.

The behavior of aluminum prices today is what the behavior of oil prices will be tomorrow. If the buffering effect of strategic reserve releases ends, oil prices will rise sharply. Of that there can be no doubt.

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Other Commodities Are Also Rising

Last month I explored how the war with Iran was putting stagflationary pressures on China.

Not the least of these pressures were because of sharp price increases in industrial materials such as sulfur, bitumen, styrene, and polyethyline.

Meanwhile, other commodities prices, such as copper, tin, and molybdenum, are also showing inflationary pressures since the war began.

In a quirky reminder that inflation and stagflation are also price distortions, a few commodities such as palladium and rhodium are showing price reductions since the war began.

Perhaps most ominously for global food security, grain prices such as for wheat and rice are also moving upward.

One important caveat regarding food prices: prices for wheat and rice started rising well before the start of Operation Epic Fury. Although the war with Iran has certainly not helped matters, food price inflation is one area that we cannot put all the blame on Iran’s illegal closure of the Strait of Hormuz.

With staples such as wheat and rice becoming more expensive over time, food price inflation is a foregone conclusion, with a corresponding rise in food insecurity not far behind.

More broadly, inflation, instability, and volatility are creeping into a broad swath of commodities markets. Commodities themselves are invariably inputs into other production processes, making rising commodities prices rising costs—something we have seen reflected in rising US PPI for Intermediate Demand.

While US consumer price inflation has not yet shown significant increases outside of energy related products, one does not need a PhD in economics to grasp that continued price pressures in the production process will eventually translate into increased prices for consumer goods of all kinds. As production costs rise, as factory gate inflation continues to arise, particularly for intermediate demand (which shows the inflation’s impact on manufacturing supply chains), there is no place for those cost increases to go but into consumer prices. We may not be seeing broad consumer price inflation yet as a result of the war’s price and supply shocks, but it surely is only a matter of time before we will.

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Multiple Shocks

The economic impact of the war with Iran is naturally most visible in its impact on oil prices. Oil is the most significant and most visible export from the Persian Gulf, as well as the one with the most volatile pricing.

Yet Iran’s illegal closure of the Strait of Hormuz was from the outset completely indiscriminate. Iran blocked all shipping, not just oil tankers. The disruption in oil flows was also the disruption in aluminum flows as well. If a good moved through the Strait of Hormuz, Iran disrupted that movement.

Energy prices also play into smelting and refining metals such as copper, tin, and molybdenum. The price shock in oil has only increased inflationary pressures on those commodities. As oil prices reach the end of near term stabilization when strategic reserve releases are trimmed back, the secondary price shock in oil will almost certainly push commodities with high energy footprints even higher.

From the one price and supply shock in oil comes multiple other price shocks in various industrial commodities. The price and supply shock in oil is also not helping ward off rising food prices. The disruption of other Persian Gulf exports such as aluminum merely adds to global economic stress.

We are already seeing the impact of these price shocks in producer prices, both here in the US and in China. The limits of petroleum reserves tells us that, unless there is a peace deal brokered soon to reopen the Strait of Hormuz, we will soon see more price shocks.

There is no escaping the reality that these price shocks are what triggers stagflation. Stagflation is what arises when there is a sudden drop in available supply, and the global economy is seeing reduction in supply across an increasing range of commodities and production inputs.

When supply drops in this fashion, the only way back to any sort of pricing equilibrium is for demand to drop in order to match supply. Once stagflation takes a big enough bite out of an economy, demand destruction is the next inevitable step. That is the other shoe that must eventually drop and land on the global economy.

Stagflation is already here. Barring a quick end to the war with Iran, demand destruction and recession will soon follow. Demand destruction must happen—people and businesses must eventually buy less and consume less. There are no economic alternatives. Either supply is restored or demand must be destroyed.

The only question as yet unanswered is how much demand destruction will we endure while the world’s economies rebalance themselves?

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As DNC Chair Ken Martin belatedly admitted when releasing the report, the document was an even bigger dumpster fire than the Democrats’ efforts in 2024.

Martin issued the following statement to CNN:

“When I was elected DNC chair, I commissioned an after action review of the 2024 election that I wanted to be honest and transparent, and with actionable and specific takeaways for the future of the Democratic Party. When I received the report late last year, it wasn’t ready for primetime — not even close — and because no source material was provided, it would have meant starting over. I could not in good faith put the DNC’s stamp of approval on the report that was produced.”

“After last November’s massive Democratic wins, I didn’t want to create a distraction, but by not putting the report out, I ended up creating an even bigger distraction. For that, I sincerely apologize. For full transparency, I am releasing the report as we received it, in its entirety, unedited and unabridged. It does not meet my standards, and it won’t meet your standards, but I am doing this because people need to be able to trust the Democratic Party and trust our word.”

I’ve read the report. Martin is being kind. The polite way to describe the report is that it is pure garbage.

The report is incomplete. Whole sections, such as the Executive Summary, are missing entirely. Sourcing and attribution are nonexistent. Some of the asserted facts are of questionable accuracy or simply wrong. I would call the report “amateurish” but that would be an insult to amateurs everywhere.

The structural defects of the report itself negate any informational value it might have. Its presentment of factual assertions and the conclusions it draws from those factual assertions are fatally tainted by the gaps in the reports assemblage.

As an analysis of the Democrats 2024 campaign efforts, the report is worthless.

Why mention the report, if it is as bad as all that? The report is as bad as all that, but it warrants mentioning because of the utter absurdity that it was even necessary. Everything about the Democrats 2024 implosion was reported and documented in 2024. All the leg work for a real introspection into 2024 has already been done.

It was known long before Kamala Harris acceded to the nomination that she was a flawed candidate with ample baggage of her own.

It was known long before the disastrous June 27th debate that Joe Biden’s cognitive decline would be a factor in the election.

It was known almost from the outset that Kamala Harris’ campaign had a problem with messaging.

It was known as the election cycle drew to a close that Kamala Harris’ campaign was not capable of making smart, sensible, strategic decisions.

It was clear from the polls leading up to the election that Democrats were bleeding support among core constituencies.

The autopsy report itself ultimately is irrelevant because everything it purports to discuss was already known. Nothing was revealed in the report because there was nothing left to reveal.

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February 2024: Biden’s Cognitive Impairment Confirmed

The warning signs that a Kamala Harris campaign would be a problematic effort at best emerged very early in 2024, after Special Counsel Robert Hur declined to prosecute Joe Biden for mishandling classified documents due to his age and apparent failing memory.

Specifically, Hur described Biden in his Special Counsel report as an “elderly man with a poor memory.”

Despite the obvious challenge to Biden’s fitness to serve a second term, there was no serious effort to promote Kamala Harris to the top spot at the time.

It is worthwhile to point out that, as the Robert Hur report was gaining traction in corporate media, Kamala Harris was faring worse in the polls than Joe Biden. Even among Democrats, a senile Joe Biden was provably viewed as preferable to Kamala Harris at the top of the ticket.

This was in February, 2024. The Democrats were faced with a clear problem about Joe Biden’s fitness to run for a second term and still concluded that Biden was a better choice than Kamala Harris.

You do not need an “autopsy” report to understand this. You only need to read the media reporting at that time.

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June 27, 2024: The Wheels Come Off The Biden Campaign

The end of June and the beginning of July, 2024, were days when months happened for the Democrats. There was, of course, Joe Biden’s disastrous performance in the June 27 debate against Donald Trump, where the extent of his cognitive decline was broadcast in prime time for the nation to see.

As Bari Weiss (then of The Free Press, before taking the helm at CBS) reported the day after, not only did the debate reveal the extent of Biden’s mental deterioration, it revealed the mendacity and complicity of corporate media in concealing it from the public. Corporate media was exposed as being little more than the propaganda department of the Democratic Party.

The Free Press

Bari Weiss: They Knew

Rarely are so many lies dispelled in a single moment. Rarely are so many people exposed as liars and sycophants. Last night’s debate was a watershed on both counts…

Read more

2 years ago · 3032 likes · 2142 comments · Bari Weiss

When Jake Tapper and Alex Thompson released their “tell-all” Original Sin in 2025, in meandering, evasive, and largely self-serving terms, they essentially admitted that Bari Weiss was right.

As disastrous as the debate performance was, however, it was arguably not the worst thing to happen to the Democrats at that point. A few days after that debate, the Supreme Court effectively demolished Special Counsel Jack Smith’s “J6” case against Donald Trump, acknowledging that Presidents cannot be indicted for performing their official duties.

Not only did Smith’s lawfare campaign against Trump get eviscerated, that ruling also put on pause the sentencing phase of Manhattan District Attorney Alvin Bragg’s “hush money” case.

The collapse of the lawfare cases against Donald Trump meant that there would be no avoiding further debates between Biden and Trump, and no way to shield Biden from further scrutiny over his increasingly questionable cognitive abilities.

Despite the rapid implosion of Biden’s re-election bid, Democrats even in early July still did not coalesce behind Kamala Harris.

Instead, there was aborted talk of having a “blitz primary” so Democrat voters could choose a suitable replacement for Joe Biden.

Their idea goes something like this, according to a memo shared with Semafor that has been circulated to Democratic donors and bundlers as well as officials within the Biden campaign and administration:

• Biden would step down as the Democratic nominee in mid-July, and announce the new system, with backing from Vice President Kamala Harris.

• Potential candidates would have a few days to throw their respective hats in the ring. The Democratic Party then would begin a primary sprint in which the six candidates who receive the most votes from delegates pledge to run positive-only campaigns in the month leading up to the convention.

• The “blitz primary” would involve weekly forums with each candidate moderated by cultural icons (Michelle Obama, Oprah, and Taylor Swift are among the names floated in the memo) in order to engage voters.

• The nominee would ultimately be chosen by the delegates using ranked choice voting before the start of the Chicago convention on Aug. 19.

• It would be announced with plenty of fanfare on the third day of the gathering. The memo imagines the nominee unveiled on stage with Biden, Barack Obama and Bill Clinton.

Even as it was glaringly apparent that Joe Biden was not going to be the Democratic nominee come the fall campaign, Democrat strategists and party leaders were not leaning towards Kamala Harris at all.

Let that sink in: Joe Biden’s campaign was imploding and all but over, and Democrats wanted anyone other than Kamala Harris to step in as the nominee.

Do we really need an autopsy report to conclude that Kamala Harris had a lethal amount of political baggage, when her own party did not want her to be the nominee?

Nor should we overlook how she came to be the nominee. Roughly thirty minutes after Biden posted to social media his letter withdrawing from the race, he made another social media post explicitly endorsing Kamala Harris as his heir apparent.

If one believes the (very credible) narratives that Biden was forced out, his last-minute endorsement of Harris might actually be the biggest “F*** You” in modern political history. At the very least, Biden short-circuited the previously discussed plans and machinations of the Democratic Party to pick someone other than Kamala Harris.

Do we really need an autopsy report to conclude that the Democratic Party had a major breakdown in party communications and strategy to be blindsided in this fashion? Bear in mind that up to that moment, the Democrats had their eye on anyone except Kamala Harris.

The party did not want Kamala Harris as their candidate—and this had been publicly reported throughout the first half of 2024. Yet, because of how Biden’s withdrawal was handled, the part found itself with Kamala Harris as their candidate.

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Human Trafficking

With Harris having moved into the nominee slot by the back door, her political baggage quickly became one of many albatrosses around her neck.

In particular, the debacle that had been Kamala Harris’ tenure as one of Biden’s “border czars” very quickly became an early target for Trump surrogates and alternative media outlets.

That part of her political resume was particularly damaging, as it brought back into the spotlight the very disturbing revelations I had discussed earlier in 2024, that roughly 85,000 children had been trafficked across the southern border, with at least the facilitation if not the outright complicity of the Biden Administration.

Nor should we overlook Tulsi Gabbard, among others, being targeted with Stasi-like surveillance under a reinvigorated “Quiet Skies” program run by the TSA.

Stories such as this gained traction particularly within alternative media outlets, even as they served to discredit corporate media outlets, which were again shown in the process to be fully complicit in the Biden White House campaign of censorship and repression.

The human trafficking angle would also get worse as the summer progressed, as media outlets reported that the number of children (“unaccompanied minors” in the anodyne argot of DHS) that were either trafficked or simply “lost” (and therefore almost certainly trafficked) was not 85,000 but at least 320,000.

The resulting narrative was not at all kind to Kamala Harris. The extant public record was showing the Administration—which is to say, Kamala Harris—effectively involved in child trafficking.

The Biden-Harris Administration is not properly vetting sponsors, and has not been properly vetting them. Whistleblowers report that this lack of vetting has gone on almost since the beginning of the Biden-Harris Administration.

Because the Biden-Harris Administration is not doing proper vetting, children are being released not into the custody of family or friends—people who would provide proper care. Because the Biden-Harris Administration is not doing proper vetting, children are being released into the custody of likely human traffickers.

To put it bluntly, the Biden-Harris Administration has been releasing hundreds of thousands of children into slavery.

To put it bluntly, Kamala Harris has been releasing hundreds of thousands of children into slavery.

Do we really need an autopsy report to recognize that a candidate who has to explain away such charges faces an uphill battle to secure a majority of voters in any state?

Again, the broad outlines of all of this were publicly reported and well known long before Biden stepped aside and thrust Harris into the spotlight. That the media attention only made the numbers worse serves to underscore just how deeply flawed Kamala Harris was the Democratic nominee. There were good reasons the Democrats did not want her to step into Biden’s shoes.

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Polling Revealed A Shambolic And Losing Campaign

By mid October, the public polling by Atlas Intel and others made it clear that Harris’ candidacy was in serious trouble.

The Atlas Intel polls in particular showed two very disturbing trends for Kamala Harris: 1) third party candidates like Cornell West and Jill Stein pulled more support away from her than from Donald Trump, making Harris vulnerable on both the right and the left. 2) A growing portion of the voter coalition Joe Biden assembled in 2020 was defecting to climb aboard the Trump Train.

Nor was there any great mystery why voters were turning away from the Harris campaign—the campaign itself sucked.

First there was her stance on “price gouging”, which carried uncomfortable parallels to Richard Nixon’s infamous 1971 attempt at price controls.

Nor did she just stop there. When she did discuss her economic plans, they included a heavy dose of Nixonomics, including rent control, while doing nothing to address the harsh reality that the 2022 hyperinflation cycle had resulted in a major loss of real income across all job sectors and income brackets.

Full disclosure: I was opposed to Harris’ economic proposals then and I still think that rent controls, price controls, and ignorance about declining real wages are a very bad policy mix.

However, the polling data made it clear that I was not alone in rejecting Harris’ economic vision in favor of Trump’s. Voters in 2024 had a bad feeling about the state of the US economy and that bad feeling was leading an increasing number of voters to support Donald Trump.

That is what the national poll data showed at the time.

The Pennsylvania poll data also showed that Donald Trump had surprising traction among groups that one would expect to be firmly in the Democratic camp, such as blacks, women, and “non-binary” voters.

The poll data also showed that Trump was doing better among the lower income brackets, while Harris fared well only among those earning $100,000 per year or more.

The Wisconsin poll data from that same period showed that Trump’s numbers were no fluke.

The poll data was clear and unequivocal: On the issues of greatest significance to voters, Kamala Harris’ messaging was either rejected or ignored. People either did not like or did not trust her economic proposals, and they gravitated to Donald Trump’s proposals, with Trump making significant inroads into traditionally Democrat demographics as a result.

Harris’ disastrous poll numbers in swing states also served to highlight the chaotic and profligate nature of her campaign itself, such as when her staffers hyped an appearance by Beyoncé at a Houston rally late in the campaign cycle, leading supporters to expect a mini-concert by the musical superstar, only to have her talk briefly and depart without singing a note.

That Harris was even bothering to campaign in Texas in late October, when it was clear she had zero chance of carrying the state, rather than the much more vital “swing” states such as Pennsylvania and Wisconsin, was itself a bizarre choice by the campaign. Capping that questionable logic with an apparent “bait-and-switch” with a major celebrity gave the campaign a shambolic yet cynical appearance. Such decisions certainly gave alternative media outlets yet another chance to portray Kamala Harris has cynical, contemptuous of voters, and utterly clueless about the struggles ordinary American are facing.

The consequences of such disastrous decision-making was revealed in the poll data well before Election Day. Every shift in core Democrat constituencies away from Harris and towards Trump was another confirmation that Harris’ campaign was an absolute hot mess of chaos and corruption.

Does it really take an autopsy report to discuss what was already public knowledge?

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The Autopsy Was A Mess. It Was Also Unnecessary

There was simply never any need for an autopsy report. Everyone watched the Democratic Party collapse in the Presidential contest in 2024. People already know why the Democrats lost. If the Democrats have any grasp on reality left, they know why they lost.

The brutal reality for Democrats is that the 2024 Presidential election contest saw the Democrats implode on every front.

The brutal reality for Democrats is that, in the 2024 Presidential election contest, America saw the Democrats implode on every front.

The brutal reality for Democrats is that, in the 2024 Presidential election contest, even corporate media reported that the Democrats were imploding on every front.

It was plain in early 2024 that the party had guessed wrong in letting Biden press forward with a re-election bid.

It was plain in early 2024 that Kamala Harris was the absolute last choice the Democrats had for an alternative to Joe Biden. Right up until Joe Biden made the it untenable, the Democrats made the judgement call that they would do better with a senile Joe Biden than with Kamala Harris.

It was plain that corporate media was completely in the tank for Joe Biden, and then for Kamala Harris, effectively telling voters not to believe their own eyes—and corporate media luminaries such as Jake Tapper admitted as much after the fact.

It was plain as Joe Biden’s campaign went off the rails after that disastrous debate that Kamala Harris’ baggage would not be easily offloaded. Her failures as border czar, the humanitarian nightmares created at the southern border by the policies of the Biden-Harris Administration, policies she effectively inherited having been Vice-President during their implementation, and the authoritarian abuses of the Biden White House against political opponents all were political deadweight weighing her campaign down.

It was plain as the election cycle wore on that Kamala Harris had either the wrong message or was ineffective at delivering the message (or both). She did not connect with voters on any of the issues that were of importance to the voters. She did not make a compelling case for the Democrats’ ideas on the economy, on immigration, on inflation, or on protecting “democracy” and civil liberties.

It was plain from the Beyoncé fiasco that Harris’ campaign was making horrible strategic and tactical decisions about where to campaign and where to direct campaign dollars.

The lunacy of the Democratic Party’s 2024 autopsy report is not that it is an inept, amateurish, incomplete pile of excrement (although it is). The lunacy is that the Democratic Party thought it needed to commission such a study to understand why the 2024 election turned out the way that it did, when the entire country had already witnessed the party’s election machinery completely disintegrate over the course of the election cycle.

There is no mystery as to why the Democrats came up short in 2024. The reasons why were amply documented and discussed during the election cycle itself. The only mystery now is how much longer can the Democrats remain in denial about 2024.

If the autopsy report is any indication, they will remain in denial for quite some time yet.

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1

For those who are interested, the complete DNC draft report, with annotations.

Democratic Party 2024 Autopsy Report

10.1MB ∙ PDF file

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It is noteworthy that his defeat had reverberations far beyond the Kentucky Fourth Congressional District, with a number of notable voices here on Substack arguing passionately for his re-election. Several sought to use their publications to help mobilize support on his behalf.

For them, Massie’s re-election was of almost existential importance.

At the same time, several alternative media outlets were quite opposed to his re-election. John Nolte, Senior Editor at Breitbart, was positively celebratory about his defeat.

While it’s glorious that this self-regarding narcissist lost, even more glorious is that he got himself humiliated by a ten-point margin — ten points — 55 to 45 percent, with 99 percent of the vote counted.

President Trump was dead set against Massie’s re-election, urging Kentucky to elect Massie’s opponent, Ed Gallrein, as the GOP standard bearer in this year’s mid-term elections.

To say that Thomas Massie provokes a wide range of responses is an understatement!

Full disclosure: I am no fan of Thomas Massie, as readers and followers can attest. When I have had occasion to mention him on Substack Notes, I have generally derogated him as “Cranky Thomas Massie”, a snarky play on his social media handle “Classy Thomas Massie.”

Yet was his defeat truly so surprising?

Why would Republican voters in his district turn on him after having elected him to Congress for seven consecutive terms?

One possible reason might have been that Massie was a demonstrably poor legislator. A search of Congressional records shows that not one single bill he introduced ever became law. In fact, Massie gained more notoriety for his tendency to vote “no” on all sorts of legislation, so much so that corporate media dubbed him “Mr. No.”

It was his penchant for casting “no” votes that earned him President Trump’s enmity. Last year Massie was one of two Republican congressmen to vote against President Trump’s “One Big Beautiful Bill” omnibus spending package. Massie was a reliably contrarian vote opposing many of Trump’s initiatives and tax cuts.

Was Massie “wrong” for voting against the President’s agenda so often? As with so many political questions, that’s debatable. I certainly cannot fault Massie for voting against the One Big Beautiful Bill, given that I described it at the time of its passage as “One Big Ugly Failure.”

Yet while votes against legislative behemoths such as the One Big Beautiful Bill might have some political and ideological justification, many of Massie’s “no” votes could be seen as frivolous and event cantankerous. Perhaps most notably, in 2022 he voted against a non-binding House Resolution condemning rising antisemitism in the United States. His stated rationale on X at the time was that the resolution “promoted censorship”.

That explanation, offered without any substantiation, is extremely thin gruel, as the text of the resolution does not argue for any new restrictions on speech, but merely declares that the House of Representatives is as a body opposed to antisemitic speech.

The paucity of his explanations and ideological defenses for even his own pet pieces of legislation highlights another of Thomas Massie’s legislative weaknesses: a conspicuous lack of advocacy for his own legislative agenda (to the extent he even had one). The most notable example of this is his curious failure to build out a political argument for his perennial one-sentence bill to eliminate the Department of Education. While Massie would say simply that the Department of Education was unconstitutional, you will not find any op-ed articles or other long-form writings arguing the how and why of the Department of Education’s unconstitutionality.

In yet another bit of irony, when Massie resubmitted the bill in 2023, I did explore the ins and outs of the Department of Education’s inefficacy and unconstitutionality.

The bill to eliminate the Department of Education was legislation I supported, and for all the same reasons Thomas Massie articulated. Yet the reality is that my own article in support of Massie’s bill was a far more comprehensive attempt to lay a Constitutional foundation for dismantling the Department than anything Massie himself ever put forward.

That lack of ideological illumination for a piece of proposed legislation indisputably important to Thomas Massie revealed a lack of political or ideological depth on his part. The relative shallowness of his convictions arguably is what led to such cringeworthy postings on X such as this one challenging the legitimacy of Joe Biden’s “ghost gun” regulations.

While Massie was broadly correct on the particular Constitutional merits of Biden’s proposed “ghost gun” regulations, the argument he made was simply absurd, as it ignored both the entirety of the Second Amendment and a President’s clear Constitutional obligation to ensure the laws are faithfully executed (which is the source of the President’s regulatory authority).

Arguably, Thomas Massie’s demonstrated legislative shortcomings as well as what must be acknowledged as mainly performative “no” votes were what left him vulnerable to attack by President Trump—whom voters in Massie’s district supported even more strongly than they had Massie. He had not been instrumental in bringing any Congressional funding home to his district. He had no clear legislative successes to which he could point to make a case that he had genuine political clout, able to deliver tangible benefits to the Kentucky Fourth Congressional District. His politics have proven to be performative rather than practical or pragmatic.

Simply put, Thomas Massie was not just an insignificant legislator on Capitol Hill, he was for the most part an irrelevant one. He did not reach out to build legislative coalitions to pass bills he thought were important. He was not willing to engage with other political coalitions, preferring instead to strike a “lone wolf” pose with a contrarian and usually ineffective “no” vote.

His penchant for contrarian votes, while a delight to many libertarian-minded and small government people, coupled with a conspicuous lack of a unifying political philosophy, ended up making his tenure in Congress more a performance piece than a serious legislative career. When contrarian votes demanded substance, a clear and thorough explication of the “why” behind such votes, Thomas Massie offered little more than snark, such as his gratuitously ad hominem post on X implying that President Trump’s war with Iran was intended as a distraction from the Epstein files.

Such commentary ignores the very real and very serious security and geopolitical issues that are at the heart of the conflict between the US and Iran. One need not agree that those issues justified Operation Epic Fury to acknowledge that those issues exist. At a moment when so many more relevant and substantive objections to the war could be raised, Massie provided merely a performative posting that reads more like the clickbait we get from social media influencer types and pretend journalist/commenator types like Tucker Carlson and Megyn Kelly.

Politics is, in the words of Prussia’s famous Chancellor Otto von Bismarck, “the art of the possible.” Politics is indisputably a team sport. Alas for Thomas Massie, he never showed much interest in being a team player. Had he been willing to be more engaging with other political interests and causes, he may very well have notched some significant legislative accomplishments. Had he been more forthcoming with a fully articulated political and legislative philosophy, he might have established a more ideologically committed base to stand with him when President Trump decided Massie’s contrarian stances were an irritant that needed to be removed from Congress.

This is not idle speculation. Great Britain’s decision to ultimately ban the transatlantic slave trade and emancipate its former slaves owes much to the tireless campaigning of one man—William Wilberforce. Between 1787 and 1823, Wilberforce by degrees moved the political needle in the British Parliament from supporting slavery because Britain’s monied interests liked it to banning the slave trade entirely in 1807 and emancipating former slaves in 1823. His position was not a popular one, yet by degrees, and through much political struggle and opposition, he ultimately succeeded where lesser men had failed. By focusing on what he wanted to accomplish, accepting compromise legislation when necessary, Wilberforce almost singlehandedly reshaped the British Empire.

Ultimately, Thomas Massie’s exit from the political stage should serve as an object lesson for all who would engage in politics at any level: the greatest impact, and the greatest durability, will always go to those who choose accomplishment over performative posturing.

If there is a moral to Thomas Massie’s Congressional career, it is that legacies are built on substance rather than snark.

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The Producer Price Index for final demand increased 1.4 percent in April, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices advanced 0.7 percent in March and 0.6 percent in February. (See table A.) The April increase is the largest advance since rising 1.7 percent in March 2022. On an unadjusted basis, the index for final demand rose 6.0 percent for the 12 months ended in April, the largest 12-month increase since moving up 6.4 percent in December 2022.

The 6 percent year on year rise was more than a percentage point above what Wall Street projected.

At 5.2% year on year, core producer price inflation was also well above Wall Street estimates.

In the space of just two months, headline producer price inflation nearly doubled, and core producer price inflation was not far behind.

The CPI print established that we are seeing the beginnings of stagflation seeping into the US economy. The PPI print is telling us that we are going to see more stagflation over the next month or so…but we may not see much beyond that.

The PPI print is bad. The PPI print may also be telling us the worst is either behind us or very nearly so.

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This Time, More Than Just Energy

A 6% headline PPI print year on year is never good news, but when it comes with a 5.2% core PPI print year on year, that is even worse. That is the PPI print we got for April.

Energy has been pushing the headline PPI data up since the beginning of the year, but in April the price surges extended beyond just energy.

Even month on month, core PPI was hotter than it has been at any time previously during the second Trump Administration to date.

Core producer price inflation had been cooling off since January. April ended that trend decisively. The sliver of good news from the March data evaporated completely in April.

We can’t point to energy prices as the culprit for core inflation—by definition the PPI data set segregates energy prices along with food prices to arrive at the core data set. This surge in core producer prices means there are price shocks and even supply shocks emerging besides energy prices.

In other words, stagflation is spreading.

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Energy Prices Hot, But Maybe Cooling?

While energy prices remained elevated in April, within the PPI data energy prices showed some disinflation after the March surge.

At 7.5% month on month, energy prices still showed the second hottest factory gate inflation print since the start of Donald Trump’s second term of office, but that it came in below the ultra-hot March print of 10% leaves at least a slender hope that there might be future cooling of inflation.

The April data also saw both unprocessed fuel prices rise marginally and processed energy goods prices ease slightly.

The market data shows a similar level of easing. Global diesel prices rose approximately 40% in March, while the Singapore Gasoil Futures contract rose “only” 17.6% in April, while the NY Harbor futures contract for diesel rose 9.8% and Europe’s Gasoil Low Sulphur contract rose 15%

Double digit percentage price growth in a single month is a large price increase. There is no avoiding that reality. There is also no avoiding the mathematical reality that 17% is less than half of 40%. Price inflation for diesel around the world was significant in April and considerably less than March. By definition we are seeing a decrease in inflationary pressures just within diesel fuel.

Maritime bunker fuel rates actually showed some decline in April.

After peaking in early April, fuel rates began to drop again, until April 21 (one week after the US Navy blockade took effect). Even with the rise at the end of April, bunker fuel prices were still below where they peaked earlier in the month. Despite the war with Iran, despite the closure of the Strait of Hormuz, in April we had outright deflation in maritime bunker fuel prices.

That the energy price surges are being driven by the oil dislocations in the Persian Gulf is self-evident. With roughly 20% of global oil supply either offline or in jeopardy, extreme price shocks are exactly what we would expect as a market response.

Even so, we can take some small comfort from the fact that the April surge was less than the March surge, and that the April surge was not across the board in all energy-related products. While we should take care not to extrapolate too much from just two months’ worth of price shifts, if March should prove to be when the inflation data peaked, the overall magnitude of the stagflation crisis we see unfolding in the US economy will be less than it could be otherwise.

That is, of course, me being hopeful. The data itself offers no assurance that we will not see future oil price surges dwarfing what we saw in March and April. April saw less inflation than March, but that is no guarantee that May will not see more inflation than April. With prices being driven primarily by the ebb and flow of war in the Persian Gulf, any change in the geopolitical status quo could either ease the stagflation crisis globally or exacerbate it globally. Neither outcome is improbable at the present time.

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Food Prices Crept Up, Along With Goods

In a sign that the inflationary pressures on energy are spreading into other items on the Producer Price Index, food price inflation flipped from deflation in March to rise 0.22% in April.

While the return of food price inflation is a signal that the inflationary pressures on energy prices are spreading beyond just energy, we should note that, a less than a quarter of a percentage point, the increase itself is incremental.

Goods prices showed a similar incremental increase from March, with inflation rising from 1.9% to 1.96% month on month.

Service prices, however surged by very nearly a full percentage point in April.

The rise in service price inflation accounted for 60% of the overall rise in the PPI for April. While energy is the obvious price shock, and a continuation from March, services were what drove most of the April PPI increase.

Within Final Demand for Services, the primary inflation driver was in Transportation and Warehousing.

While not a direct energy price itself, transportation prices especially are easily seen as “energy adjacent” (if only because of fuel costs), making them the obvious next layer of inflation to come after a surge in energy prices.

Rising energy prices are pushing up service prices. Given the ubiquity of transportation costs through out the whole of the US economy, as transportation prices are pushed up, we should expect to see other prices being pushed up in future months as well. The price surge is not going to remain limited to just transportation.

Even so, while we are seeing a surge in transportation prices, that is the only place we are seeing significant new inflationary pressures for April. Goods price inflation overall was not much greater in April over March.

When we look at retail fuel prices from the EIA, we have further confirmation that there are no new inflationary prices entering the picture. After posting a nearly $2/gallon increase in March, retail diesel prices largely plateaued for April.

While retail gasoline prices continued to rise in April, the pace of the increase was much slower than in March.

Are we nearing what will be the peak in retail fuel prices? The overall trajectory certainly suggests that fuel prices are nearing a ceiling level. That would also imply that transportation prices might not rise much further in coming months.

The data does not allows us to extrapolate to that degree with confidence, but the possibility is certainly there.

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Intermediate Demand Inflation Getting Worse

Where we do not see signs of a ceiling level is among intermediate demand prices. There factory gate inflation rose from March to April for each intermediate stage.

This is the clearest signal within the PPI data set that there is significant inflation still to work through to final demand goods and services, and from there into the Consumer Price Index. While we have reason to hope that some inflationary pressures may already be reaching a maximum, given the levels of disruption from the Persian Gulf, those pressures are still reverberating through the rest of the economy, and that means they will be pushing other prices up in May and June, and possibly beyond.

That is especially worrisome news when it comes to fertilizer prices.

While nitrogenous fertilizer manufacturing has been showing signs of inflationary pressure even back in January, well before Operation Epic Fury, phosphatic fertilizer manufacturing was showing no such pressure prior to April.

If we drop back to the year on year perspective, we see that nitrogenous fertilizer prices have been moving up since early 2025. Phosphatic fertilizer prices do not show much of any price increase before April.

Rising fertilizer prices mean a major cost in food production is also rising—a cost which is difficult to control without diminishing levels of food production itself. Cut back on fertilizer applications and harvest yields are likely to diminish. Both as a direct cost and as a secondary effect of reduced harvest yield, rising fertilizer prices today mean we are seeing a food price inflation surge building for later in the fall and into 2027.

April was a mild month for food price inflation. Future months will not be quite so mild.

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How Much More Inflation Will We Get?

The significance of producer prices is that they are seen as a leading indicator for consumer prices. Major inflation shifts often emerge in the producer price index first, and in the consumer price index a month or two later.

Certainly when we look at the Producer Price Index and the Consumer Price Index percent changes year on year, we see the CPI trend is roughly one to three months behind the PPI trend, particularly when there are major price shifts.

When the changes are smaller the correlation becomes a less certain, but when there are large shifts, they generally impact the Producer Price Index first.

If we see a peak in year on year inflation for the Producer Price Index, we may expect to see a similar peak in the Consumer Price Index in the very near future. If we see a trough in the PPI, a trough in the CPI is not far behind.

Right now, we are seeing a major surge in the PPI. This suggests there are future rises in the CPI for May and probably June also.

Yet we are also seeing signs at least within energy prices that the inflationary pressures pushing prices up may not get much worse than where they are at today. Energy price inflation may have already peaked, and other prices may be on the verge of peaking. Retail fuel prices may be reaching a ceiling level beyond which they are not likely to go.

We are seeing a major surge in the PPI, but we are also seeing signs the peak may not be far off.

While the final verdict on energy price inflation will only come when the Strait of Hormuz is finally re-opened as an international waterway (which itself is not likely to come before there is a final peace between the United States and Iran), it may very well be that the total impact of the Strait’s closure is not going to rise much further. If President Trump and the War Department decide to simply continue the US Navy blockade of Iranian shipping, and do not resume major hostilities against Iran, the current state of affairs in the Persian Gulf may develop a short-term stability, where the magnitude of changes day to day and month to month do not shift dramatically.

Should we see even a temporary geopolitical equilibrium in the Persian Gulf, we should expect to see also a temporary equilibrium in energy prices, and from energy prices transportation and then other prices. Where there is significant inflation today we may not see significant inflation tomorrow.

Note, however, that a possible lack of future inflation is not the same as suggesting that oil and other prices are going to drop quickly. While equilibrium and a price plateau are possible even without peace between the US and Iran, price reductions are not. For oil prices and then other prices to come down, we must first have peace between the US and Iran.

How much energy price inflation—and thus how much stagflation—we ultimately get hinges entirely on the future of oil prices, and that rests entirely on how the war between the United States and Iran evolves. A peace deal would bring prices down, a mere continuation of the US Navy blockade would keep the current elevated prices in place, and a resumption of hostilities could easily push oil prices quite a bit higher.

Each scenario carries its own outcome on oil prices, and thus each scenario carries a consequent impact on overall inflation, first Producer Price Inflation then Consumer Price Inflation. We do not know—and cannot know—which scenario we will have for the coming months until we have it.

Will we get more inflation? It is entirely possible.

Is the worst energy price inflation behind us? It is possible, even probable, that the biggest energy price shifts are already behind us. That would mean the biggest price shifts giving rise to stagflation concerns may already be behind us as well, or soon to be behind us.

That is the optimistic outlook—one might even call it a “Trumpian” outlook. Whether that outlook is the ultimate outcome is, for now, a question for which we do not have an answer.

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Now that the April Consumer Price Index Summary is out, we are beginning to see how that energy shock is reverberating through the rest of the US economy.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent on a seasonally adjusted basis in April, after rising 0.9 percent in March, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.8 percent before seasonal adjustment.

The index for energy rose 3.8 percent in April, accounting for over forty percent of the monthly all items increase. The shelter index also increased in April, rising 0.6 percent. The index for food increased 0.5 percent over the month as the index for food at home rose 0.7 percent and the index for food away from home increased 0.2 percent.

The index for all items less food and energy rose 0.4 percent in April. Indexes that increased over the month include household furnishings and operations, airline fares, personal care, apparel, and education. Conversely, the indexes for new vehicles, communication, and medical care were among the major indexes that decreased in April.

The all items index rose 3.8 percent for the 12 months ending April, after rising 3.3 percent for the 12 months ending March. The all items less food and energy index rose 2.8 percent over the year, following a 2.6 percent increase over the 12 months ending March. The energy index increased 17.9 percent for the 12 months ending April. The food index increased 3.2 percent over the last year.

The TL;DR version: prices are up. As with last month, this is not a surprise. Even with the Personal Incomes and Outlays report, it was clear that April would see inflation heating up, and beyond just energy prices. The only question was simply “how much?”

We are going to see elevated energy prices again in April. How much we see either inflationary impacts or stagflationary impacts beyond energy prices remains to be seen.

Beyond energy price inflation, the fog of war still surrounds the economics of wartime.

Energy price inflation is continuing, but food price inflation is returning, and non-durable goods inflation is also heating up, although still primarily from energy price inflation.

Stagflation is starting to creep into the US economy. The price shock that started with energy prices is percolating throughout the rest of the Consumer Price Index.

Thus far, the worst impacts are still contained to energy prices. Do not be deceived, however. Prices are heating up across the board and we should expect that trend to continue for at least as long as the war with Iran continues.

We now know we will have stagflation. What we do not know is how much we will have. Not yet.

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Headline Inflation Actually Cooled, And So Did Core Inflation

While there is no denying that the energy shock continues to pound the US economy, there is also no denying that the price shock’s impact was less in April than it was in March.

Year on Year, both headline and core inflation rose, and rose significantly.

Yet Month on Month, inflation was more restrained

There is one encouraging aspect in both the headline and core inflation figures for April: headline inflation cooled significantly, although core inflation printed 0.27pp higher on the month. This is a reversal from the first few months of 2026, where core inflation was coming down even as headline inflation was heating up.

Core inflation strips out the energy component. A sharp rise in core inflation is almost certainly indicative of a contagion effect where energy price inflation is creating inflationary pressures on other consumer prices, and so the inflation effect spreads.

Stagflation is clearly stalking the US economy.

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Energy Prices Rose, But Less Than Before

One possible note of encouragement about energy price inflation: we had less of it in April than in March.

For all energy components, the April price shift was a disinflationary one.

Upon inspection, however, this is not surprising. Oil prices rose approximately 14% for Brent Crude in April, and 10% for West Texas Intermediate.

In March oil prices were up by as much as 33% for Brent Crude.

Diesel prices for Europe displayed similar trajectories, rising 17% in April, compared to 12% for the United States.

Energy price inflation remains elevated, but the magnitude of the April increase has been much less than it was for March, and we are seeing that in the overall CPI data.

Could this be an indication that the overall inflation impacts of the war with Iran will be relatively brief, with price rises starting to ebb either next month or in June? That is a possibility. However, a lack of energy price inflation should not be confused with energy price deflation. We may see energy prices stop rising. We should not anticipate much in the way of a decline in energy prices until the Strait of Hormuz is opened for navigation once more.

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Food Price Inflation

One very not good price shift in April was an increase in food price inflation.

After ticking down ever so slightly in March, for April food prices jumped 0.5pp month on month.

However, we should also note that, year on year, food price inflation remains in a dynamic equilibrium around 3%.

We should not expect this trend to hold for very long. While inputs for food prices thus far have not been dramatically impacted by the war with Iran, we are seeing a marked surge in fertilizer prices. While this will have less impact on the crops already planted, it will have larger impacts for crops which get harvested later in this year or early next year.

The impact of higher fertilizer prices varies across farms depending on the timing of fertilizer purchases and the type of nitrogen fertilizer used. Farms that purchased fertilizer prior to February will see limited impacts on 2026 production costs. In contrast, farms that delayed nitrogen purchases are exposed to recent price increases. Anhydrous ammonia is typically the lower-cost nitrogen source compared to nitrogen solutions. All farms are expected to face significantly higher costs for the 2027 crop.

That impact is being felt worldwide, and especially in Europe.

For spring, Europe’s farmers got lucky. Most had stocked up on fertilizer before the war, and European Commission officials say this season’s needs are “largely secured.”

That luck is running out. Farmers are now placing orders for this fall’s plantings, and the math doesn’t work out. Wheat is selling for the same price it sold for before the war, even as fertilizer costs have risen. Some growers are cutting back on nitrogen. Others are switching to crops that need less of it. Both choices mean smaller harvests in 2027, when shoppers will finally feel the effects of the war.

While food price inflation is on track to be more severe in Europe than in the United States, the US is also on track to experience significant food pricing inflation.

Food prices are going to be driven by the bounty of each crop, and the bounty of each crop is contingent largely on the amount of fertilizer applied. With fertilizer costs increasing, if farmers reduce fertilizer usage then crop yields will suffer, pushing up prices, and if farmers sustain current levels of fertilizer usage, then the costs of producing the crop will eat into the profits, again pushing up prices.

The upward pressure on fertilizer prices from the surge in energy prices can only resolve one way—with higher food prices and for longer.

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Stagflation Is Starting, But Still Restrained

The data is clear: we are seeing the initial indications of stagflation taking root in the US economy.

However, we should presume that this means all prices are going to surge to extraordinary levels. At present, that is not happening.

Durable goods prices actually fell in April.

Non-durable goods however, still showed elevated month on month inflation, although it had cooled significantly from March.

The non-durables increases, however, come with the caveat that much of this is due to energy price inflation already noted.

Without energy price inflation for non-durable goods would be greatly reduced.

Service price inflation more than doubled in April.

Shelter price inflation also doubled in April 2026.

We should note, however, that the more forward-looking Zillow Observed Rent Index shows shelter price inflation increasing on a more regular cycle, making it less likely for inflation in housing to be the result of dislocated supply.

Inflation is indisputably heating up more or less across the board, but we are not (yet) seeing the price surges we have been seeing in energy.

That blessing is likely to prove highly transitory, however. The longer the war with Iran drags on, the longer the Strait of Hormuz remains closed, the greater the stagflation pressure on the US economy.

We are seeing a little stagflation now. We will see more next month, and even more the month after that, until there is peace in the Middle East once more.

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Inflation + Deflation = Stagflation

Because we don’t talk about stagflation often, it behooves us to maintain awareness of what the term actually means.

Conceptually, stagflation is when rising prices collide with low economic growth or even economic contraction1.

An easy sign of low economic growth is weak unemployment—the so-called “misery index” is predicated on rising inflation and rising unemployment—but we can also see indications of weak or sub-par economic growth in whether or not we have inflation or deflation in certain price subindices.

When we look at how inflation is unfolding relative to the various subindices, how we are seeing persistent deflation in durable goods, and arguably in non-durable goods as well, we see that the energy price shock can very well be the sort of supply-side shock which, when coupled with deflationary pressures, produces stagflation.

While the data is still too new to have supreme confidence in the conclusion, the similar inflection points from March to April suggests that energy price inflation is crossing into other goods and services.

However, we are also seeing deflation occurring in durable goods prices. With non-durable goods, it is highly likely that most if not all of the inflation we are seeing there is the result of energy price inflation.

When we look at specific durable goods categories, such as automobiles, we see that overall retail sales have largely plateaued and even declined since the start of 2025.

Unsurprisingly, new and used car prices have printed mostly deflation since the start of 2025.

Another unavoidable sign of weakness is that weekly earnings have, for the most part, not kept pace with inflation, as most paychecks have yet to recover from the 2022 hyperinflation cycle.

Even goods producing jobs are, as of the April data, have only just recovered from 2022. If inflation continues at an elevated rate, even goods producing jobs will quickly lose ground to inflation again.

The end result of the intersection of rising prices brought on by supply shocks is that demand destruction is the only way an economy can rebalance after such a shock.

Energy prices are rising because the availability of energy-related products is suddenly significantly reduced. The reason for the scarcity is obvious: the closure of the Strait of Hormuz and consequent disruption of Persian Gulf oil flows. The supply of oil available at all price levels has been reduced.

When there is a sudden drop in supply for anything, demand can only reach a new equilibrium level through demand destruction. Quantities purchased must go down to match the new supply curve.

That is what we are likely to start seeing over the coming months: demand destruction, as consumers adapt to suddenly higher energy prices.

The consequence—and cure—for stagflation in any economy is always going to be demand destruction. That’s the next evolution that we will soon see in the US economy.

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How Much Worse Can It Get?

With an ongoing price shock pushing up first energy prices and then prices for other goods and services, and with peace seemingly elusive with Iran thus far, the natural question to ask at this point is “how much worse can it get?”

In the worst case scenario, it can get quite a bit worse. If events in the Persian Gulf result in greater damage to both Arab and Iranian oil infrastructures, if Qatari LNG production is further damaged and pushed offline for a number of years, energy prices will be elevated for a number of years.

Those higher energy prices are already pushing up diesel prices around the world to nearly double pre-war levels. Those higher energy prices are already pushing up bunker fuel prices for shipping. That much is happening, and it could get significantly worse if the war with Iran takes a violent turn and more infrastructure damage is unleashed by both sides.

Maersk CEO Vincent Clerc is already warning the investor community that, if elevated fuel costs persist, shipping companies will be compelled to pass along at least a portion of their increased fuel costs.

The more benign scenario for the US will be that US oil production serves to stabilize energy prices here in the US. Diesel prices remain high, but do not get much higher. Bunker fuel rates for shipping remain high, but do not get much higher.

When there is no price increase, inflation is zero. However, if prices stabilize at a new, higher level, inflation is still zero but the affordability of goods and services is constrained until earnings catch up to inflation. As we are already seeing, that is not a quick process.

With earnings lagging inflation, and that inflation driven entirely by supply shocks and sudden increases in scarcity, we have enough weakness evident in the US economy to acknowledge that the April CPI report shows the beginnings of a stagflation episode. Prices are up, supply is down, and eventually demand will be down as well to compensate.

How much will prices be pushed up in May or June? That we do not know. Future price movements in oil and related refined products are entirely at the mercy of the Strait of Hormuz. Reopen the Strait and get Persian Gulf oil flows trending back to pre-war levels, and the inflationary pressures on energy are immediately alleviated. The inflation dynamic right now is as simple as that.

At present, the Strait of Hormuz remains blocked, and all indications are that it is going to remain blocked for at least a little while longer. Energy price inflation is going to rise for at least that little while longer. Stagflation will stalk the US economy for at least that little while longer.

We have stagflation. The fog of war means we do not know how much stagflation we will ultimately have.

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Total nonfarm payroll employment edged up by 115,000 in April, and the unemployment rate was unchanged at 4.3 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, transportation and warehousing, and retail trade. Federal government employment continued to decline.

That figure was certainly a surprise to Wall Street, which had a much more conservative projection prior to the report’s release.

Yet on closer examination, the jobs report still carried distressing signals that all is still not well with US job markets.

Joblessness still rose, and the number of people no longer in the labor force still rose. That’s not a good sign.

Key sectors still experienced a drop in employment. That’s not a good sign.

Wages rose, but, in light of the March price shocks from the war with Iran, which are all but certain to be even greater in April when the Consumer Price Index data gets published next week, they are not gaining ground on inflation.

The headline jobs number was indisputably positive. The details underneath…not so much.

Stagflation is (almost certainly) coming.

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Lou Costello Corrections

As with every Employment Situation Summary report, we have to take the headline numbers with a grain of salt. We know the April numbers will be revised in May and again in June, and we know that the revisions can be substantial.

The Bureau of Labor Statistics revised February’s job loss shocker down by an additional 23,000.

The change in total nonfarm payroll employment for February was revised down by 23,000, from -133,000 to -156,000, and the change for March was revised up by 7,000, from +178,000 to +185,000. With these revisions, employment in February and March combined is 16,000 lower than previously reported.

Of the 331,000 new jobs initially reported during the first four months of 2026, 27,000 of them never existed.

We should anticipate future downward revisions to the job numbers, for once again the Employment Level from the Current Population Survey (Household Survey) diverges sharply from the Current Employment Statistics (Establishment Survey) All Employees Data.

That is a strong sign that Lou Costello Labor Math is at work in the jobs numbers.

If the number of new jobs is rising, the number of employed people should also be rising. That, at least, is the theory.

Why the reality is different highlights the ongoing data inadequacies of the Employment Situation Summary, and necessarily colors any analysis.

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Corporate Media Does Not Question The Numbers

In their usual demonstration of journalistic inadequacy, corporate media once again take the report at face value.

CNN maintains the fictitious narrative that US labor markets are healthy and robust at the moment (they are not).

April’s employment gains mark an expected retreat from March, when a revised 185,000 jobs were created, boosted by factors such as the end of large labor strikes as well as favorable weather.

However, the job growth seen last month was much stronger than the 65,000 that economists had estimated. No change in the unemployment rate was anticipated.

The war in the Middle East wasn’t expected to negatively affect April’s employment numbers but it still presents a risk. The health of the US labor market and the broader economy could be negatively affected if gas prices stay persistently high and cut into consumer spending, raise business costs, as well as trickle into higher prices for other goods and services.

CNBC touted the consistency of the unemployment rate as proof of labor market health.

Nonfarm payrolls rose by a seasonally adjusted115,000 for the month, down from the 185,000 created in an unusually strong March but better than the 55,000 forecast in the Dow Jones consensus estimate.

The unemployment rate held at 4.3%, further proof that the labor market has reached a point where only modest job creation is needed to keep the jobless level steady, given little growth in the labor force.

Politico touted the jobs report as a clear victory for President Trump.

The Labor Department on Friday reported that U.S. employers added 115,000 jobs in April — more than double the 55,000 projected by surveys of economic forecasters — and the jobless rate was unchanged at 4.3 percent. With unemployment hovering below historic averages, and private sector hiring showing signs of a revival, GOP and White House messaging shops quickly seized on the report as proof that Trump’s economy is humming.

“The April jobs report is a clear upside surprise,” Eric Merlis, a managing director and co-head of global markets at Citizens Bank, said in a note shortly after the report’s release. And “importantly, the data suggests the hostilities in the Middle East have had little visible impact on the U.S. job market.”

Alternative media is not necessarily any better, with Breitbart insisting that labor demand is strong and that the “break even” jobs number is close to zero (it clearly isn’t.

That world is gone. What replaced it is a labor market in which the constraint has flipped to the supply side. The era of mass immigration supplying a steady stream of excess labor is over. As a result, the break-even rate — the number of new jobs the economy needs each month just to keep the unemployment rate stable — has fallen from the roughly 250,000 per month figure that became conventional wisdom during the Obama years to something closer to zero. Research from the Dallas Fed and the Federal Reserve Board has been pointing in this direction for quite some time, but the implications still haven’t sunk in for most analysts.

What’s more, demand for labor is extraordinarily strong. Except for the pandemic lockdown period, for years now we’ve been consistently below levels of unemployment that economists once thought were the markers of a healthy economy. Unemployment rates that once would have been seen as evidence the economy was overheating are now the norm.

Even the usually cynical ZeroHedge, while it acknowledged the negative signals in the report, led with the Employment Situation Summary turning in the first back to back pair of job gains month on month in over a year.

In his preview of today’s NFP report, Goldman’s Delta One head wrote that “NFP almost feels like a sideshow at this point. You can argue weak labor data gives a Warsh led Fed enough cover to cut, but with oil and input inflation still elevated there’s also an argument that a weakening labor market alongside a constrained Fed is actually the more difficult combination for risk assets.” With that in mind, moments ago the BLS reported that in April the US added a red hot 115K, above the median consensus of 65K (and near the upper end of the forecast range which peaked at 133K), down from an upward revised (for once) 185K (originally 178K). This was the first back to back gain in jobs in a year.

Given the disparity between the Employment Level and All Employees payroll level, we should not expect either the March or the April figures to remain at their elevated levels. I shall be happy to be proven wrong, but the divergence strongly suggests the ESS jobs data remains sketchy and problematic at best.

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Uneven Job Growth

Also of concern is the uneven nature of the reported job growth.

Unlike the March JOLTS data, which showed across the board job growth, the April data is tempered by job losses in notable sectors.

Of particular concern is Manufacturing once again shedding jobs, which has been its pattern for far too many months now.

That is a sobering reminder that, even with job gains in Mining and Construction, goods producing jobs are still not in perfect health.

Among service providing jobs, one positive note was the increase in Trade, Transportation, and Utilities jobs.

For a change, TTU job growth outpaced Healthcare job growth.

The strong gains in these two sectors served to counter the job losses in Information and Finance.

Leisure and Professional Services posted unremarkable job growth.

At a time when Artificial Intelligence is generating much hype and hooplah in the media, the continued loss of Information sector jobs should stand as a reminder that AI is far from the proven economic revolution many proclaim it to be.

There is strong growth reported in some job sectors. Other job sectors continue to underperform, with minimal job growth or actual job loss.

This is not a rising tide of employment which is lifting all job ships.

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Joblessness Rises

While the official unemployment rate is reported as remaining unchanged, that assessment is a result of rounding at the first decimal place rather than the second.

When the ratio of unemployed persons to the overall workforce is carried another decimal place, the official unemployment rate shows a rise from 4.26% to 4.34%.

More significantly, the “real” unemployment rate—the official count of unemployed plus those not in the labor force but who want a job now—rose from 7.49% to 7.60%.

The actual count of unemployed workers rose 7,373,000 in April.

While this is still down from a November 2025 peak, it is still significantly higher than where it was at the start of the Trump Presidency.

The peak was earlier for those Not in the Labor Force who Want a Job Now, but the longer term trend is still rising.

The overall category of workers Not in the Labor force has been trending up since January 2025.

Whatever the “break even” jobs number is for the US economy, it is clearly somewhere north of 115,000. A break even figure would leave both unemployment numbers and those not in the labor force decreasing rather than increasing.

This rise in joblessness is consistent with the ongoing decline in the overall Employment Level.

The current decline is the third such period of stalled or negative employment growth in the US since 2021. Aside from brief episodic bursts of employment, employment growth has been problematic since the beginning of 2022.

This lack of employment growth shows up as a persistent decline in the Employment Population Ratio since 2023.

If employment is declining, if the employment population ratio is declining, and if joblessness is rising, the one thing we cannot say is that labor demand is “strong”. Certainly it is not “strong enough.”

At the macro-economic level, that’s a problem.

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Wages Remain Soft

While wages are increasing in nominal terms, only goods producing wages have fully recovered from the 2022 hyperinflation cycle. Service producing wages and overall private sector wages remain very much behind inflation.

Also of concern is that, broadly, wage growth by sector has been getting softer as we move through 2026.

Even though manufacturing wages had just caught up with inflation at the start of the year, the recent price shocks and consequent inflation increases make it unlikely that manufacturing wages will continue to remain above the rise of inflation.

Most service providing wages remain below the inflation curve and have not recovered any real ground after the 2022 hyperinflation cycle.

When the Consumer Price Index data comes out next week, these sectors are all but certain to have lost even more ground—even Healthcare, which has been the mainstay of job growth in the US.

Nor should we be surprised that wages remain soft. When there is rising joblessness, by definition labor supply is outstripping labor demand. When supply is plentiful and demand is scarce, prices—in this case, wages—drop.

Soft wages and rising joblessness tell us in unequivocal terms that we still are not producing the numbers of jobs we need to keep joblessness at bay or on the decline.

If the economy were producing jobs above the much-ballyhooed “break even” number, wages would be rising. In sector after sector, they are not.

That’s a problem.

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Signs Of Stagflation?

With signs of soft labor markets within the jobs report, the coming (and by now unavoidable) inflation shocks lead to a very uncomfortable question: is the US about to experience a stagflation crisis such as it saw in the 1970s?

Certainly the risks of stagflation are real. I have written about those risks quite a bit in the past and the war with Iran give those risks an immediacy they did not have before.

Nor can we overlook the reality of a growing stagflation crisis in China, as their petroleum supply chains get disrupted from the war with Iran.

On Friday, Maersk Shipping CEO Vincent Clerc warned that price increases were heading into most economies, as shipping companies grapple with the increased costs of bunker fuel. Such increases are likely to entail at least a measure of demand destruction.

“As some of these costs make their way all the way up to the end consumer, will we see demand destruction at the consumer level? And will that then reverberate throughout the supply chain with softer demand in the second part of the year?” he questioned.

“That is certainly something that we’re looking out for very, very closely, because it would suddenly change the equation on how this crisis is going to impact the global supply chain and our industry in particular.”

Nor can we assume that Clerc is merely using the war as a cover to push through price increases as a form of rent-seeking behavior. That Persian Gulf oil production has fallen precipitously just through March is already established.

While bunker fuel rates had been declining in the start of April, by the end of the month they were clearly trending up.

Additionally, signs of global oil supply disruption are increasing, as observed global oil inventories, which had been rising in 2025, are anticipated to decline as the disruptions from the Persian Gulf take hold.

An oil supply shock may even be in store for the US, as crude inventories—including those in the Strategic Petroleum Reserve—are declining at present.

Exactly how great a supply shock there might be is problematic, because while production has not varied much over the past year—and has even dropped off in recent weeks—there has been growth in US exports of refined products.

There are definite stresses to US oil supply due to emerge within the US economy, but there is also a not insignificant export buffer which can cushion some of the shock.

If the war with Iran persists, we are very likely looking at a global economic scenario where the question is not if there will be stagflation, but how much stagflation will there be? Right now, that estimate is rising.

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Good But Not Good Enough?

The April jobs report shows there was job growth in the United States. That report echoes the ADP report and is a continuation of reporting trends from March. Even if we anticipate significant corrections to the data (and I do), we are still looking at a report that shows a greater level of job growth than we have seen in recent months.

Job growth is always a good thing, and on that basis the April jobs report is a good report. Yet job growth that does not meet or exceed the available labor supply—job growth that comes in below the “break even” threshold, is ultimately a net negative.

We need to create more jobs in this country, and we need to create significantly more jobs than the 115,000 reported as the headline figure for the April report.

We need significant increase in labor demand because that is the only way we can get increases in wages, allowing workers to finally catch up to the 2022 hyperinflation cycle. Wage increases are likely to become a particularly thorny topic, as the war with Iran is quite probably going to give rise to at least a brief surge in inflation, if not a completely new hyperinflation cycle.

In April we got significant job growth. Unfortunately, we did not get enough job growth. We certainly are not getting needed wage growth.

March and April have produced sizeable jobs numbers, and that has lent them an optimistic, upbeat appearance.

However, with joblessness rising and wages not rising, we are faced with the blunt reality that March and April were not good enough. With corrections still yet to be made, March and April should be anticipated to be seen as less good than they are now.

Without the war with Iran, this would have been a good jobs report. With the war with Iran, this is a cautionary jobs report, and a warning that future months are not likely to be at all as good.

Stagflation is (almost certainly) coming.

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The IRGC may have thought it was making a bold move and doing a little geopolitical flexing with its attack on the UAE. It is quite likely this attack will prove to be an epic blunder.

Tonight the ceasefire is holding. Tonight, the IRGC is still in charge in Tehran.

How long either of those statements remains true is anyone’s guess.

Against all odds, the ceasefire is technically still in effect, although both sides are making an increasing number of attacks on the other.

Last Friday, the US disabled two ships attempting to run the blockade on Iranian shipping.

Previously, Iran fired missiles at US “enemy units” as they sought to intercept another ship trying to run the blockade.

Iran is also reported to have launched additional missile and drone attacks on the United Arab Emirates, a curious escalation by the IRGC in a conflict already fraught with regional and global tensions.

Meanwhile, both the US and Iran claim to be winning the war, an Iran in particular is demanding other nations acknowledge it as a regional superpower.

Most of the week has been spent waiting to see if Iran would formally respond to US peace proposals. Today Iran officially responded.

In light of the IRGC’s recent demands, we are on safe ground summarizing the Iranian response as an emphatic “no.”

While the escalations themselves have largely yet to happen, it is highly likely that the next phase of this war with Iran will be more actual war—more bombings, more drone strikes, and more destruction.

Iranian intransigence on their illicit nuclear weapons program and illegal seizure of the Strait of Hormuz are foreclosing all other options. At present, there is no realistic alternative on the table for dealing with Iran’s multiple threats to the world except by war.

The Peace Deal

At the start of last week, a curious lull had developed in the war with Iran. The ceasefire was (mostly) holding, although there had been no peace breakthroughs or signs that negotiations would resume.

That lull ended on May 4, when Iran struck the United Arab Emirates oil terminal and refinery at Fujairah, outside the Strait of Hormuz.

The UAE’s defense ministry said three cruise missiles coming from Iran were intercepted and a third fell into the sea, and told its citizens the loud booms heard inside the country were the result of those aerial interceptions.

As I observed in my last article, Iran might have revealed more about its strategic objectives than it intended with that strike. Fujairah is one of the few Persian Gulf oil terminals outside the Strait of Hormuz.

Even as Iran continues to push its claim of right to control traffic through the Strait—a claim which is completely rejected by the UN Convention on the Law of the Sea (UNCLOS)—Iran is separately attacking the infrastructures which Arab States might use to bypass the Strait and thus negate Iran’s diplomatic leverage of being able to deny Arab states in the Gulf the capacity to export their oil and natural gas.

If that is Iran’s intent, then the strikes on Fujairah are an unmistakable act of war. They are an aggressive demonstration of Iran on offense, not defense. That is not something that other Arab states, particularly Saudi Arabia, will have failed to notice.

It was against this backdrop that United States negotiators issued a “fourteen point memorandum” proposal, one that was less a proposal for peace than a proposal on how to negotiate a peace.

The document reportedly functions less as a full peace treaty and more as a temporary stabilisation mechanism. Under the current proposal, Iran would agree to suspend uranium enrichment activity for a prolonged period — reportedly somewhere between 12 and 15 years — while the United States would gradually ease sanctions and release billions of dollars in frozen Iranian funds.

The fundamental premise of the memorandum was that Iran and the US would stop shooting at each other or at neutral third parties, the Strait of Hormuz would be reopened with unfettered rights of transit passage for all nations recognized, and, most crucially, Iran would surrender its illicit nuclear weapons program.

At the heart of the memo lies the question that has shaped US-Iran tensions for decades: uranium enrichment. According to Axios, the United States wants Iran to commit formally to:

• suspending enrichment activities,

• abandoning any nuclear weapons ambition,

• shutting down underground nuclear facilities,

• and accepting expanded inspection powers, including snap inspections by UN monitors.

One particularly sensitive clause reportedly under discussion would require Iran to transfer its stockpile of highly enriched uranium outside the country — something Tehran has resisted repeatedly in past negotiations.

The nuclear weapons program has been the sticking point between the US and IRGC-dominated Khamenei Regime. The IRGC will not entertain any discussions that involve Iran surrendering its illicit nuclear weapons program—and yet that is the key topic in every discussion with Iran.

The US has acknowledged Iran could pursue a legitimate civilian use enrichment program, which would cap the degree of enrichment below 5%—well out of the range of any peaceful procet.

Secretary of State Marco Rubio told reporters Tuesday that if Tehran wants a “civilian nuclear program,” then it is free to pursue one.

“They could have that if that’s what they wanted, but they’re not acting like that’s what they wanted,” Rubio said in the White House briefing room. “They’re acting like they want a military nuclear program. That’s unacceptable.”

Under the memorandum of understanding, Iran would also agree to inspections by the United Nations on its nuclear program, while the U.S. would gradually lift sanctions and release billions in frozen Iranian funds, according to Axios.

President Trump has been clear and consistent on this point throughout the war with Iran: Iran cannot be allowed to possess nuclear weapons.

For its part, the IRGC refuses to concede that it will be blocked from doing whatever it wants involving weapons grade uranium and plutonium.

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Iran’s Response

Officially, Iran has spent the past several days “reviewing” the US proposal, before rendering an official response. At the time, President Trump oscillated between pessimism and his reflexive optimism on the prospects the IRGC-led regime would accept the proposal.

An Iranian foreign ministry spokesperson cited ​by Iran’s ISNA news agency said Tehran would convey its response. U.S. President Donald Trump said he believed Iran wanted an agreement.

“They want to make a deal. We’ve had very good talks over the last 24 hours, and ‌it’s very possible that we’ll make a deal,” Trump told ‌reporters in the Oval Office on Wednesday.

Earlier in the day, Trump had sounded more pessimistic about the chances of a deal. In a Truth Social post, he threatened to restart the U.S. bombing campaign in Iran, calling ⁠the possibility of Tehran agreeing ⁠to the latest U.S. proposal a “big assumption.”

At the same time, Iranian media released several news items which called into question the key element of any peace proposal—Iran relinquishing its illicit control over the Strait of Hormuz.

While the regime was technically “reviewing” the proposal, the IRGC-linked Tasnim news agency published an article regarding Iran asserting control over the undersea data cables running through the Strait.

Tasnim, in an article titled “Three practical steps for generating revenue from Strait of Hormuz internet cables,” wrote that submarine fiber-optic cables passing through the strait carry more than $10 trillion in financial transactions each day, but said Iran has been deprived of the economic and sovereign benefits of this critical communications infrastructure because of what it called a traditional view of the strait.

The outlet said the Islamic Republic should take three steps: charge foreign companies initial licensing and annual renewal fees; require major technology companies such as Meta, Amazon and Microsoft to operate under Iranian law; and give Iranian companies exclusive control over maintenance and repair of the cables.

Tasnim said the measures would turn the Strait of Hormuz into a “strategic center for legitimate wealth creation.”

Fars, another IRGC-linked outlet, published a similar thread on X, describing Iran as the ruler of a “hidden highway” in Hormuz.

This proposal was and is nothing more than a mafia-like “protection” racket. It is blatant extortion, a point I noted when the article was released.

Folks from New York or Chicago will recognize the “protection” racket the IRGC is intimating (“that’s a useful data cable you have there. Be a shame if something happened to it.”)

Suddenly, the IRGC has decided that the Strait of Hormuz is sovereign Iranian territory, from the seabed on up.

We should note that the UN Convention on the Law of the Sea, which Iran has signed but not ratified, completely refutes Iran’s claims on the Strait. The Strait of Hormuz is and has always been a recognized international waterway, through which there is an unfettered right of transit passage per UNCLOS. As a Strait, under UNCLOS there is an unfettered right of transit passage per Article 38. Under UNCLOS, no states bordering a strait may interfere with the right of transit passage under Article 44.

Article 51 further refutes the notion that Iran has any claim to make on undersea cables.

However, international law and UN treaty obligations are not proving any obstacle for the IRGC regime, which is simply doubling down on bellicose rhetoric every time the Strait is mentioned.

With no breakthrough in sight, Iranian authorities continue to signal an elevated status in their doctrine for the strategic strait, perhaps rivalling the contentious nuclear programme for which the country has been sanctioned and isolated for decades.

The theocratic and military establishment in Iran has “neglected the blessing” of the strait for years, said Mohamad Mohkber, a senior adviser to slain Supreme Leader Ayatollah Ali Khamenei, and first vice president under late Ebrahim Raisi.

“In reality, it is a capability on the level of an atomic bomb, because when you have a capability that can affect the entire global economy with a single decision, that is an enormous capability,” he told state-linked Mehr news agency on Friday.

Following through on that rhetoric, even before the regime had officially sent a response, it made public statements that the Strait of Hormuz would remain entirely under Iranian control no matter what.

At that point, it was an open question if there was anything left in the proposal to which Iran had not already responded.

Earlier today, Iran finally submitted a written response to the US proposal, laying down several demands of its own.

According to diplomatic and Iranian sources cited by Arabic-language media, Tehran’s response places a ceasefire in Lebanon and the lifting of restrictions on Iranian oil exports at the center of any future understanding with Washington.

A diplomatic source speaking to Hezbollah-affiliated Al Mayadeen said the Iranian proposal calls for an end to what Tehran describes as the “siege” on the country and demands unrestricted Iranian oil exports. The source added that a ceasefire in Lebanon is considered one of Iran’s “red lines” in the negotiations.

In sum, Iran’s demands for a peace talks to begin was that the US acknowledge that the war was over, that the blockade of Iranian shipping was lifted, and that all US sanctions on Iran were terminated. All this while Iran kept control over the Strait of Hormuz, which it had already publicly stated it had no plans to ever surrender.

President Trump’s reaction to the Iranian response was not delayed at all, nor was it lengthy. Posting to Truth Social, President Trump pronounced the response “unacceptable.”

Thus ends the latest diplomatic effort to resolve and end this war.

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Meanwhile, Provocations Mounted On Both Sides

While Iran “reviewed” the proposal, questions arose whether the ceasefire was still in effect, as there were reports of strikes coming from both sides:

• In what US Central Command (CENTCOM) identified as blockade enforcement, US naval forces disabled the M/T Sea Star III and the M/T Sevda on May 8.

• Separately, Iranian forces fired on a Chinese cargo vessel near the United Arab Emirates port of Al Jeer. Iran’s choice of targets was nothing if not ironic, given their reliance on Chinese economic assistance—nothing says “Help me, please!” so much like trying to blow up your financial patron’s boat.

  

• Shortly after the attack on the Chinese vessel, Iran reported that a commercial pier near Bandar Abbas had been attacked.

  

• In a separate incident, the US Navy sent three destroyers through the Strait. While Iranian forces fired on them, the ships responded in kind and very successfully, according to President Trump posting on Truth Social:

  

While the ceasefire was “technically” still in effect, outside observers might be forgiven for thinking that it had broken down, and that hostilities were ramping up once more.

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More War?

With the Iranian response labeled completely unacceptable by President Trump, and there having already been an escalating sequence of tit-for-tat provocations between the US and Iran, the answer to the inevitable question “what next?” appears to have already been answered: there will be more war.

Within some analyses, that there would be more war has been largely inevitable. Even as Majlis Speaker Mohammed Bagher Ghalibaf has sought to thread the diplomatic needle between preserving the regime’s objectives and negotiating and end to the conflict, he is seen as being opposed—and largely blocked—by IRGC commander Ahmed Vahidi.

Yet he faces stiff opposition. “There’s a power struggle within the irgc,” says another Iran-watcher. The speaker’s most fearsome opponent is Ahmad Vahidi. A career soldier, former defence minister and the current head of the IRGC, he represents the hardliners. “He’s an end-of-days man,” says a former Israeli intelligence officer who worked on Iran, a reference to the Shia millenarianism that some reckon guides him. Mr Vahidi believes America will only tighten the noose. Iran should resist while it can. The current economic hardship, he argues, could spark renewed unrest of the sort seen in January. “They’re not sure they can survive another round of protests,” says a manufacturer. War, by contrast, would keep people indoors—and could rally some behind the regime.

If the hawks prevail, escalation will follow. Local commanders would revert to the tactics adopted at the war’s outset, reinstating a prepared list of targets. Strikes on tankers could resume, keeping Hormuz closed. They might also do the same in the Red Sea. American warships and Gulf cities could come under more fire.

Nor has President Trump’s objectives for the war shifted. The “red lines” he drew at the very start of the conflict have remained America’s “red lines” throughout.

Our objectives are clear.

First, we’re destroying Iran’s missile capabilities, and you see that happening on an hourly basis, and their capacity to produce brand new ones, and pretty good ones they make.

Second, we’re annihilating their navy. We’ve knocked out already 10 ships. They’re at the bottom of the sea.

Third, we’re ensuring that the world’s number one sponsor of terror, can never obtain a nuclear weapon. Never going to have a nuclear weapon. I said that from the beginning. They’re never going to have a nuclear weapon. They were on the road to getting one legitimately through a deal that was signed foolishly by our country.

And finally, we’re ensuring that the Iranian regime cannot continue to arm, fund, and direct terrorist armies outside of their borders.

To that list the only addition has been that Iran must surrender its illicit control over the Strait of Hormuz.

Meanwhile, Iran’s economy is collapsing. There is no speculation on that point, as even Iranian media outlets openly concede as such.

Iran has already begun tapping its wealth reserves just to fund basic necessities for the Iranian people. With traceable oil exports down over 80% since the blockade began, the economic pressure on Iran is immense, pressure that is only going to grow with reports that Iran has already maxed out its oil storage capacities and is having to shut in production wells.

Iranian sources confirm that some shut ins are already happening.

Tehran is proactively reducing crude output in a move to stay ahead of capacity limits rather than waiting for tanks to fill completely, according to the senior official, who asked not to be identified because the information is sensitive. And engineers have learned how to idle wells without lasting damage and restart them quickly, officials say, after years of sanctions and shutdowns pushed the country’s oil industry through cycles of disruption.

“We have enough expertise and experience,” said Hamid Hosseini, a spokesman for the Iranian Oil, Gas and Petrochemical Products Exporters’ Association. “We’re not worried.”

While Iran has shut in production wells before, back in 2020, when the wells were brought back on line, it was with a loss of over 400,000bbl/d.

That Iran is understandably reluctant to proceed more quickly with shut ins than it absolutely must may be the cause of an oil slick detected recently off of Kharg Island, site of Iran’s primary oil terminal. If storage capacity is reached, crude may have simply spilled into the ocean—or was deliberately dumped.

Exactly how long Iran can endure this state of affairs is inherently problematic. While many independent analysts have assessed that Iran’s capacities to withstand the blockade run out after about a month—a time frame that has already largely passed—there have been contrarian assessments leaked from CIA sources suggesting that Iran has a far greater capacity to absorb the economic hits.

These assessments indicate that Iran has not been damaged as much by Operation Epic Fury as President Trump has maintained, and that the economic pressures of Operation Economic Fury are less than President Trump has maintained.

We must be cautious with such assessments, and not merely because they are obvious leaks to corporate media, which automatically implies an agenda of undermining the Trump Administration on Iran. As I have covered in previous articles, there are numerous open source assessments that Iran’s storage capacities and ability to endure without the influx of oil revenues exports had been providing are extremely limited. Part of Iran’s seeking land routes from the Pakistani port of Karachi to Iran is the economic strain the country is enduring.

At the same time, that oil flows from the Persian Gulf are disrupted is carrying significant economic risks for the world’s economies.

In an interview with CNBC, Maersk CEO Vincent Clerc warned on Friday that if oil flows were not quickly restored there would be significant price shocks across a number of goods, as shipping companies begin passing along the costs of elevated bunker fuel prices.

“What this this energy shock is going to mean is about $500 million of extra costs per month for as long as the oil remains around in the in the $100 per barrel neighborhood, that is significant,” Clerc told CNBC. “And there is so much we can do on reducing costs, but there is a lot we need to do on passing on these costs to customers, because it’s such a massive cost increase that we can’t shoulder it.”

We cannot dismiss Clerc’s warning out of hand, because it is already certain that Persian Gulf oil production is significantly reduced, with Saudi Arabia, the UAE, and Iraq all reporting major production cuts in March.

The disruptions are also impacting refined products which normally flow from the Persian Gulf, most notably aviation fuel.

Global shipments of jet fuel have fallen to their lowest level on record, as the blockage to the Strait of Hormuz threatens to suffocate supply to the world’s airlines.

Under 2.3m tonnes of jet fuel and kerosene were shipped around the world last week, according to analysts at Kpler, marking the lowest level since records began in 2017.

With the summer travel season rapidly approaching, jet fuel shortages could create significant increases in the costs of vacation travel, and a corresponding destruction of travel demand, as consumer respond to the expected price shock in air fares.

Looking farther ahead, food price concerns are also growing, as the increased costs for petroleum and natural gas impact fertilizer production and fertilizer costs.

The war in the Gulf connects to higher prices on a baguette via three slow steps. Gas becomes fertilizer. Fertilizer feeds crops. Crops become food. Each takes weeks; the full cycle lasts months.

“Most of the food currently on supermarket shelves was produced using inputs that were purchased or contracted before the crisis fully unfolded,” said David Laborde, who runs the Agrifood Economics Division at the U.N’s Food and Agriculture Organization. “The current stability mainly reflects timing, not immunity.”

Europe produces its own nitrogen fertilizer, but makes it from imported gas. When Gulf disruption pushes gas prices up, European-made fertilizer gets more expensive too.

Even in the US, farmers are experiencing significant and sudden increases in fertilizer prices, as the disruption of Persian Gulf oil flows raises petroleum prices globally.

That energy prices have risen dramatically since the start of the war is empirically obvious—as is that the prices are falling more significantly on Europe than on the US.

Even global diesel prices are up over 60% since the start of the war—and that will exacerbate the transportation cost shocks described by Vincent Clerc in maritime shipping.

Price shocks in essential manufacturing inputs is already creating a stagflation crisis in China.

If this war continues, stagflation is likely to spread through the rest of the world’s economies, including that of the United States.

As of this writing, we have not yet seen the April Consumer Price Index data—that is not due until May 13—but we are sure to see additional energy price inflation. The question will be if energy price inflation is having a contagion effect and pushing up other prices as well. If that should be the case, the US will be well on its way to having a stagflation crisis not unlike that of the 1970s, and driven by largely the same forces: disruption of global oil supplies.

It seems unavoidable that, at this point, there will be more war, and it is certain that the closure of the Strait of Hormuz will continue for at least a little while longer. It is therefore certain that the world, and not just Iran, will endure the economic ramifications of the war.

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What Is The Alternative?

The grand question over everything taking place in the Persian Gulf is “what is the alternative?”

Is this war the right choice at the right time?

Is there an unexplored diplomatic possibility that needs to be considered?

Certainly the leaders of Europe have talked at length about the need for talks, and Pakistan has sought with diligence and industry to play mediator and bringing about talks between Iran and the US.

If there is a legitimate diplomatic option, the US would do well to consider it.

At the same time there is no getting around the reality that Iran’s actions in the Strait of Hormuz are a violation of every freedom of navigation principle there is, principles which predate even the UN Convention on the Law of the Sea, which clearly forbids Iran’s actions.

There is no getting around the reality that Iran’s nuclear weapons program has been an ongoing violation of Iran’s obligations under the Nuclear Non-Proliferation Treaty, which Iran signed and ratified.

There is no getting around the reality that the IRGC-led Khamenei Regime has doubled down on these violations of international law, even proposing that all sanctions be lifted while Iran continues to violate both UNCLOS and NPT.

There have been multiple diplomatic overtures extended to Iran, and in each one Iran has rejected what have been fundamental and essential positions from the United States: surrender illegal control of the Strait, dismantle the country’s network of support to a variety of Islamist terrorist militias—Hezbollah in Lebanon, Hamas in Gaza, the Houthis in Yemen—and surrender the entirety of the nuclear weapons program.

These are positions the IRGC has not wavered on, and they are positions the Trump Administration negotiators have not wavered on.

With neither side willing to back down on at least these points, is it possible to resolve this conflict by any other than force of arms? That seems unlikely.

The IRGC has for years been pursuing a course which contravenes established norms of international law and treaties Iran itself has signed. There is no serious debate to be had on that point. The lawlessness of the IRGC was the catalyst to last year’s Twelve Day War and it was the catalyst to Operation Epic Fury.

That lawlessness makes war with Iran more of an inevitability than an option. So long as the IRGC is determined to follow a course of shredding international maritime law and UN treaties, the question regarding war with Iran was never an “if”, and always a “when”.

This war has already cost the Iranians much, and will cost them even more. This war has already cost Europe much, and will cost them even more. This war has already cost the US much, and will cost us even more.

As steep as those costs are likely to become, is there any good answer to the question “what is the alternative?”

At present, the answer appears to be “none.” God help us all.

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For April ADP hopped on the BLS bandwagon and printed a blowout National Employment Report showing strong growth across all job sectors, for an aggregate of 109,000 new jobs.

ADP’s Chief Economist Nela Richardson provided her usual optimistic statement for the press release, touting job gains among small businesses.

“Small and large employers are hiring, but we’re seeing softness in the middle,” said Dr. Nela Richardson, chief economist, ADP. “Large companies have resources to deploy, and small ones are the most nimble, both important advantages in a complex labor environment.”

Coming in the second month of a war with Iran that has sent energy prices soaring, that April surpassed March by more than 40,000 jobs is a remarkable report by any measure.

The March figures have subsequently been revised downward, to 61,000.

How strong was the report? The Wall Street consensus was some 10,000 jobs less, and the Trading Economics Forecast was only 8,000 jobs above the March number.

Wall Street was not expecting the ADP report to be this strong.

Coming as it does on the heels of a strong March Job Openings and Labor Turnover Report, and with minimal revisions from March, the ADP report is a strong signal that labor markets in the US are waking up.

Will the April Employment Situation Summary also surpass Wall Street expectations?

With a consensus projection of 73,000 private sector jobs, and a Trading Economics forecast of 83,000 private sector jobs, the stage is certainly set for the “official” monthly jobs report to do exactly that—or provide a crushing disappointment.

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Almost Every Sector Showed Growth

One reason the March JOLTS report deserves serious scrutiny was that it showed job growth in every sector.

The April ADP report very nearly matches that.

While healthcare provided the bulk of the jobs reported, only Professional and Business Services reported a loss of jobs in April.

The ADP report has been showing consistent job growth for several months, with six of the last nine months at 60,000 jobs or more.

Manufacturing showed a welcome increase in jobs, the first such increase on the ADP report since March 2024.

Construction and Mining were also positive on the month, making the ADP report very positive for goods-producing jobs.

Among service-providing sectors, only the Professional and Business Services segment lost jobs in April.

Trade, Transportation, and Utilities reversed a March decline, printing 25,000 jobs.

Leisure and Hospitality, Information, and Finance all showed solid if unremarkable gains.

By far Healthcare showed the biggest increase in jobs, with more than half of the total jobs created for April

As with the March JOLTS report, job gains across all sectors but one signals rising labor demand, and that is a necessary predicate to wage growth.

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New Strength In Goods Producing Jobs

The ADP report has shown positive job growth among service producing jobs for the last nine months. Goods producing job sectors, however, were shedding jobs for most of 2025. 2026 has been a year of new strength for the goods producing job sectors, even as service producing job sectors stayed strong.

That 2026 is a year of recovery for goods producing jobs coincides with the return to expansion for the Institute for Supply Management Manufacturing PMI.

April was also a month of improvement in the S&P Global Manufacturing PMI, which has been printing expansion for several months, but surged to 54.5 from March’s 52.3.

As with the March JOLTS data, the ADP report is consistent with the PMI data showing manufacturing coming out of the gate strong for 2026.

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ADP Report Consistent With Unemployment And Layoff Data

The ISM PMI data are not the only metrics consistent with the ADP jobs report.

The Department of Labor’s unemployment data has been charting a steady decline in initial unemployment claims going back into last fall.

Continuing claims have also been charting a decline since the fall.

The decline in continuing claims especially has been more rapid in recent weeks, a trend which is entirely consistent with the job growth being reported by ADP.

The Job Cut Announcement report from outplacement firm Challenger, Gray, and Christmas also indicates 2026 is a stronger year for jobs than 2025. In the first three months of 2026, only January exceeded 2025 levels for layoffs and job cuts.

These employment reports are independent signals that are consistent with what the ADP report is showing for 2026. We have at least these reports as reason to take the ADP report at face value.

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Not All Other Data Shows Strength

While the ADP report is backed up by a number of independent metrics indicating an improving economic situation, we should not pretend that there are not countervailing signals which present a far less optimistic view of American jobs markets.

The ISM Manufacturing Employment metric has been printing contraction since January 2025.

The ISM Services Employment metric has been more volatile than the ADP data suggests for service-providing jobs.

Nor should we overlook that the Bureau of Labor Statistics unemployment level data indicates that joblessness has been trending up since mid 2023, a long-term trend which has persisted through last month’s Employment Situation Summary.

If overall unemployment levels are rising in this country, then jobs markets are less robust than the ADP report indicates.

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Is The Data Real?

If the ADP report is accurate, American jobs markets have expanded significantly in recent months.

If the ADP report is accurate, labor demand is increasing at a significant pace.

The caveat, of course, is the predicate stated both times: “if the ADP report is accurate.”

Is the ADP report accurate? That revisions to the March report were only 1,000 means the report’s authors at the very least consider the report to be accurate.

The ADP report presents us with the same question as the March JOLTS report: Is the jobs recession coming to an end? The ADP report invites us to reach the same conclusion as that implied by the JOLTS report: yes, the jobs recession is coming to an end.

Could the ADP report be wrong? Absolutely it could be wrong. As with all of the jobs reports, the ADP report is fundamentally a report of estimates and extrapolations. As we have seen with the Employment Situation Summary, the extrapolations themselves can be problematic. If the baseline models upon which the estimates are based are flawed, the reports generated will be flawed.

By the same token, the ADP report could be correct. The baseline models might not be flawed, or might not be egregiously flawed.

This much is certain: The ADP report raises the expectation bar for Friday’s April Employment Situation Summary. After the blowout month the BLS jobs report had in March, that ADP prints a blowout report for April suggests the BLS jobs report will be positively stellar.

Is the jobs recession ending? ADP is telling us that it is.

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The number of job openings was unchanged at 6.9 million in March, the U.S. Bureau of Labor Statistics reported today. Over the month, hires increased to 5.6 million while total separations changed little at 5.4 million. Within separations, both quits (3.2 million) and layoffs and discharges (1.9 million) were little changed.

Corporate media was typically chagrined that the much-touted and supremely meaningless job openings number had actually slipped a little. The metric that does have meaning, however, is the hiring numbers.

Hiring rose significantly, and even though separations rose as well, overall net hiring rose at a pace in keeping with the jobs numbers from the Employment Situation Summary.

Does a strong net hiring number indicate the jobs recession has reached a bottom? Is a turnaround and actual growth in net hiring in the very near future?

With strong net hiring across all sectors, the March JOLTS report gives us good reason to hope so.

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Openings Fell, But Hiring Surged

Corporate media much prefers to see large inflated job openings numbers. It’s not a rational fixation, since roughly half of those so-called job openings are not being filled by anyone. With that fixation, outlets such as Bloomberg were not happy that job openings ticked down slightly in March.

Available positions fell slightly to 6.87 million from a revised 6.92 million in February, according to Bureau of Labor Statistics data released Tuesday.

We can easily see that the emphasis on job openings is exaggerated, just by looking at the JOLTS data from 2021 onward.

Since the COVID Pandemic Panic, job openings have been consistently overstated. At its 2022 peak, the fictitious job openings were more than double actual hiring.

While job openings moved down slightly, when we look at the data since 2021, there is a distinct “bottoming out” of the job openings curve. Hiring and separations also are near the levels they were at in January 2025: 5-5.5 million hires and 5-5.5 million separations.

Job openings, hires, and separations have all trended down since 2022. Through 2025 into 2026, that trend has flattened out considerably, consistent with the data finally having established a floor. The March hiring data is an increase off that floor level.

That is the sort of trend turnaround that would signal the jobs recession that has bedeviled US labor markets since 2023 is at last coming to an end.

Certainly, that is the hope of Navy Federal Credit Union Chief Economist Heather Long.

“Is the hiring recession finally over? There are encouraging signs,” Heather Long, chief economist at Navy Federal Credit Union, wrote in an e-mail.

“The big concern is the war in Iran could halt that much needed progress in the labor market,” she wrote.

What is clear from the data is that net hiring in March was consistent with the growth in payrolls per the Employment Situation Summary.

Given that both reports are produced by the Bureau of Labor Statistics, we should expect some convergence, and might even view that convergence as an indication of statistical bias. At the same time, during last summer the two reports varied significantly, demonstrating that convergence was not a given.

For the past few months, however, the JOLTS and ESS reports have printed very similar results.

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Sectors Advanced In March

Even more encouraging than corporate media and Wall Street “experts” belatedly conceding that the jobs recession has been real is the broad base for the net hiring surge.

Manufacturing, which has been hemorrhaging jobs for over two years, saw a jump in net hiring.

Construction, while printing cooler net hiring than in February, still turned in a fifth straight month of positive net hiring—the first time since October 2024 that has happened.

Trade, Transportation, and Utilities, a major service sector, rebounded from February’s job losses to show net hiring gains.

Professional and Business Services showed continued recovery, printing a fourth consecutive month of positive net hiring.

Healthcare, which has carried more than a few jobs reports, rebounded from a weak February to have a strong March.

Leisure rounded out the service sector also by showing a rebound from a horrible February, with its third best net hiring gains since the start of Trump Administration 2.0.

Every sector of private employment showed some measure of improvement in March. Such breadth in job growth is another reason to consider the possibility the jobs recession is ending. Broad job growth is an actual indicator of robust jobs markets, where hiring is strong everywhere rather than being concentrated in one or two industries.

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PMIs Show Strength In Manufacturing

The JOLTS data paints an optimistic picture, and some might say too optimistic. The growth in manufacturing jobs, for example, is at odds with the Manufacturing Employment PMI data from the Institute for Supply Management, which shows the sector still contracting on jobs.

However, the overall Manufacturing PMI from ISM has been strongly in expansion territory since the beginning of 2026.

However, we should also note that the ISM Services Employment PMI also prints worse than the overall Services PMI.

The overall Services PMI, however, shows consistent expansion in services since the start of 2025.

The employment components of the ISM PMI data gives us reason to doubt the JOLTS report, but the overall PMI shows industries expanding, a condition consistent as well as necessary for expanded net hiring.

The PMIs give us reason to be skeptical, but also reason to hope that jobs markets are starting to improve at long last.

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The End Of The Jobs Recession?

One month does not make a trend, and we should take care not to read too much into the strong JOLTS data for March.

We should acknowledge, however, that the JOLTS data for March is strong.

The JOLTS data for March is strong across the board, a rising job tide that is legitimately lifting all job ships.

Strong job growth—strong actual hiring and not merely a tantalizing promise of a job “opening”—is an indication labor demand picked up in March.

Growing labor demand is essential to having improved gains in wages and earnings. The greater the actual pace of hiring, the greater the real demand is for workers, and the greater the pressure to bid up wages across the board. Just as scarce supply increases prices for goods and raw materials, scarce labor supply increases wages.

With hiring having trended down since 2022 before showing signs of bottoming out during 2025, we have not seen strong labor demand, meaning we have not seen strong wage pressures, and so we have not seen the level of robust wage gains many sectors need to see to finally catch up to the effects of the 2022 hyperinflation cycle.

With March data looking strong, the next question naturally turns to the upcoming April jobs numbers. Will the second month of war with Iran show continued job growth?

Will the dislocations and price shocks from Iran illegally closing the Strait of Hormuz and disrupting 20% of global oil supply show their full effect by suppressing job growth, choking off the potential jobs recovery even before it has a chance to get started?

The war with Iran made its presence felt in March, with pronounced energy price shocks driving both consumer price inflation and factory gate inflation. Those shocks did not make their presence known in the March jobs data.

Is April the month where the dislocations reverberating out of the Persian Gulf start to impact employment here in the US? Or is a jobs recovery underway capable of powering past those dislocations?

March was a strong month for jobs in this country. If April is even close to the same despite the headwinds of war, we may plausibly begin to consider the jobs recession coming to an end at long last.

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The UAE's defense ministry said three cruise missiles coming from Iran were intercepted and a third fell into the sea, and told its citizens the loud booms heard inside the country were the result of those aerial interceptions.

Three Indian nationals were injured in the attacks, which were concentrated on the Fujairah Oil Industry Zone.

Separately, US Apache and SH-60 Seahawk helicopters engaged and destroyed several small Iranian craft in the Strait of Hormuz itself, as the IRGC launched cruise missile and drone attacks at ships within the Strait.

This was the first real escalation of hostilities by Iran since the US Navy began its blockade of Iranian shipping on April 13.

The attacks have been framed as a bold and assertive response by the IRGC to ongoing tensions in the Persian Gulf, but it may very well prove to have been an epic blunder, as the attacks revealed the extent to which allegiances and alliances in the Gulf have evolved.

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IRGC Naturally Claimed Provocation

In what has become its expected pattern, the seeds for today’s attacks were apparently sown yesterday on Iranian state television, when broadcasters accused the UAE of participating in air strikes on the Iranian islands of Siri and Lavan.

Iranian media was apparently recycling a claim made at the beginning of April, that UAE Mirage-2000-9 jets were involved in a strike on the refinery on Lavan. Both the US and Israel claimed to have not been involved in a strike on Lavan, raising the possibility that the strike may have been the result of a regional actor.

That possibility was fueled in part by Iran’s apparent downing of a Chinese-made Wing Loong II drone, operated by either the UAE or Saudi Arabia, earlier that week. Neither Riyadh, Abu Dhabi, or Washington DC either confirmed or denied the loss of a drone, but there has been growing speculation that the two leading members of the Gulf Cooperation Council might be cooperating with the US against Iran to a greater degree than has been publicly disclosed.

Naturally, the UAE condemned Iran’s attack.

The United Arab Emirates has condemned in the strongest terms the renewed terrorist, unprovoked Iranian attacks targeting civilian sites and facilities in the country using missiles and drones, which resulted in the injury of three Indian nationals.

In a statement, the Ministry of Foreign Affairs (MoFA) affirmed that these attacks constitute a dangerous escalation, an unacceptable act of aggression, and a direct threat to the UAE’s security, stability, and territorial integrity, in violation of the principles of international law and the Charter of the United Nations.

The UAE emphasized that it will not tolerate any threat to its security and sovereignty under any circumstances, and that it reserves its full and legitimate right to respond to these unprovoked attacks in a manner that ensures the protection of its sovereignty, national security, territorial integrity, and the safety of its citizens, residents, and visitors, in accordance with international law.

The Ministry further underscored that targeting civilians and civilian infrastructure is unequivocally condemned and rejected under all legal and humanitarian norms, stressing the need to immediately halt these attacks and ensure full compliance with the cessation of all hostilities. The UAE holds Iran fully responsible for these unprovoked attacks and their repercussions.

Iran almost predictably stepped up its rhetoric against the UAE, warning the Emirates to to “take any unwise action” against the Khamenei regime.

“No official threat has so far been announced by the Emiratis,” the military source told Tasnim. “But if the Emiratis become a plaything of Israel and make a wrong move, they will learn a lesson they will never forget.”

“If the UAE takes any unwise action, all its interests will become targets for Iran, and no part of Emirati facilities will be safe,” the source added.

While it remains unclear if UAE fighter jets or drones have been involved in minor strikes against Iran, what is absolutely clear is that Iran views the UAE with greater hostility than it does even Israel, as the Emirates have been subjected to heavier missile and drone attacks than Israel.

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Israel Promises To Help Defend The Emirates

Whatever Iran hopes to accomplish with its persistent attacks on the UAE, it very likely has made one major miscalculation: Israel has not been shy about coming to the UAE’s defense.

It has been previously reported that Israel has deployed its “Iron Dome” laser defense system to the assist the UAE with its air defenses.

That Israel was defending the UAE against Iranian attacks came to the fore once again as a result of today’s attacks.

Israel had secretly deployed an Iron Dome aerial defense system — and the soldiers to operate it — to the UAE at the beginning of the war with Iran, bolstering the Persian Gulf nation’s defenses. The deployment, first reported by Axios, was a clear sign of growing cooperation between Israel and the UAE.

Other aerial defense systems may also have been used to intercept the incoming Iranian projectiles. At least three missiles were intercepted, Emirati authorities said. It was not immediately clear how many were shot down by the Iron Dome system.

The attacks were also an opportunity for Israel to remind the world that the UAE had signed the Abraham Accords with Israel, and former Israeli Prime Minister Naftali Bennett made it clear that Israel would stand by its “strategic ally”.

If Iran hoped to alienate the Arab states from both the US and Israel by subjecting them to attack, at least with the UAE it failed spectacularly. In a moment where the meaning, spirit, and substance of the Abraham Accords could have been called into question, Israel has made it clear there is no question: Israel means to honor the accords and come to the aid of the UAE.

Will this make other Arab states more likely to sign on to the Abraham Accords with Israel? It is far too soon to say with certainty that will be the case, but it is hard to envision the Abraham Accords not taking on a much more favorable light in Arab capitals after today.

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Iran Tipped Its Hand—It Means To Control All Of Persian Gulf Oil

Iran may have revealed more than it intended about its overall ambitions in the Gulf with the UAE attack.

The Fujairah Oil ​Industry Zone is not just a major UAE oil refinery. It is also one of the few oil terminals in the region which lies outside the Strait of Hormuz.

Iran attempted to disable one of the few alternatives to sending tankers through the Strait of Hormuz.

Even as Iran continues to push its claim of right to control traffic through the Strait—a claim which is completely rejected by the UN Convention on the Law of the Sea (UNCLOS)—Iran is separately attacking the infrastructures which Arab States might use to bypass the Strait and thus negate Iran’s diplomatic leverage of being able to deny Arab states in the Gulf the capacity to export their oil and natural gas.

If that is Iran’s intent, then the strikes on Fujairah are an unmistakable act of war. They are an aggressive demonstration of Iran on offense, not defense. That is not something that other Arab states, particularly Saudi Arabia, will have failed to notice.

It is not something any of the Arab states dare ignore, not if they wish to avoid bending the knee to Iran.

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No US Or Israeli Retaliation…Yet

As of this writing, neither the US nor Israel has commenced any retaliatory strikes on Iran, although earlier unconfirmed reports were that strikes would be occurring within the next 24 hours.

Social media reporting was has also been rife with speculation that the UAE is prepared to declare war against Iran, although as of this writing no such declaration has been made.

Will there be retaliation? Will the UAE make a formal war declaration? At present these question are unanswerable.

Will President Trump choose to maintain the ceasefire instead? That question also is unanswerable.

Should the UAE actually declare war—or if it should end up participating in retaliatory air strikes alongside the US and especially Israel—Iran will have catalyzed a tectonic shift in the geopolitics of the Middle East.

The UAE has been a signatory to the Abraham Accords since 2020, as part of an extended diplomatic effort begun during the first Trump Administration to develop normalized relations between Israel and her Arab neighbors. Iran’s attacks have already created an opportunity for Israel to come to the defense of an Arab nation. We cannot rule out Israel and the UAE fighting side by side against Iran in at least a brief retaliation for the attack on Fujairah.

Given the long history of enmity between the Arab countries and Israel, for even one Arab state to become a military ally of Israel against a common adversary is an outcome that would have been considered unthinkable even just a few weeks ago. We are now at a juncture where that might be inevitable.

If an Arab-Israeli coalition against Iran does materialize, it is difficult to envision how the IRGC survives and remains in power.

The IRGC may have thought it was making a bold move and doing a little geopolitical flexing with its attack on the UAE. It is quite likely this attack will prove to be an epic blunder.

Tonight the ceasefire is holding. Tonight, the IRGC is still in charge in Tehran.

How long either of those statements remains true is anyone’s guess.

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The “Transit of Goods through Territory of Pakistan Order 2026” took effect on April 25, formally designating six specific land corridors. These routes now allow third-country cargo destined for Iran to move securely across Pakistani soil, backed by strict customs safeguards.

The announcement came close on the heels of Iranian Foreign Minister Abbas Araghchi’s brief trip to Islamabad, suggesting opening the land routes was discussed during his visit.

Why did Pakistan agree to open the land routes? Certainly one reason was the efficacy of the US Navy blockade of Iranian shipping into the Persian Gulf has left some 3,000 cargo containers stranded in port at Karachi, waiting for Iranian-bound vessels that may never arrive.

Establishing land routes to move cargo out of Karachi and into Iran is undeniably good business for Pakistan. The cargo that has been languishing in Karachi will undoubtedly be welcomed in Iran. Yet after the backlog of containers is cleared, how much more cargo traffic Pakistan will move into Iran remains to be seen. The degree to which Pakistan will move Iranian exports also remains to be seen.

Can the overland importation of goods from Pakistan into Iran slow the latter country’s ongoing economic collapse? That seems unlikely.

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Iran Replacing UAE With Pakistan As Trading Partner

What gives this story increased relevance was a four-part X post made by Iran’s Fars News Agency yesterday, talking up the significance of the arrangement.

According to Fars, this arrangement has been the product of lengthy negotiations dating back well before Operation Epic Fury.

What is most remarkable about the Fars statement, however, is the third part:

In recent years, Iran has conducted a significant portion of its imports and transit through the ports of the United Arab Emirates (especially Jebel Ali); a route that has now become unstable due to the intensification of the maritime blockade and political changes in the region.

Prior to the US war with Iran, most Iranian imports, per Iranian sources, flowed through the United Arab Emirates.

Immediately after Operation Epic Fury began, however, Iran’s retaliatory strikes focused not on Israel, and not on US military assets, but on Iran’s Arab neighbors. Specifically, Iran focused on the United Arab Emirates.

A mere two days after the first strikes by US and Israeli jets on February 27, the UAE was targeted by more than 200 drones and 137 ballistic missiles. Iran’s targets in these attacks included five star hotels as well as the international airport in Dubai.

So lopsided were the attacks on Gulf states that even the Qatari-owned New Arab media outlet reported on them, citing the Israeli Institute for National Security Studies.

The New Arab could not verify the numbers independently, but the figures purport that attacks on Gulf states and other Arab countries during the first four days of the war included 812 drones and 186 missiles directed at the UAE, 92 drones and 74 missiles towards Bahrain, 46 drones and 116 missiles towards Qatar, 36 drones and 13 missiles towards Jordan, five drones towards Oman, 384 drones and 178 missiles towards Kuwait, three drones and two missiles towards Cyprus, 13 drones and two missiles towards Saudi Arabia, in addition to 70 missiles and drones directed at Iraqi Kurdistan.

Notably, Israel responded to the attacks on the UAE—which is a party to the Abraham Accords—by deploying its “Iron Beam” laser defense system to aid in the Emirates’ air defense.

Not only did Iran decide to turn on one of its main trading partners in retaliation for Operation Epic Fury, it showed the Abraham Accords to have real diplomatic substance, as Israel took full advantage of the opportunity to step up and aid in the defense of an economic partner and ally.

Six weeks after burning an important economic bridge via the UAE, Iran is only just beginning to build up a new one via Pakistan.

Has Iran been simply using the United States’ war as a cover to shift its geopolitical focus away from the Persian Gulf, embracing its eastern neighbor instead? Certainly that is one plausible interpretation of these events.

It is, however, remarkable that the trade arrangements with Pakistan were not in place when Iran opted to force things by closing the Strait of Hormuz.

If the shift eastward was Iran’s intention from the start, its execution of that shift has been beyond shambolic.

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Iran’s Oil Storage Is Filling Up

What the Pakistani land routes will not resolve is Iran’s ability to export its crude oil.

While we have to be cautious about taking any outside reporting about events in Iran at face value, media narratives both in the Middle East and in the West have consistently been reporting that the US Navy’s blockade of Iranian shipping has caused major disruptions to Iran’s oil exports.

Reuters has reported that, according to oil analytics firm Vortexa, traceable oil exports from Iran are down more than 80% since the US blockade began on April 13.

“At this stage, we ​estimate that around 4 million barrels of Iranian crude has successfully moved out of the Gulf of Oman. We are not currently ​able to confirm whether any of those vessels have since been interdicted,” it said in an email to Reuters.

While a number of tankers are reportedly turning off their Automatic Identification System (AIS) transponders in order to slip past the US Navy cordons, making absolute measurements of the amount of interdicted oil impossible, the data that can be obtained indicates Iran’s oil exports are largely constrained.

Certainly the price shocks hitting China’s economy even now indicate major dislocations in its oil shipments from the Persian Gulf, including Iranian oil.

If China is not able to receive shipments of Iranian oil—and China is the nation which has been the most aggressive in bypassing sanctions on Iranian oil—the presumption that Iran is unable to ship out oil is not at all unreasonable.

This backdrop makes reporting that Iran is already curtailing oil production quite credible.

Tehran is proactively reducing crude output in a move to stay ahead of capacity limits rather than waiting for tanks to fill completely, according to the senior official, who asked not to be identified because the information is sensitive. And engineers have learned how to idle wells without lasting damage and restart them quickly, officials say, after years of sanctions and shutdowns pushed the country’s oil industry through cycles of disruption.

“We have enough expertise and experience,” said Hamid Hosseini, a spokesman for the Iranian Oil, Gas and Petrochemical Products Exporters’ Association. “We’re not worried.”

While we have to be cautious whenever reporting relies on unnamed sources, as the Bloomberg reporting does, that there is at least implied confirmation from a named source is an indication that the report is legitimate.

Certainly the Saudi-owned Al Arabiya outlet wants the reporting to be true, although given the attacks Iran has made on Saudi oil infrastructure since this war began, we should not ignore the obvious bias the Saudis would have in amplifying narratives of Iranian oil production in a chokehold because of the US Navy blockade.

Oil storage is being presented as one reason for a purported increase in fuel smuggling into Pakistan, with literally thousands of small trucks and cars clogging Iran’s border crossings.

Presumably, the Khamenei regime is not making any effort to curtail the fuel smugglers, as the more gasoline and diesel they smuggle out of the country, the more storage capacity is freed up for ongoing production.

How accurate is this assessment? There is no way to tell at this time, although it does fit with other reporting on Iran’s oil infrastructure. Certainly the increases in futures prices for Iranian crude, which have tracked increases in global benchmark pricing, do not indicate a pre-war level of availability for Iranian oil.

While the precise timeline of Iran’s oil storage capacity filling up is extremely problematic, that Iran’s oil storage capacity is filling up is the best assessment of what is happening in Iran right now.

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Iran’s Economy Is Collapsing

We do not need to wonder if Iran’s economy is collapsing. Even Iranian sources are conceding that point.

As reported in Iran International, Iranian state media has begun openly reporting on the country’s metastasizing economic woes, and openly challenging the regime about them.

“What is going on in this country, Mr. Pezeshkian?” state TV anchor Elmira Sharifi asked earlier this week, staring directly into the camera after reporting that many Iranians can no longer afford basic staples such as rice, sugar, cooking oil, fruit, dairy products and medicine.

Had President Masoud Pezeshkian been watching, he might have been startled. State television rarely addresses officials so directly or publicly demands accountability. But he is no stranger to criticism. Calls for answers have become routine in the press and on social media.

The pace of the collapse can be seen in the “free market” (which is to say, the black market) exchange rate of the Iranian rial against the dollar

Although the rial had strengthened considerably in the opening days and weeks of the war, shortly after the US Navy began its blockade on April 13, the rial went into free-fall, and, as of this writing, continues to do so.

The currency collapse is only the start of Iran’s problems. Spiraling unemployment is another.

Iran has lost at least 1 million jobs directly because of the war, Deputy Labor Minister Gholamhossein Mohammadi said, according to state media.

But the ripple effects put some 10 million to 12 million jobs at risk — half of Iran’s labor force — warns Hadi Kahalzadeh, an Iranian economist.

Israeli and US air strikes have reportedly damaged or destroyed some 20,000 factories, or 20% of Iran’s industrial plant capacity. Iran’s two biggest steel producers, Mobarakeh Steel and Khuzestan Steel, have halted production, as have numerous petrochemical refineries.

Al Jazeera’s reporting on Iran’s economy pulls very few punches, citing government mismanagement as well as effects of the war as the catalysts for the economic meltdown.

A toxic mix of local mismanagement, the bombardment of Iran’s infrastructure, US sanctions and a naval blockade, as well as a near-total internet shutdown imposed by the authorities in Tehran – now in its 64th day – is pummelling the economy in the country of more than 90 million people.

With wages not at all keeping pace with surging hyperinflation, Al Jazeera’s reporting indicates some Iranians may already be resorting to barter as a way to sidestep the currency collapse.

The monthly minimum wage in Iran is currently less than 170 million rials ($92), and that is after the government raised it by about 60 percent for the current Persian calendar year that started on March 21. The government is also offering subsidies towards food and essentials worth just less than $10 per month per person.

“You look at the prices and salaries, and you see the numbers don’t add up,” said one Tehran resident who asked not to be named.

“There’s not much you can do about it except to turn the little you have into something that is not depreciating or buying something you need that you might not be able to afford later.”

We should note that the Khamenei regime denies Iran is facing any difficulty obtaining and providing to the people essential goods and services.

We should also consider that Gresham’s Law holds that people spend “bad money” before “good money”. That Iranians are looking to purchase items that don’t depreciate in value suggests one purpose of such purchases would be to trade them for needed items in the future. Spending rapidly depreciating rials (“bad money”) for assets capable of sustaining value (“good money”) is exactly the behavior Gresham’s Law says we should expect in such circumstances.

Additionally, Iran’s online businesses are being systematically destroyed by the regime’s decision to cut off virtually all Internet in the country after the start of the war.

After 65 days of no internet and counting, Iran’s online businesses are reporting sales losses on average of 40%-50%, with some vendors unable to do any business at all.

The head of Iran’s online businesses association said on Sunday that internet policy had no clear authority, leaving the digital economy unsure which body to negotiate with.

Reza Olfatnasab said some online businesses had seen sales drop by 40% to 50%, while others had sales near zero.

Across the media landscape, the reporting is largely the same: Iran’s economy is in a state of collapse, and the regime is powerless to turn it around. With even Arab and pro-Iranian media outlets carrying that narrative, there is little reason to dispute it.

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What Good Will The Land Routes Do?

While Pakistan will likely be able to move at least some of the 3,000 containers from the port at Karachi to their final destination in Iran as a result of the land routes being opened, how much those 3,000 containers will alleviate Iran’s economic distress is nothing if not extremely uncertain.

What the land routes will not do is help Iran export more oil. There are no oil pipelines running into Pakistan, or even close to the Pakistani border, and only one rail line, to Mirjaveh. Thousands of individual Iranians turning to fuel smuggling is not going to help the regime revive the economy, nor is it likely to delay for long the inevitable shutting in of production oil wells as storage supply becomes full.

With oil exports, and with non-oil export industries such as steel effectively shut down, the country’s ability to earn hard currency via exports in the form of dollars, euros, or even yuan is greatly diminished. Without that hard currency, paying for imports becomes increasingly problematic and increasingly inflationary.

With the regime disallowing internet access for all except those favored by the regime, an entire segment of the Iranian economy has, in effect, been completely shut down. Without vendors reselling imported goods, there will be fewer containers landing at Karachi en route to Iran.

Pakistan opening the land routes is arguably a humanitarian gesture, and is unquestionably good business for Pakistan, but it can have little practical long-term impact if there are not imports to be moved from Karachi to Iran. Without oil exports to generate the necessary cash, it is unlikely there will be much in the way of imports to move overland.

The best assessment of Pakistan’s move is that it offers Iran a band-aid when it needs a tourniquet to stop the bleeding. It is good for Pakistan as it clears cargo out of Karachi, but that is likely the most the land routes will accomplish.

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From the preceding month, the PCE price index for March increased 0.7 percent. Excluding food and energy, the PCE price index increased 0.3 percent.

From the same month one year ago, the PCE price index for March increased 3.5 percent. Excluding food and energy, the PCE price index increased 3.2 percent from one year ago.

Everyone who was not comatose was already aware that energy prices were soaring and knew the reason why—Iran disrupting Persian Gulf oil flows by closing the Strait of Hormuz. The US war with Iran is the reason Wall Street projected year on year inflation per the PCEPI would be 3.5%, and for once Wall Street was spot on.

The suddenness of the war and of Iran’s strategic response to close the Strait of Hormuz left the usually highly accurate Cleveland Fed’s inflation nowcast a few steps behind the curve, with its projections for both headline and core year on year inflation 0.1pp below the actual print.

Like the earlier CPI report, the PCE data confirmed that inflation has returned to the US economy.

Yet the data was not without a few bits of silver lining. While energy price inflation surged, prices in other areas rose substantially less, or even declined.

Energy price inflation is real. Other inflation…not so much.

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Not Quite The End Of “More Of The Same”

The Personal Income and Outlays report runs nearly a full month behind, so by the time we had the February data Operation Epic Fury had been headline news for nearly a month. The news from the Middle East made it clear that there was going to be a significant energy price shock in the March data. The news from the Middle East was why my assessment last month was that the February PCE data marked the end of “more of the same.”

Even when I first read the BEA’s report yesterday morning, that assessment appeared to be confirmed. However, that assessment was not entirely true.

Driven by energy prices, headline inflation did rise year on year, which was completely expected.

Core inflation also rose year on year, but the trend line was in keeping with prior months. Operation Epic Fury did not add new inflation pressures to core inflation.

One “more of the same” aspect of the March data was that core inflation actually eased month on month in March.

While consumer price inflation has been trending up year on year for both the headline and core metrics in the PCEPI, since January core inflation month on month has gotten cooler, dropping from 0.42% in January to 0.29% in March.

Not only did Operation Epic Fury not add new inflation pressures, it also did not sustain some of the inflation pressures already present.

As it turned out, past energy prices, the PCE data actually does contain “more of the same”, with several previous months’ trends being continued.

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Energy Rose, But Food Fell

Headline inflation surged in March because energy price inflation surged—that much is obvious.

With oil prices up 33% on the month, how could energy prices not surge?

The surge was helped along by both gasoline and diesel retail prices having a violent trend reversal to also rise 36% and 42% on the month.

What did not help headline inflation move skyward were food prices. Food prices printed deflation month on month in March.

With food prices having shown inflation through the winter months, seeing the food subindex decline is a welcome change.

Even though energy prices have a tendency to permeate all other prices, food prices are the first indication that the inflationary pressures brought on by Iran mining the Strait of Hormuz have not moved beyond energy prices…yet

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March Was Nondurable Goods’ Month To Rise

In the February data, looking past the headline numbers we saw that durable goods surged significantly. In March, it was non-durable goods’ turn to take off.

However, there is little doubt that energy goods drove most if not all of that increase.

That is what an 11.6% rise in energy goods and service prices will do to the PCEPI subindices.

That extreme surge in energy pricing also highlights a point of particular concern. Either despite a nearly 12% rise in energy goods and services pricing or because of it, real expenditures on energy goods and services declined in March.

People spent more on gas at the pump in March, but in real terms they bought less gas. While this is a somewhat predictable consequence of a price shock, this is also illustrates how sudden price shocks can lead to stagflation: instead of the rising prices being the consequence of rising consumption, rising gasoline prices have produced decreasing consumption. What normally acts as a brake on consumption for March energy prices acted as a suppressant instead, preventing rather than limiting consumption growth.

We see further evidence of this in the cooling of growth month on month in real personal consumption expenditures for March.

That real disposable personal income declined again in March does not help further any narrative of substantive economic growth.

When there is no growth in real disposable personal income, there are not going to be many prospects for sustained consumption growth. Consumption growth without income growth invariably hits a wall.

One data point that unfortunately is very much “more of the same” is the continued long-term decline of real disposable personal income year on year, which is accompanied by a somewhat more problematic downward trend in real personal consumption expenditures.

It is trends such as these that force us to mention “stagflation” with regards to the energy price shocks from the war with Iran. These are trends which suggest consumption growth is weakening in this country, and a sudden surge in energy prices can very easily suppress growth further.

When inflation is the proximate cause of absolute demand destruction, that is when we are starting to see stagflation.

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Powell Remains Clueless About The Data

These key trends in real disposable personal income and real personal consumption expenditures also serve as yet another rebuttal to outgoing Federal Reserve Chairman Jerome “Too Late” Powell’s stubborn silliness in refusing to understand the data he pretends to study, as we saw from his final question during Wednesday’s post-FOMC press-conference.

Thank you, Chair Powell. Richard Escobito with CBS News.We’ve talked a lot about gasoline prices and even you mentioned airline ticket prices, both of which are up dramatically because of the war in Iran. And so I wonder, are you seeing that way down consumer spending in other parts of the economy and if so how worried are you that that will be a drag on growth.

Chairman Powell: you don’t see you don’t see it in spending yet you really don’t I mean as one of your colleagues said the economy has been resilient it really has not just this time but it’s been remarkably resilient for some years now. The U.S. economy has just powered through shock after shock, and consumers are still spending. And that’s what the banks will tell you, credit card companies will tell you, the retail sales numbers that we got most recently. People are still spending. And, you know, how long can that go on in a world where, if gas prices were to go up a bunch more, that’s taking otherwise spendable money out of people’s pockets, but right now we don’t actually see much slowdown yet—certainly none from this—but you think logically you will, because people have a certain amount of money they’re spending. If they’re spending 25% more in gas or something like that, then you know that’s going to come out of other spending. But again, we don’t see it yet.

Richard Escobito: One last thing. You mentioned those economies in Southeast Asia that are particularly dependent on petroleum, they make a lot of the stuff that American consumers buy. So was there any discussion today about whether or not those costs getting passed along to consumers is a real concern, and whether or not that might push up inflation?

Chair Powell: So all of those things are in or are in the models that, that we use to calculate inflation. So, you know, they’re, they’re just parts. You can ask about anything like that, and they are. They have a place, the staff has a place where they’re looking at that and pricing in, what will happen with higher prices and that kind of thing. So it’s there. The effects are not that big yet. You know, we’re a huge economy. The import sector is only 10% of the economy. So we’re not like a European country where 50% of the external—of GDP—is in the external sector. We’re also, you know, as I mentioned, we’re an oil exporter. So we’re not feeling the same kind of pain and we’re not likely to feel the same kind of pain that economies in Western Europe and certainly in Asia are feeling.

What Powell conflated in his word salad answers was nominal vs. real spending. Even looking at just energy goods and services, while in Powell’s world people are “still spending”—meaning they are spending more money on energy—in the real world they are buying less energy.

As consumers know only too well, inflation means you pay more but consume less.

Will the exposure of Southeast Asian manufacturers to energy price and supply shocks have a secondary effect on the US economy? That is a very real possibility. With regards to China it may even be a probability, as the data shows that China is already being hit hard with multiple materials pricing shocks across the whole of its manufacturing sector.

Arguably, we are already seeing the consequence of Asian producers passing on increased costs to American consumers, as imports were an outsized drag on GDP for the first quarter.

Imports are treated as a reduction in GDP, so an increase in imports—specifically, an increase in the dollar value of those imports—is a decrease in GDP.

Did higher producer prices push the dollar value of imports up in March? The broad GDP data does not let us answer that question definitively, but it is a question, and one that is likely to gain considerable relevance for April and beyond.

Powell did get one thing right: The US is better positioned than other countries to grapple with energy price shocks. We can see evidence of that just in the movements of diesel prices in Europe, Asia, and the United States.

Energy prices are up everywhere, but they are up more particularly in Europe.

Will importers pass along higher prices? Given the magnitude of price increase for a number of inputs, as well as for transportation both of people and cargo, we must assume that, unless oil prices return quickly to pre-war levels, all importers eventually will pass along at least some of their cost increases.

As we’ve seen just with energy goods and services, when prices are passed along, part of the consumer response is to buy less.

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Stagflation A Rising Risk

While Jay Powell dismisses the potentials for a stagflation crisis within the US economy, the data has shown there have been significant potentials, needing only an inflationary shock to activate them.

Stagflation has quickly become a global concern in the wake of Iran’s closure of the Strait of Hormuz.

The war in the Middle East will likely affect the global economy and the United States, whether it continues for a short or long term, because of disruptions in the oil market that could trigger inflation and spur a recession, warn experts, economists and the International Monetary Fund.

Widespread stagflation could be the result of the war because of the long-term closure of the Strait of Hormuz, said Mohammad N. Elahee, a professor of international business at Quinnipiac University in Hamden, Connecticut.

It quite likely is a present crisis in China.

At present, the impacts to the United States from the closure of the Strait of Hormuz are still mostly limited to energy prices. We do not see significant price rises from non-energy goods and services—yet.

That word “yet” is going to be the watchword for how inflation and the overall economy evolve over the next few months. Whatever impacts we do not see right now, we may very well see next month or the month after.

Because we do not see all the impacts just yet, we should be cautious about assuming there will be no impacts, or less impact. We should be equally cautious about assuming the impacts will simply be price rises.

Proper understanding of the data in light of the war with Iran hinges on remembering that the stagflation phenomenon occurs when sudden price shocks collide with weak economic growth. Because price shocks are driven by the supply side rather than the demand side, the resulting inflation compels reduced consumption and economic contraction to bring supply and demand back into approximate equilibrium. When inflation is driven by demand side pressures, the result is constrained consumption and economic restraint.

If we see job markets soften, if real personal expenditures for any goods and services decline, we are entering the beginning stages of a stagflation crisis.

Will we enter those beginning stages? We won’t know the answer to that until it happens. That much of my assessment of the February PCE data remains very much on the table:

If the war with Iran continues to drag on, and especially if the recently and still quite fragile ceasefire fails to hold, we might see inflation and unemployment combinations that look distressingly stagflationary. The inflation data from both January and February leave that possibility very much on the table.

The key word in that assessment, of course, is “if”.

The March Personal Income and Outlays report confirmed what we saw in the March Consumer Price Index report: we have energy price inflation and lots of it. We do not have much inflation in other parts of the economy right now.

We are going to see elevated energy prices again in April. How much we see either inflationary impacts or stagflationary impacts beyond energy prices remains to be seen.

Beyond energy price inflation, the fog of war still surrounds the economics of wartime.

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Amid global turbulence, China’s GDP expanded by five percent according to the official statistics in the first three months of 2026, up from 4.5 percent in Q4 last year. It was stronger than the market consensus of 4.8 percent and at the top end of the leadership’s target of 4.5-5 percent annual growth this year. Strong investment in infrastructure and manufacturing, led by state-owned enterprises, was crucial in returning fixed-asset investment (FAI) growth to positive territory. Yet the overall picture of the economy has not changed: growth continues to rely on strong manufacturing and exports, while consumption remains weak. The government’s cautious approach to policy support may be tested in the coming months as global uncertainties increase.

That is the narrative on paper.

More importantly, that is the narrative before Operation Epic Fury and the US war with Iran roiled global energy markets.

A return to economic growth and expansion is certainly a welcome change for China, which has been mired in deflation for years at this point—provided that it really is a return to economic growth.

As is so often the case, when media narratives collide with economic realities, the narratives do not do well.

The narrative is that China, in the first quarter of 2026, exceeded expectations and turned in strong economic growth.

The economic reality is that China remains mired in deflation. China may be on the precipice of a stagflation crisis, courtesy of Iran’s closure of the Strait of Hormuz as part of their war strategy.

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Iran Upset Everyone’s Apple Cart

There can be no surprise that the data shows Iran’s decisions in its defense against Operation Epic Fury have roiled economies around the globe and are even now sending a significant energy price shock through those economies. China is far from immune to that price shock, and is even grappling with secondary price and supply shocks in a variety of petroleum-derived industrial chemicals, creating broad inflationary pressures across the whole of the economy.

Nor does recent price data on those same essential materials suggest the situation is getting any better.

Sulfur prices in China have been trending up over the past week, with prices now more than 60% above pre-war levels.

Polyethylene has also reversed and started trending up over the past week, and is now 25% above pre-war prices.

Styrene has not trended up, but its gradual decline appears to be bottoming out, at 30% above pre-war price levels.

Bitumen has had the most dramatic resurgence over the past week, pushing above 30% and closing in on a 35% price increase over pre-war price levels.

These are price and supply shocks which go well beyond energy, putting unanticipated cost pressures on most of China’s export-oriented manufacturing.

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Inflation Or Stagflation?

These cost pressures are not shy about making themselves known, as China’s Producer Price Index showed a year on year increase for the first time in over three years.

While a return to inflation after years of outright deflation on the surface is a welcome change, the signs are that the resurgent factory gate inflation is indicative of “bad inflation”—i.e., stagflation.

A number of economists are concerned that the economic fallout from the war with Iran will coalesce into a global stagflation crisis, with high prices and suppressed growth everywhere.

The war in the Middle East will likely affect the global economy and the United States, whether it continues for a short or long term, because of disruptions in the oil market that could trigger inflation and spur a recession, warn experts, economists and the International Monetary Fund.

Widespread stagflation could be the result of the war because of the long-term closure of the Strait of Hormuz, said Mohammad N. Elahee, a professor of international business at Quinnipiac University in Hamden, Connecticut.

As is proving typical among the financial “expert” class, analysts at Goldman Sachs insist that China is likely to fare better than other economies, because of its presumed “energy diversification”.

An analysis by a strategist at Goldman Sachs said China is in better shape than other major economies to withstand an oil shock thanks to its energy diversification over the past 10 years.

“China looks better placed than most in this oil shock,” Kinger Lau, chief China equity strategist, wrote in a note on March 30, which was seen by Yahoo Finance.

However, this narrative is no more convincing than Goldman’s last glowing assessment of the Chinese economy.

The reality is that price shocks of more than 30% in a variety of essential materials used throughout China’s manufacturing pipeline are exactly the sort of sudden inflation spike which can trigger a stagflation crisis.

In addition, the suddenness of Iran’s closure of the Strait of Hormuz means China has lost a major source of below-market crude oil. Even though China has been stockpiling oil, anticipating a rupture between the US and Iran, that stockpile is a problematic shield against the higher crude prices China must pay.

For economic security reasons, China was prepared for a potential energy crisis stemming from the US threats to Iran, which intensified at the beginning of 2026. In the first two months of the year, Chinese oil imports surged 16 percent for stockpiling. Russia exported around 300,000 barrels/day more to China in January and February (up to around 2.1 mbd), though for China this is by no means enough. China’s oil imports from the Gulf, now trapped in the Strait of Hormuz, are at least double the amount imported from Russia (5.4 mbd through Hormuz to China).

In other words, in the short run, China still needs to deal with the consequences of the sudden shut-off of a good part of its oil imports at below market price, in the context of a jump in the oil price, which could easily hover around $100/barrel for a sustained period. Standard modelling of China’s sensitivity to oil prices points to a 0.5 percent GDP reduction for a 25 percent increase in oil prices (Rasmussen and Roitman, 2011). This illustrates the stakes for China.

Higher materials prices and higher crude oil prices are not price shifts which can be ignored.

Those higher prices translate directly into a very real risk of stagflation within the Chinese economy.

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China’s Economy Still Underperforming

Regardless of what the narratives say, the data shows that China’s economy is still underperforming in many ways, and has only just begun to show improvement in some of them.

Although China’s official PMI gauge showed the manufacturing sector returning to expansion in March, that same gauge reminds us that China’s manufacturing sector has been in contraction for months at a time since the end of China’s bounceback from COVID Pandemic Panic lockdowns in 2021.

While China nominally turned in a quarter of strong GDP growth to start 2026, that same quarter saw China’s industrial capacity utilization falling to 73.6%, the lowest since the COVID Pandemic Panic lockdowns in 2020.

While new orders surged in March, for most of 2025 new orders were, like the rest of the manufacturing sector, contracting.

At the same time, export prices have been weakening for China since June of last year, when a steady export price rise ended and reversed.

The export picture was further darkened by slowing export growth, which resulted in China’s trade surplus abruptly narrowing to $51 Billion.

Domestically, retail sales growth continued to be sluggish, recording month on month growth of just 0.14% in March.

Year on year, retail sales growth slowed March to 1.7%, reiterating continued weakness in consumer demand.

For comparison, month on month US retail sales growth in March was also 1.7%.

The retail sales growth for an entire year in China is one month of expansion in the US.

At the same time, unemployment has been rising in China, reaching 5.4% in March.

These are not statistics which speak of economic strength and vitality. China’s economy is not in absolute collapse, but neither is it showing robust growth except on paper.

The weakness that has been the norm for the Chinese economy for the past few years means that price shocks such as the world is seeing now in energy can easily turn into a stagflation crisis of no growth coupled with high prices.

There has been a real risk of stagflation here in the United States. That risk has been even greater in China.

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China’s Housing Woes Continue

No look at China’s economy is complete without observing that China’s housing bubble is still deflating, and China’s property developers are still struggling.

China Vanke, one of the largest developers still going—and one which had until last year appeared to have avoided the debt crises which sank many of its competitors—recently announced intentions to extend yet another bond issue, the fourth such debt extension it has sought since the start of the year.

There is no mystery why China Vanke has been repeatedly flirting with debt default: China’s housing markets are still in deep decline even after years of contraction. Residential property prices have been falling without interruption since the first quarter of 2022.

New home sales in China were the weakest for the month of March since at least 2022, charting uninterrupted year on year declines.

Housing starts were also the weakest year on year since 2022.

The consequence of these negative trends for Chinese housing culminates in steadily diminishing levels of property investment since 2022.

That housing markets are still in free fall even after three or four years not only demonstrates just how large the housing bubble was when it burst, it also illustrates just how much damage deflating that bubble will do in China.

The reality of the housing bubble for China is that its collapse represents what will ultimately be a cataclysmic level of wealth destruction among the rapidly diminishing Chinese middle class.

By far the most prevalent mechanism for wealth accumulation among ordinary Chinese has been real estate. As housing prices continue to fall, the value of real estate owned by individuals continues to erode.

If Beijing is serious about letting the bubble completely deflate without intervention, it will be forced to confront the literal destruction of the vast majority of wealth for China’s nascent middle class.

How China peaceably navigates those dangerous waters remains to be seen.

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Demographics Are Still Destiny

The darkest of the clouds hanging over China’s economy remains its declining and aging population.

China continues to be hobbled with a lethally low fertility rate, the unintended consequence of the One Child Policy.

Not only is China’s population declining, the pace of that decline is arguably increasing, according to an analysis done recently by the US-based Rhodium Group, with increasingly immediate economic impacts.

Much has been written about the demographic headwinds to China’s economic growth. But these threats are typically portrayed as over the horizon, a problem for the next decade. The 2025 population statistics should force a rethink of those assumptions. What has long been described as a “gray rhino” risk—a palpable threat that is nonetheless ignored—appears to be charging sooner than expected. Last year China’s population declined by 3.4 million people, compared with a 1.4 million drop in 2024.

Within that decline, the more concerning development for economic growth was its concentration in developed coastal provinces. Migration inflows boosted population growth in eastern Chinese provinces to a greater extent than natural births.

The population decline, which has been ongoing for a number of years now, is accelerating.

China is losing population at an increasing rate.

Most alarming for China is that the population decline is the result of cultural shifts surrounding family planning and marriage. Fewer women are choosing to have babies, with even fewer opting to have more than a single child, even though the One Child policy was largely abandoned a decade ago. At the same time, Chinese couples are getting married later in life, with the average age of married people having risen to 34 years in 2024.

The increasing age of Chinese married couples, and the increasing age of Chinese mothers, results in another troubling phenomenon for China’s population: it is getting older.

China has more older people than it does younger people. That is going to be the demographic reality for at least the next few decades.

Rhodium Group cites these realities and concludes that China’s population is at a point where the word “collapse” is the word to use.

The immediate pressure on China, both economically and politically, is that the aging of the population is putting increasing pressure on the government to fund social security pensions.

But the demographic pressures on China’s fiscal balance are likely still underappreciated. In 2025, Beijing spent 2.9 trillion yuan to fill the deficit from the social security fund, accounting for 10.1% of last year’s general budget spending. The deficit is likely to widen further given the aging of the population. The dependency ratio (number of working people supporting one elderly person) was around 4.4 in 2024 but will fall to 3.5 people in 2030 and 2.8 by 2035, based on our calculations.

On the surface, the size of the social security fund grew another 1.5 trillion yuan last year to lift the total balance to 16.0 trillion yuan. But without the 2.9 trillion yuan in fiscal subsidies, the social security fund would have reported a deficit of 1.4 trillion yuan (about 11 years to deplete the current balance without assistance from fiscal subsidies). The largest hole within the social security fund is from the pension fund, with a total of 6.9 trillion yuan in spending in 2024 against 5.8 trillion yuan in income. The pension fund alone received 1.9 trillion yuan out of 2.6 trillion yuan in total fiscal subsidies.

The social security funding shortfalls also highlight another economic reality arising from China’s collapsing demographics: consumption decline.

Broadly speaking, young people tend to consume more than the elderly. Young people are where family formation typically takes place, and families drive consumption more than any other single factor in every society and culture.

Without a growing cohort of young people, China has zero chance of making meaningful improvements to its levels of domestic consumption, and zero chance of increasing the role domestic consumption plays in overall GDP.

China does not have a growing cohort of young people, and will not have a growing cohort of young people for the foreseeable future.

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Still In Decline

The grim reality of China’s economy is that it is still very much in decline. The Q1 GDP growth metrics, to the extent China’s data can even be trusted, do little to alter that conclusion.

China is still plagued by excess capacity, able to produce more of just about anything than there is demand for that item. That excess capacity is a constraint on future economic growth, because it means China cannot simply grow by producing more.

Excess capacity is a primary reason China has been grappling with broad economic deflation for the past several years. China’s core economic dilemma is that it produces too much for the world to absorb.

Excess capacity is the primary factor suppressing export prices. Although China’s economic model emphasizes exports, it cannot export at scale without driving down prices. It cannot grow export volumes for most products without encouraging price deflation in those same products.

In a perverse irony given China’s large population, that excess capacity extends into the housing market. The extent to which China has overbuilt housing is demonstrated by month after month of falling home prices even has property investment and housing starts decline. The challenge facing developers such as China Vanke is how to improve the financial bottom line when market conditions demand that developers build less rather than more.

Yet for all China’s excess production capacity, China does not produce what ordinary Chinese both want and can afford to purchase. In order for China to make meaningful progress on increasing domestic retail sales, China has to produce goods and services Chinese customers demand and for which Chinese customers are able to pay. It currently is having zero success in doing so, as the stagnant retail sales data shows.

In broad strokes, excess capacity is still the economic imbalance at the core of China’s ongoing deflation. To that the war with Iran is now adding a series of material costs, as well as price and supply shocks.

While the price and supply shocks inject new cost constraints and are pushing prices up, the price increases are not the result of increased demand for goods and services. The emergence of factory gate inflation in China is due to supply constraints, not demand expansion.

That distinction matters, because when prices rise because of increased demand, the higher prices eventually limit demand growth, effectively keeping the demand and supply sides of the economy in approximate equilibrium. When prices rise because of constrained supply, which is what is happening currently in China, the new supply constraints mean that demand must drop to restore that same equilibrium. China is already grappling with inadequate levels of demand for its economic production capacity, and the price shocks from the war with Iran are likely to push demand levels down even lower. That is the exact opposite effect from what China wants to see.

As in the United States, one month of factory gate inflation and materials price shocks does not automatically mean a stagflation crisis for China. That one month of price shocks, however, does mean all the ingredients are in place for a stagflation crisis. Whether China finds itself grappling the same sort of collision of inflationary and deflationary pressures that tortured the US in the 1970s remains to be seen, the longer materials prices remain elevated compared to pre-war levels, the more a 1970s-style stagflation crisis is likely to take shape within the Middle Kingdom.

The closure of the Strait of Hormuz is causing dislocations across the whole of the global economy. Europe is not immune. The United States is not immune. China is not immune. Contrary to many prevailing narratives, China is proving quite vulnerable to those dislocations.

The outcome of the war with Iran is going to determine how much and how fast China’s economy goes from bad to worse.

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Through the fog, however, one point has always been absolutely clear: the closure of the Strait of Hormuz is a major disruptor in the world economy, and the effects are already being felt worldwide.

Retail fuel prices were the most obvious and most immediate effect, with nearly every country experiencing a price surge on par with the 2022 hyperinflation cycle. In the US gasoline and diesel prices surged by more than $1 and $1.50 per gallon, respectively from the start of the war. Germany saw retail diesel prices climb by €0.59 per liter (€2.23 per gallon) by the beginning of April, and gasoline price rise by €0.36 per liter (€1.36 per gallon). Even early in March, before the full impact of the closure of the Strait of Hormuz had been felt in energy markets, China raised its gas and diesel prices by 695 yuan and 670 yuan per metric ton.

If a product is related in any way to petroleum and fossil fuels, its price has risen significantly, with percentage price increases in double digits across the board.

China, the world's leading importer and a growing chemicals exporter, is quite possibly the country feeling the greatest impacts from these price surges. Every price hike is a cost increase to China’s manufacturing intensive, export oriented economy.

This war is between the US and Iran, yet the biggest winner or the biggest loser could very well be China, nominally a neutral nation and not a party to the conflict.

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Iranian Hypocrisy Over The Strait Of Hormuz

That China raised fuel prices almost immediately after the start of the war gets right to the heart of the perverse irony over Iran’s illegal and hypocritical stance regarding the Strait of Hormuz. By closing the Strait, Iran sent a massive inflation pulse into the economy of its main customer.

China accounts for at least 80% and perhaps more than 90% of Iran’s pre-war oil exports. All those exports were at least disrupted when Iran closed the Strait.

Yet at least publicly, Iran seems unaware of its role in this. Instead, the current leadership atop the regime of Supreme Leader Mojtaba Khamenei, including Parliament Speaker Mohammed Bagher Ghalibaf, fatuously point a finger of blame at the United States, such as Ghalibaf did with his usual bellicosity yesterday.

Even Iran’s Foreign Minister, Abbas Araghchi, seemed oblivious to the double standard Iran advances with its accusations against the United States.

Iran accusing the US of “warmongering” in the Strait is, of course, absurd. The US is not the nation that told ships they could enter the Strait, only to fire on them. That was something Iran did on April 18.

For all of Iran’s pretentious accusations against the United States, there is no dispute which nation closed the Strait of Hormuz. Iran did.

There is also no dispute that closing the Strait of Hormuz is a violation of international law. The United Nations Convention on the Law of the Sea (UNCLOS) explicitly declares in Article 38 a right of transit passage through all such waterways.

In straits referred to in article 37, all ships and aircraft enjoy the right of transit passage, which shall not be impeded; except that, if the strait is formed by an island of a State bordering the strait and its mainland, transit passage shall not apply if there exists seaward of the island a route through the high seas or through an exclusive economic zone of similar convenience with respect to navigational and hydrographical characteristics.

Article 44 further restrains states bordering these international water ways from restricting or regulating traffic through them.

States bordering straits shall not hamper transit passage and shall give appropriate publicity to any danger to navigation or overflight within or over the strait of which they have knowledge. There shall be no suspension of transit passage

Nor is this simply my interpretation. Singapore’s Foreign Minister Vivian Balakrishnan argued substantially the same points during an appearance at CNBC’s CONVERGE LIVE event on April 22.

“With respect to both America and China, we have told both of them we operate on the basis of UNCLOS,” he said, referring to the United Nations Convention on the Law of the Sea.

Article 44 of UNCLOS states that “States bordering straits shall not hamper transit passage ... There shall be no suspension of transit passage.”

“The right of transit passage is guaranteed for everyone. We will not participate in any attempts to close or interdict or to impose tolls in our neighborhood,” Balakrishnan said.

Prevailing legal opinion also does not give Iran any grace on the matter. UNCLOS is to ensure freedom of navigation through the world’s strategic waterways, and Iran is determined to prevent freedom of navigation in the Strait of Hormuz. These positions are not legally compatible.

We should pause to note that neither the US nor Iran have ratified UNCLOS, although Iran has signed the Convention, and the US separately agrees with many of the principles contained therein. While neither the US nor Iran is technically bound by UNCLOS as they would be had they fully ratified the treaty, there is no serious argument to rebut the understanding that both countries are in broad agreement with UNCLOS’ position on freedom of navigation, which Iran’s Strait closure unquestionably violates.

If Iran actually espoused the freedom of navigation principles of UNCLOS, the Strait of Hormuz would never have closed and this situation would never have come to pass.

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China In The Middle

Iran’s hypocrisy and blatant treachery in the Strait of Hormuz is arguably a complicating factor for a country such as China.

On paper China is an ally of Iran. It presumably helped rebuild and rearm Iran’s defenses after the Twelve Day War last summer.

At the same time, China also is nurturing good diplomatic relations with the other nations in the Persian Gulf, and just recently, in a phone call with Saudi Crown Prince Mohammed bin Salman, openly endorsed freedom of navigation in the Strait.

Xi said that the normal passage through the Strait of Hormuz serves the common interests of regional countries and the international community, adding that China supports regional countries in building a common home marked by good-neighborliness, development, security and cooperation, mastering their own future and destiny, and promoting long-term peace and stability in the region.

As I noted a few days ago, such stances could indicate China was losing patience with Iran’s intransigence over the Strait.

It is worth noting that “normal passage” arguably refers to the pre-war status quo in the Strait, which did not include Iran assessing tolls on ships passing through it. Such tolls are, of course, an explicit violation of the UN Convention on the Law of the Sea, which codefied pre-existing international understandings on the principles of freedom of navigation.

It is also worth noting that China buys oil from more than just Iran, and its shipments of Saudi crude are down 10% from pre-war levels.

Shipping data from multiple sources indicates China’s normal imports of Persian Gulf oil have been disrupted to a significant degree, even if they haven’t been completely cut off.

Interestingly enough, China may also be turning the war and the closure of the Strait of Hormuz into a short-term revenue generator, exploiting arbitrage opportunities that have emerged thanks to the surge in benchmark oil prices and selling out of its strategic petroleum reserve while the prices are high.

“What has been happening in the last two or three weeks is actually they have been aggressively selling crude oil,” Mercuria CEO Marco Dunand said at the FT Commodities Global Summit in Lausanne on Tuesday. “They’ve taken out a lot of demand from various countries and offered aggressively in tenders.”

Dunand said there are a variety of possible explanations for the selling. They include the release of oil inventories within China, continued sales of Iranian oil in the weeks after the war started, and possible optimism that the Strait of Hormuz would reopen quicker than it has so far.

China is a net importer of oil, which means it cannot continue to sell its oil inventories indefinitely. Marco Dunand estimates China can continue to sell crude out of its reserves for another three weeks, after which it needs to recalibrate its strategy should the blockade of the Strait still be in effect at that time.

Ironically, that three week endpoint is also about the time frame when Iran’s inability to export oil starts to have outsized effects. Because Iran is unable to export the same volume of oil it has in the past, its available storage capacity is starting to fill up. Analysts at JPMorgan project that Iran will exhaust their storage capacity sometime in the next three weeks.

Onshore storage sits around 86 million barrels, currently just over half full at roughly 47 mb. That leaves about 40 mb of working capacity, which, in market terms, translates into roughly 22 days of export cover if flows are fully choked off. Layer in the four Iran-linked VLCCs still sitting inside the Strait of Hormuz, and you add another 8 mb of potential floating relief, stretching that window toward 26 days.

But the system does not wait for tanks to hit the brim before reacting. Production does not fall off a cliff, it bends under pressure. In practice, upstream adjustments begin earlier and build progressively. The rule of thumb embedded in the JPM framework is that Iran would need to start trimming output after roughly 16 days of a full export blackout, with curtailments accelerating from there until they converge toward full export volume shut ins, around 1.9 mbd, closer to day 30.

Day 1 of that “full export blackout” arguably is when President Trump announced the US blockade of Iranian ports (but not the Strait itself) on April 12. As of this writing, 10 of JPMorgan’s 16 days have already elapsed, leaving only 19 days until Iran hits the full export volume shut in point at day 30.

When wells are shut in, pressure build-up and other environmental forces can damage them, either permanently reducing their daily output or requiring significant overhaul upon reopening to restore the wells to previous production levels.

If the JPM estimate is correct, if Iran has to start shutting in wells starting sometime next week, and if Marco Dunand’s assessment of China opportunistically selling down its oil inventories is correct, in about three weeks a second and longer lasting oil supply shock hits all major economies, and especially China. Removing China’s oil sales and Iran’s oil production for the foreseeable future would be a double-digit percentage loss of current oil production globally.

China is exploiting its geopolitical position between the US and Iran for maximum short-term revenue, but that maneuver could hamper its long-term position should the Strait of Hormuz continue to be blockaded at least by the United States. By the time China needs its strategic inventory, it will have already depleted at least a portion of that inventory.

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China’s Petrochemical Shock

As I discussed last week, China is experiencing at least one major supply shock in the form of sulfur and sulfuric acid.

What tripped media concerns over sulfuric acid was China’s recent announcement, first reported on April 10, that it is suspending exports of sulfuric acid, owing to shortages within its own industries.

Particularly relevant is China’s apparent justification for the export ban: it needs to conserve the chemical for its own supply chains and manufacturing industries.

While sulfur prices have come down some for China, relative to pre-war pricing China is still paying 55% more than before.

Yet it is not merely for sulfur and sulfuric acid that China has seen tremendous price surges.

Polyethylene prices have surged nearly 20% since the war began, and at one point flirted with a 40% increase.

Styrene has risen some 30% since the war began, and initially had surged by just over 50%.

Bitumen is currently sitting at just under a 25% increase, after touching 40% towards the end of March.

China is a major consumer of all three industrial chemicals, and many more besides. These chemicals are all refined products from various crude oils. China either imports the crude and refines these compounds itself, or it imports these compounds from a number of countries, including those in the Persian Gulf.

China’s reliance on not just imports of crude oil but also imports of petroleum refined products is also being thrust into the spotlight by the awkward reality that China is importing record volumes of ethane from the United States as a result of the war and the Strait of Hormuz being closed.

Shipments of US ethane are expected to rise to an all-time high of 800,000 tons in April, according to Chinese consultant JLC, which would be around 60% higher than the monthly average. Some companies can switch to using ethane, helping them offset disruptions to the supply of naphtha and liquefied petroleum gas from the Middle East after the effective closure of the Strait of Hormuz.

Ethane is one of the minor fractions of natural gas and a by-product of liquified natural gas (LNG) production. When Iran targeted Qatar’s LNG production facilities at Ras Laffan early on in the war, forcing Qatar to shutter most of the facility, nearly 20% of world LNG supply was removed. One of the other products Ras Laffan produced was ethane.

While prices of US ethane have overall fallen since the war began, in recent days the prices have begun climbing again.

China’s need is clearly the United States’ gain when it comes to ethane.

Equally clear is that China is experiencing multiple price and supply shocks, all of which directly impact the vital export sector of China’s economy. The goods China produces to sell overseas are getting considerably more costly to manufacture, at least in the short run.

On the surface, these price shocks arguably look like good news. The scarcity and resultant price surges has caused China’s Producer Price Index to show positive growth for the first time literally in years.

While the emergence of even some factory gate inflation in China is arguably a relief, given the deflation that has hung like an albatross around China’s economic neck in recent years, a sudden energy inflation shock, if it endures over time, can produce what some “experts” want to call “bad inflation” but is really stagflation.

Just as it is in the United States, stagflation for China is when a price shock collides with a moribund economy.

Is China about to have its deflation crisis compounded with a stagflationary shock? Much depends on how long the Strait of Hormuz remains closed and energy prices elevate.

No matter how long the Strait remains closed, China remains very much in the middle between Iran and the United States in this war, and the two countries’ dueling blockades suggests being in the middle means China gets run over from both directions.

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Crisis Or Opportunity?

In some narratives, the war with Iran represents an opportunity for China. Not only is its economy getting a long-desired boost on inflation, but rumors of Persian Gulf countries attempting to sidestep Iranian interdiction of their cargoes by trading in yuan rather than dollars persist. Broadening the utility of the yuan in global commerce is seen by many as an essential step in “de-dollarization”.

In other narratives, China is getting hammered by price and supply shocks, stressing an already distressed economy. That stress is seen as a likely catalyst for what appears to be a rise in social unrest, although the extent and impact of that unrest is difficult to ascertain.

What is certain is that China is significantly impacted by the war with Iran, and not in demonstrably good ways. As a rule, price and supply shocks are not considered to have a positive impact on a nation’s economy. China is experiencing multiple price and supply shocks as a result of the war, and will continue to experience those multiple price and energy shocks.

Much of the data surrounding those shocks supports the stress narrative: Youth unemployment rose in March, along with regular unemployment, suggesting the producer price rise has not yet been accompanied by any significant job creation. Labor costs continued to rise in March, extending a trend reversal from a years-long decline that produced a record low in June of 2025.

Weak or no job growth is one sort of sub-par economic indication which sets up the context for a stagflation scenario to unfold. Just as in the US, we cannot yet conclusively describe current economic conditions in China as “stagflation”, but there is little doubt that China, already mired in deflation, is at elevated risk for stagflation.

Whether that is what evolves in China’s economy depends entirely on the duration of elevated energy prices, which in turn hinges on when and how the Strait of Hormuz is finally reopened.

That is one of the outcomes we know will happen eventually. The Strait of Hormuz will reopen for the simple reason that, with 20% of the world’s oil supply flowing through it, the world economy cannot abide it being closed indefinitely.

Similarly, we know there will be talks. No matter which scenario one espouses for the war with Iran, every scenario ends with the principals sitting down at a negotiating table.

What we still do not know is what the agenda for those inevitable talks will be. Both sides reject the talking points of the other, making formal negotiations difficult.

We also do not know when the Strait itself will be reopened. If there are talks soon, there is at least a chance the Strait will be reopened soon. Reopening the Strait is a prerequisite for getting energy prices back towards pre-war levels; the longer the Strait is closed the more energy prices are likely to trend up and not down.

The longer the Strait is closed the more China is compelled to draw down its strategic petroleum reserves.

The longer the Strait is closed the greater the likelihood Iran’s oil production will suffer a major quasi-permanent reduction. Given that China has been buying the bulk of Iran’s oil production, the loss of Iranian production means China has to replace relatively low-cost Iranian oil with more expensive market-priced crudes.

That last point would mean that China is facing increased oil prices no matter how the war with Iran turns out. An energy price shock could become permanent higher energy prices for China. That would not be a positive outcome for China’s economy.

The fog of war makes any sort of prediction about the outcome of this war problematic. We simply do not know how this war ends. While the United States arguably has already won the war from a military perspective, having smashed most of Iran’s military assets, geopolitical victory has not yet been achieved.

This war could end with China among the countries with enhanced geopolitical power and influence.

This war could also end with China as well as Iran losing geopolitical power and influence to the United States. If President Trump succeeds in de-nuclearizing Iran and forcing the Khamenei regime to abandon pursuit of nuclear weapons, that would be an indisputable geopolitical victory for the US, and a corresponding setback for China, which likes to position itself as America’s principal geopolitical adversary.

This war could end with China’s economy enduring more significant shocks and body blows than the US economy. China may already be enduring more economic shocks and body blows than the US—the data certainly compels us to entertain that possibility. Those shocks and body blows may even put China into a final economic death spiral which will stress Chinese society past the breaking point—China’s pre-existing economic weaknesses make that a very real possibility.

Will China number among the winners or the losers when this war with Iran finally does end? It is too soon to answer that question with any finality, but the data we have to date does not favor China emerging from this war better off than before.

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Cynics scoff at such ideals. Skeptics question the integrity of the men who acted on that principle in 1776.

Progressives deride both the principle and the men who acted upon it as venal and vicious, and seek to replace both at the core of our government and the core of our society.

In an April 15 lecture delivered at the University of Texas, Justice Clarence Thomas eloquently reminds us that our nation’s founding principle is still relevant, still foundational, and still worth defending.

He reminds us that the progressive “elites” in this country, expropriating a rubric of virtue, oppose this principle and want to dismantle the government founded upon it.

I could not hope to add to what Justice Thomas said. Instead, I share his thoughts in their entirety.

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Justice Thomas’ UT Address

SUPREME COURT ASSOCIATE JUSTICE CLARENCE THOMAS: President Davis, Provost William Inboden, Dean Dyer, faculty, students, and honored guests, I thank each of you for being here. And I thank the school and the officials here for the invitation to visit the University of Texas at Austin.

My wife, Virginia, and I are pleased to be here. To celebrate the 250th anniversary of the Declaration of Independence. If my memory serves me, this is only my second visit to the University of Texas.

And this is the first visit at the invitation of the university. But I have hired and worked with a number of outstanding young people associated with this university. My first was now Chief Judge Greg Maggs of the U.S. Court of Appeals for the Armed Services, who was a fairly new faculty member at the law school when I became a member of the court. He took a leave of absence to help me as a law clerk during the second half of my first term. My first UT graduate to serve as a law clerk was Greg Coleman three decades ago. Greg went on to become the first solicitor of the state of Texas.

He was simply outstanding, as was his son, Reed, who also was a graduate of the law school here, and who was equally outstanding. Greg’s widow and our very dear friend, Stephanie, is with us today. Stephanie, thank you, and thanks for being such a good friend.

And both Greg and his son, Reed, clerked for my dear friend, Judge Edith Jones, also a graduate of UT Law School. I greatly admire Judge Jones. She is one of my heroes, and I admire her as a person and as a jurist.

And I’m grateful that she can be here today. A number of my former clerks are also here. I can’t tell you which ones, so let me ask them to stand to be recognized.

So in my chambers, UT and UT Law School are very well represented. I hope—I’m having a little trouble with this, getting used to the podium, sorry about that— I hope that my talk today will help in some small way to inaugurate another great initiative, the State of Texas’ plan to restore the teaching of civics and Western civilization to a central place in its flagship university. And I am grateful and honored to have been invited by Justin Dyer, the dean of the new School of Civic Leadership.

I’m also grateful for the assistance of my former law clerk, Professor John Yu, who has spent the last three decades at Berkeley Law School, but is now joining Justin and his team here at the University of Texas. The school’s stated mission is to help students encounter the distinct inheritance of Western civilization and the American constitutional tradition as part of a larger quest for wisdom about how to live and how to lead. Your plans could not come at a more important moment for our nation, when as we celebrate the 250th anniversary of the Declaration of Independence, the very values announced in it have fallen out of favor.

It is my sincere hope that your work to revitalize the teaching and research of Western civilization and the American constitutional tradition will lead the way in the reform of our nation’s colleges and universities. And I hope that your example will help to rejuvenate our fellow citizens’ commitment to the principles of the Declaration of Independence. I seem to always enjoy my travels to this amazing state.

My wife, Virginia, and I have many wonderful friends and acquaintances here. And it is so special to have our dear friends Harlan and Kathy Crow join us today. One of the features of this state that stands out in a way that Texans talk about it, what comes through is the sustained and sustaining affection that they have for their home state.

That reverential feeling for and attachment to Texas is to be respected and admired, and if possible, emulated. This affection is similar to the attachment that I grew to have for my home state of Georgia, and certainly for our country, despite the indelible mark of segregation and its companion evils. I was proud to say that I was American by birth and Georgian by the grace of God.

It was not uncommon to hear others openly proclaim their allegiance to God and country. At our grammar school, St. Benedict’s, we started each school day by lining up two by two and class by class in the schoolyard to watch the raising of our flag and to say the Pledge of Allegiance before silently marching to our respective classrooms. Even as so much of our God-given and constitutional rights were denied us, we still faithfully said the Pledge of Allegiance, memorized the preamble to the Constitution, and yearned for the fulfillment of its promised ideals.

Sadly, these sentiments are not as widely shared among our fellow citizens today, and they certainly do not seem to have that sustaining strength that they had back then. In fact, all too often the sentiments tend toward cynicism, rejection, hostility, and animus toward our country and its ideals. With the foregoing in mind, I would like to begin by addressing my first encounter with the principles of the Declaration of Independence.

It is perhaps not what you would immediately think. The second paragraph of the Declaration proclaims, We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights. Throughout my youth, these truths were articles of faith that were impervious to bigotry and discrimination.

The American Heritage Dictionary of English Language defines self-evident as obviously true and requiring no proof, argument, or explanation. Whether they had a divine source or a worldly one, they were never questioned. They were the Holy Grail, the North Star, the Rock, immovable and unquestioned.

Despite the multiplicity of laws and customs that wreaked a bigotry, it was universally believed among those blacks with whom I lived and who had very little or no formal education that in God’s eyes and under our Constitution, we were equal. This was also the case with my nuns, most of whom were Irish immigrants. At home, at school, and at church, we were taught that we are inherently equal, that equality came from God, and that it could not be diminished by man.

We were made in the image and likeness of God. That proposition was not debatable and was beyond the power of man to alter. Others with power and animus could treat us as unequal, but they lacked the divine power to make us so.

Somehow, without formal education, the older people knew that these God-given or natural rights preceded and transcended governmental power or authority. When you lived in a segregated world with palpable discrimination and the governments nearest to you enforced laws and customs that promoted unequal treatment, it was obvious that your rights or your dignity did not come from those governments, but rather from God. Though not a literate man, my grandfather often spoke of our rights and obligations coming from God, not from architects of segregation and discrimination.

Men were not angels. They were subject to the constraints of antecedent rights, and we were not subject to those men, even as we were subjected to their whims. We knew that life, liberty, and property were sacrosanct.

Those truths were self-evident to the adults in our lives and were taught to us as indelible, undeniable truths. Those around us would endure or could endure the insults of segregation with dignity because they knew that in God’s eyes, they were equal. All too often, there is an unfortunate tendency when discussing the Declaration to make these self-evident truths and first principles of government obscure.

Intellectuals want you to believe that our founding principles are matters of esoteric philosophy or sophisticated debate. Even those who support them too often talk about them as if they were academic playthings. They overcomplicate them, take the spirit out of them, and discuss them in a way that puts us to sleep.

But the principles of the Declaration of Independence, as I encountered them, are a way of life. They are not an abstract theory that you only learn in college or law school, but the basic premises of our Constitution and government that you can learn from the people all around you. When Alexis de Tocqueville visited early America from France, he was struck that there was no country in the civilized world where they were less occupied with philosophy than the United States.

But there was likewise no country where the principles of the Declaration were more deeply ingrained or more fiercely defended than those same United States. That is the sense in which I knew the principles of the Declaration in my childhood. That is the only sense in which those principles can sustain our country.

And that is the sense in which I will speak to you about those principles today. I believe now, as I did then, that the Declaration of 1776 provides us with the principles to guide us as citizens of our republic. Even in this time of questioning and criticism of our founding, we should not forget that the Declaration established the principles that produced, despite all of our imperfections, our miscues, and our tragic mistakes, it gave us the freest, wealthiest, and most powerful nation in the history of the world.

It provided the moral principles by which Frederick Douglass, Abraham Lincoln, and Martin Luther King would criticize the institutions of slavery and segregation. The Declaration is, in fact, along with the Gospels, one of the greatest anti-slavery documents in the history of Western civilization. It did not establish a form of government.

That was the work of the Constitution that followed. But it stated the purpose of government. The Declaration made it clear, in clear prose, that the purpose of government is to protect our God-given, unalienable rights, rights that all individuals equally possess.

As Abraham Lincoln declared in 1858, in the midst of his great debates with Stephen Douglass, quote, drop every paltry, insignificant thought for any man’s success. It is nothing. I am nothing.

Judge Douglass is nothing. But do not destroy that immortal emblem of humanity, the Declaration of American Independence. The ideas of the Declaration are so powerful that our nation could not coexist with the contradiction created by the great evil of slavery.

Those principles were so powerful that hundreds of thousands of Americans fought and died in the Civil War to make men free. Those ideas have been so powerful that they convinced our nation to finally end segregation. They continue to be so powerful today that they have inspired people throughout the world to throw off the shackles of their own oppressors.

And it all began with our founders declaring in 1776, in the Declaration of Independence, that we hold these truths to be self-evident, that all men are created equal, and that they are endowed by their creator with certain unalienable rights, that among these are life, liberty, and the pursuit of happiness. We should also not forget the important sentence that follows, that to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed, that to secure these rights, governments are instituted. The principle of consent follows from the principle of equality.

We the people can never legitimately consent to the violation of our God-given equality. However, when I encounter the Declaration of Independence anew today, I am most struck by the final sentence. It can be easy to forget, 250 years later, the courage it took for those 56 men to sign the Declaration.

Arguably, those men committed treason against the king, risking death at the hands of an empire far mightier than the newborn United States. They thus concluded with the memorable final sentence, and I quote, and for the support of this declaration, with a firm reliance on the protection of divine providence, we mutually pledge to each other our lives, our fortunes, and our sacred honor. I will say it again.

We mutually pledge to each other our lives, our fortunes, and our sacred honor. Recently, I came across a definition of courage that is attributed to President Franklin Delano Roosevelt. And courage is not the absence of fear, but rather the assessment that something else is more important than fear.

In essence, the signers of the Declaration were saying that they were willing to die for the principles they were asserting, the supreme act of courage. Those principles were more important than their fear. Nothing in the Declaration of Independence, I now realize, matters without that final sentence.

Without that sentence, the rest of the Declaration is but mere words on parchment paper. Nice words, but nonetheless, just words. What changed the world was not the words, but the commitment and spirit of the people who were willing to labor, sacrifice, and even give their lives what Lincoln and Gettysburg call the last full measure of devotion for the Declaration’s principles.

It is that devotion to which we owe our rich inheritance. It was that devotion that sustained the Founding Fathers and the Continental Army as they fought and won the Revolutionary War, braved the winter at Valley Forge, crossed the Delaware, and defeated an army, many times their number and firepower, to win their freedom. It was that devotion that Nathan Hale expressed when, before being executed by the British, he reportedly said, I only regret that I have but one life to give for this country.

It was that devotion that Patrick Henry invoked when he stood before the Virginia Convention and asked, Is life so dear or peace so sweet as to be purchased at the price of chains and slavery? Forbid it, Almighty God. I know not what course others may take, but for me, give me liberty or give me death.

That devotion has driven the great achievements and heroism of Americans in the 250 years since. Think of the frontiersmen who settled the West. Think of the families who built their little towns on the prairies.

Think of the women who raised their children to love God and country and sent them off to fight wars. Think of the soldiers on the battlefields of the Civil War who sang, As he died to make men holy, let us die to make men free. Think of the innovators and laborers and engineers who Tocqueville observed were so infused with the patriotism that they felt every triumph for their country as a triumph in their personal lives.

Think of how the devotion carried us from Independence Hall to Flanders Field and to the beaches of Normandy. Think of the memorable scene in the Band of Brothers when the American soldiers arrived at a concentration camp, saw the suffering, emaciated, desperate prisoners, unlocked the gates and gave them food and blankets and warm embraces. The soldiers looked around and knew in their hearts that this is why we fight.

Think of the passengers of Flight 93 that crashed in Skanksville, Pennsylvania on 9-11 or the young men and women whom we send in harm’s way even as we sit here today. Think of my grandparents who heroically, quietly, without fanfare sat my brother and me down at the kitchen table in August of 1955 and committed the rest of their lives to us so that we could have a chance. They told us, we don’t have no education.

We don’t have no education and no chance, but you boys are going to have a chance. But we’re going to devote the rest of our lives to you boys. It was their devotion, their love, their dedication to raising us right that has made the difference, not the words, though the words expressed as best they could what they intended to do.

Their devotion is what mattered. Similarly, it is the devotion expressed in the final sentence of the Declaration, the willingness to do anything for our principles that has throughout American history been most indispensable. It is that devotion that we are missing today and that we must find in our hearts if this nation is to endure.

I arrived in Washington, D.C. 47 years ago. It’s hard to believe. I arrived as a staffer for Senator Jack Danforth of Missouri in 1979, telling myself that the job on Capitol Hill would be a short stop on my way home to Savannah, Georgia.

I then joined the executive branch during the Reagan administration, served in two federal agencies for nearly a decade, served as a judge on the Federal Court of Appeals, and have for the past 34 years served on the Supreme Court. Since the day I arrived in Washington, there was never a shortage of people espousing noble purposes, saying all the right things. All around me there have been people full of promises, claiming a commitment to some righteous cause, to traditional morality, to national defense, to free enterprise, to religious piety, or to the original meaning of the Constitution.

These people can be just as high-minded as the men who signed the Declaration. They can mouth the words of the Declaration and parrot its principles. They can write essays and talk at conferences about the Declaration with the best of them.

All too often, however, this was but lip service, camouflaged by grand theories in the tall grass of big words and eloquent phrases. What seemed to be lacking, however, was that devotion. People gain positions of authority, and you learn who they really are.

To paraphrase something I recently read, combat strips us down to our essentials. Once in the spotlight, in that combat, many people fall prey to the lures that are set up to turn them away from their previously untested principles. They become petrified by criticism, so fearful of negative attention that they find ways to avoid doing the right thing.

Or they fall prey to the enchanting siren songs of flattery and become so bewitched by praise that they will desperately seek to conform accordingly. They are enticed by access to things that were previously unavailable to them. They get so swept up in the euphoria of acclamation and acceptance that they put aside their convictions.

They water down their message, negotiate against themselves, vote against their principles, and hide in the tall grass. They recast themselves as institutionalists, pragmatists, or thoughtful moderates, all as a way of justifying their failures to themselves, their consciences, and their country. It did not take me long in Washington to stop wondering why the Supreme Court took 60 years to overrule Plessy v.

Ferguson, the 1896 decision that endorsed government-enforced racial segregation and validated the Jim Crow South that I grew up in. It could not possibly have taken my court 60 years to know that Plessy was a hideous wrong and that racial discrimination was grossly incompatible with our colorblind Constitution. The justices must have known it all along.

The right thing to do, as Justice Harlan spelled out in his lone dissent, was obvious, as it so often is. Perhaps what stood in the way was cowardice. The justices may have been afraid of the societal consequences.

They may have been afraid of coming under political fire. They may have been afraid of losing their social standing. They may have been afraid of bad press.

They could have been concerned that if they began to enforce a colorblind Constitution, they would have to address interracial marriage next. But in any case, for 60 disgraceful years, they made American children like me grow up in a racial caste system because it was easier to do nothing than to do the right thing. When Americans look to Washington and wonder why it is so often disappointed, it is not because there are too few people who know what is right.

It is not because we lack the intellect or the capacity or the talent. It is instead because there are too few people who are willing to do what it takes to do the right thing, to sacrifice the popularity, flattery, comfort, and security that are the purchase price for principle. It is because too few of us reflect on and reflect the courage and commitment of that final sentence of the Declaration.

And so many seem to have forgotten how much others have sacrificed so that this nation could exist and endure. I will state this more poignantly. Do any of us have what it took for our young soldiers to storm Normandy Beach, to fight at Guadalcanal, to later fight at Chosin Reservoir?

If we can’t say that we have the courage required of these young soldiers in battle to defend our founding principles, then how do we preserve these principles and this republic? Until we have a devotion that matches the courage of those who made this country possible, I doubt, I seriously doubt any amount of study or development of insights about our Constitution will make much difference. There is a world of difference between what it takes to score academic points and what it takes to protect and defend the Constitution as we are sworn to do.

I have faced this struggle myself. About 43 years ago, in the early spring of 1983, I was the lowest point in my life. I had just buried both of my grandparents, the man and woman who raised me, and the two greatest people that I have ever known.

I was broke. I was living in and nearly evicted from a cockroach-infested apartment. I could not pay my credit card bills on time.

I would soon sell my car to pay my son’s tuition. I was being constantly attacked by the media and Congress because as chairman of the Equal Employment Opportunity Commission, I did not bow to the then prevailing orthodoxy on race. At that point, I asked myself a simple question.

What are your principles worth to you? My answer then was the same I would give today. It is worth, they are worth, life itself.

What are those principles? They are the same principles in the Declaration. They were bequeathed to me by my grandparents and reinforced by my nuns and my faith.

In God’s eyes, we are equal. We are all equally created in the image and likeness of God. We are all endowed with the natural rights to life, liberty, and happiness.

Our rights and our dignity are inherent. They do not come from others, and they do not come from the government. And our government derives its legitimacy and its authority from our consent.

We do not derive our rights from our government. The primacy of our rights in relation to our government is crucial in reconciling the immortal words of the Declaration with our Constitution and our history. None of our rights come from the government.

All of the government’s authority comes from our consent. And the structure and limited role of government is to assure that it does not exceed the authority to which we have consented or intrude on our natural rights. The Constitution is the means of government.

It is the Declaration that announces the ends of government. The Constitution achieves this purpose by protecting our natural rights and our liberties from concentrated power and excessive democracy. Our Constitution creates a separation of powers and federalism, truly for the first time in modern history, to prevent the government from becoming so strong that it threatens our natural rights.

Federalist No. 10 proposed the idea that the great threat to our rights comes from the majority faction. Human history teaches us, alas, that numerical majorities frequently seek to control government and use the state to violate rights of the minority.

Because man has fallen, and the desire for power was, as James Madison described it, sown in the nature of man, government had to be limited. For as Madison also said, if men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary.

But, alas, men are not angels. The slaveholders used the power of government to deny the fundamental rights, natural rights, of the slaves. The segregationists used the state to oppress the freed men and women, including my ancestors.

As we meet today, it is unclear whether these principles will endure. At the beginning of the 20th century, a new set of first principles of government was introduced into the American mainstream. The proponents of this new set of first principles, most prominent among them, the 28th president of our country, Woodrow Wilson, called it progressivism.

Since Wilson’s presidency, progressivism has made many inroads into our system of government and our way of life. It has coexisted uneasily with the principles of the Declaration. Because it is opposed to those principles, it is not possible for the two to coexist forever.

Progressivism was not native to America. Wilson and the progressives candidly admitted that they took it from Otto von Bismarck’s Germany, whose state-centric society they admired. Progressives like Wilson argued that America needed to leave behind the principles of the founding and catch up with the more advanced and sophisticated system of relatively unimpeded state power, nearly perfected.

He acknowledged that it was a foreign science speaking very little of the language of English or American principle, which offers none but what are, to our minds, alien ideas. He thus described America still stuck with its original system of government as, quote, slow to see the superiority of the European system. Progressivism was the first mainstream American political movement, with the possible exception of the pro-slavery reactionaries on the eve of the Civil War, quote, to openly oppose the principles of the Declaration.

Progressives strove to undo the Declaration’s commitment to equality and natural rights, both of which they denied were self-evident. To Wilson, the unalienable rights of the individual were, quote, a lot of nonsense. Wilson redefined liberty, not as a natural right attendant and assedent to the government, but as, quote, the right of those who are governed to adjust government to their own needs and interests.

In other words, liberty no longer preceded the government as a gift from God, but was to be enjoyed at the grace of the government. The government, as Wilson reconceived it, would be, quote, beneficent and indispensable. Progressives such as John Dewey attacked the Framers for believing that their ideas were immutable truth, good for all times and places, when instead they were, according to him, historically conditioned and relevant only in their own time.

Now Dewey and the progressives argued those ideas are to be displaced. Progressivism seeks to replace the basic premises of the Declaration of Independence and hence our form of government. It holds that our rights and our dignities come not from God but from government.

It requires of the people a subservience and weakness incompatible with a constitution premised on the transcendent origin of our rights. You will not be surprised to learn that the progressives had a great deal of contempt for us, the American people. Before he entered politics, Wilson would describe the American people as, quote, selfish, ignorant, timid, stubborn, and foolish.

He lamented that we do too much by vote and too little by expert rule. He proposed that the people be ruled by administrators who use them as tools. He once again aspired to be like Germany, where the people, he said admiringly, were docile and acquiescent.

The century of progressivism did not go well. The European system that Wilson and the progressives scolded Americans for not adopting, which he called nearly perfect, led to the governments that caused the most awful century that the world has ever seen. Stalin, Hitler, Mussolini, and Mao all were intertwined with the rise of progressivism and all were opposed to the natural rights on which our declaration are based.

Many progressives expressed admiration for each of them shortly before their governments killed tens of millions of people. It was a terrible mistake to adopt progressivism’s rejection of the declaration’s vision of universal, unalienable natural rights. Wilson’s claim that natural rights must give way to historical progress could justify the greatest mistake in our history.

In Plessy v. Ferguson, my court upheld Louisiana’s system of racial segregation because, quote, separate but equal, it observed, was reasonable in light of the established usages, customs, and traditions of the people and with a view to the promotion of their comfort and the preservation of the public peace and good order. It comes as no surprise that the progressives embraced eugenics.

Progressives believed that Darwinian science, the idea of ever-advancing progress written into biology itself, had proven the inherent superiority and inferiority of the races. It was only a small step for Wilson to resegregate the federal workforce. It was only another step for the government to launch sterilization programs on those deemed by the experts of the day to be unfit to reproduce, upheld by my court in Buck v.

Bell in an opinion written by no less a figure than Justice Oliver Wendell Holmes. We can argue over whether you believe in immutable, absolute natural rights or the Wilsonian idea of ever-progressing history. Indeed, your school of civic leadership was created to host just such arguments, but let me ask you to consider the consequences.

European thinkers have long criticized America for remaining trapped in a Lockean world with its weak, decentralized government and strong individual rights. They say our 18th century declaration has prevented us from progressing to higher forms of government, but we were fortunate not to trade our Lockean bonds for the supposedly enlightened world of Hegel, Marx, and their followers. Fascism, which after all was National Socialism, triggered wars in Europe and Asia that killed tens of millions.

The socialism of the Soviet Union and the People’s Republic of China proceeded to kill more tens of millions of their own people. This is what happens when natural rights give way to the higher good of notions of history, progress, or as Thomas Sowell has written, the visions of the anointed. None of this, of course, was an improvement on the principles of the declaration.

Tocqueville’s Democracy in America is largely about how America owed its superiority over Europe to its conscious decision to reject central planning and administrative rule, root and branch. Progressivism, in other words, is retrogressive. As Calvin Coolidge said on the 150th anniversary of the Declaration, and I quote, if all men are created equal, that is final.

If they are endowed with inalienable rights, that is final. If governments derive their just powers from the consent of the government, that is final. No advance, no progress can be made beyond these propositions.

If anyone wishes to deny their truth or their soundness, the only direction in which they can proceed historically is not forward but backward toward the time when there was no equality, no rights of individuals, no rule of the people. When Abraham Lincoln addressed the assembled crowd at Gettysburg, they had gathered to memorialize the past, but Lincoln’s address urged them to not do so with complacency. Instead, Lincoln said, they should look to the past as inspiration to take them to greater heights in the future, and I quote, it is rather for us to be here dedicated to the great task remaining before us, that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion, that we were highly resolved that these dead shall not have died in vain, that this nation shall have a new birth of freedom, and that this government of the people, by the people, and for the people shall not perish from the earth.

As we are gathered to celebrate the 250th anniversary of the Declaration, it may be tempting to do so as if we are passive spectators. It may be tempting to enjoy our tea and crumpets, treat the Declaration like a shiny object or a keepsake, and listen to the sound of our own voices. We could get into debates over whose conception of the founding is better, over how we are so much better than our founders were, over what we would do differently.

We could be careful to not do anything that exposes us to criticism, costs us friends, or hurts our career prospects. But in my view, we must find in ourselves that same level of courage that the signers of the Declaration had, so that we can do for our future what they did for theirs. Each of you will have opportunities to be courageous every day, whether your calling in life is as a day laborer, a stay-at-home mom, a small business owner, an educator, an office worker, a judge, or some other endeavor.

It may mean speaking up in class tomorrow when someone around you expects you to live by lies. It may mean confronting today’s fashionable bigotries, such as anti-Semitism. It may mean standing up for your religion when it is mocked and disparaged by a professor.

It may mean not budging on your principles when it will entail losing friends or being ostracized. It may mean running for your school board when you see that they are teaching your children to hate your values and our country. It may mean turning down a job offer that requires you to make moral or ethical compromises.

One thing I do know to be true. It will mean waking up every day with the resolve to withstand unfair criticism and attacks. These are the choices that we will confront, that will confront you, and you must decide whether to respond with timidity or with courage, as the signers of the Declaration did.

It will, of course, not be easy. It never is. But if, like me, you need a greater source of strength than yourselves, you will need to rely on your faith to guide and to sustain you through it all.

You will disappoint people you thought were friends and endure personal attacks, as well as attacks on those you care about. But if you stand, you will find that courage, like cowardice, can be habit-forming, and it will become a part of your life and a part of who you are. And I may dare say it is liberating.

You will also be a living example for others to emulate. So by all means, celebrate the Declaration of Independence. It is the most important act of American history, the foundation of our Constitution, and, as Lincoln said, the sheet anchor of our republic.

But I implore you to celebrate it by standing up for it, by defending it, and by recommitting yourselves to living up to its ideals. Channel the courage of the men who faced down a king and signed it. Or a president who led the nation in a civil war, rather than permit this house to be divided by the great contradiction of slavery.

Take increased devotion to that cause for which they gave the last full measure. And, with a firm reliance on the protection of divine providence, let us mutually pledge to each other our lives, our fortunes, and our sacred honor. Thank you, and may God continue to bless our country.

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Just about every “expert” analysis has been wrong.

Consequently, when even alternative media outlets such as ZeroHedge puts out yet another “doomsday” headline about the Persian Gulf, we are well advised to regard what follows with more than the usual skepticism.

The chemical in question is sulfuric acid, a major byproduct of oil refining, particularly refining of heavy “sour” crudes with high sulfur content.

Goldman analysts Kyle Shaffer and Amanda Ross provided clients with a broad overview of industrials and natural resources amid energy disruptions in the Gulf area. In the note, they stated that the well-known Gulf energy shock is set to disrupt LNG production in Qatar for years to come. However, they also highlighted another emerging supply crunch that has received far less attention: sulfuric acid.

“Some long-lasting consequences have also started to emerge, including a 3-5 years production loss for LNG facility in Qatar, a 6-12 month re-starting time for some aluminum facilities in the Gulf, and shortage of sulfuric acid which can potentially impact future production for copper and lithium” Shaffer and Ross said.

Even a cursory glance at commodities prices shows that anything coming out of the Persian Gulf has seen major price appreciation since the start of Operation Epic Fury. To the extent that industrial chemicals are shipped from Persian Gulf refineries, it is a given that, at present, those chemicals are not being shipped from Persian Gulf refineries.

How significant is the loss of Persian Gulf sulfuric acid? Depending on the analyst, it is anywhere from very significant to presenting a national security threat.

Any supply dislocation of a key industrial chemical is obviously a costly event…but for whom? When not every cost is shared equally around the world, who pays the most and who pays the least can be more significant than the cost itself.

Update

With Iran just this morning declaring the Strait of Hormuz fully open, an additional question which will have to play out is how quickly will the supply dislocations ease and pre-war normal shipping flows be restored to the Persian Gulf?

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Beware The Narrative

The constant caveat in reading all reporting about the war in Iran, and really any war, is to beware the narrative. Media outlets all veer towards propaganda and deliberate bias—a sad reality of modern journalism that is also why All Facts Matter exists.

As one reader has remarked:

It’s pretty much impossible to follow the various narratives. I read so many Substacks that are referential to some media environment. Most people I know don’t watch MSM (cable news) and some read Liberal elite papers, some read Conservative elite papers. But even within the ideologies there is more divergence. And you can’t even get into it when the Substackers start treating their Substack algorithmic silo as understood by the audience. I read stuff referencing people I’ve never heard of like its assumed that everyone has read that piece.

Getting harder every day to organize around narrative construction like that.

With bias a near constant fixture in what passes today for journalism, we owe it to ourselves to both be aware of any outlet’s narrative lens and to remain focused on the facts without regard to the narrative lens.

For every media outlet, it is imperative to look past the headlines. Even narrowly focused outlets are prone to provocative and even misleading headlines. An article in “Mexico Business” which covers much of the same territory on sulfuric acid as ZeroHedge, appeared the other day under this headline:

Reading into the article itself, we find the lede well and truly buried almost at the end:

While Mexico is not among the most affected countries, tighter global supply and rising prices could increase input costs for domestic industries, particularly mining and fertilizers, reinforcing the country’s sensitivity to external supply shocks in critical industrial chemicals.

China’s sulfur export ban does raise economic risks for Mexico, but only a little.

These sort of media manipulations are why I often advise readers to “trust nothing. Verify everything.”

That being said, what is the story on sulfuric acid? What is the impact of the war with Iran on sulfur and where is it being felt?

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Persian Gulf Blockade Is Hitting China Hard

What tripped media concerns over sulfuric acid was China’s recent announcement, first reported on April 10, that it is suspending exports of sulfuric acid, owing to shortages within its own industries.

Particularly relevant is China’s apparent justification for the export ban: it needs to conserve the chemical for its own supply chains and manufacturing industries.

China’s move to conserve sulfuric acid supplies during the peak crop-planting season will put further pressure on the market. That squeeze will hit the copper-mining industries in key producers such as Chile, the Democratic Republic of Congo and Zambia.

Acuity first reported the Chinese ban on Thursday, saying the restriction could last throughout 2026. China’s Ministry of Commerce didn’t immediately respond to a request for comment.

The need to conserve contradicts other reporting we have seen about China, some of which has assessed China as having the resource depth to fend off oil supply disruptions for months.

Yet, its supply buffer of an estimated 1.2-1.3 billion barrels of crude in strategic and commercial stockpiles could last up to four months, Rush Doshi, director of the China Strategy Initiative at the Council on Foreign Relations, told CNBC on Monday, when oil prices briefly hit $118 per barrel.

“China has taken the last 20 years to reduce some of its dependence on maritime oil flows,” Doshi said.

If China has ample reserves of crude, why is it feeling the need to restrict exports of a byproduct of heavy crude refining?

Corporate media does not say.

Yet the data shows that China is paying dearly for sulfur right now, as the war with Iran has pushed what China pays for sulfur up more than 65% just since the start of the war.

The impact to China of the current surge already exceeds the price spike when Russia invaded Ukraine in 2022.

Why is China suspending sulfur exports? With their cost for sulfur running nearly double from just before the start of the war with Iran, China is hoarding the chemical. China does not want to see the price its manufacturers pay for sulfur going any higher.

China may have four months’ supply of crude in reserve. That does not mean it has four months of sulfur as well. Based on current pricing as well as China’s export ban, we must conclude that China does not have much of a sulfur reserve.

Perversely, the ban may not solve China’s problems, and may even make them worse. While sulfur is particularly useful for smelting industrial metals such as copper, exporting sulfur has been a means for Chinese smelters to defray other costs and keep their operations profitable. The export ban may actually hamper China’s copper production.

For China’s copper smelters, the policy shift could accelerate production cuts. Smelters had relied on strong sulfuric acid prices over the past year to offset a sharp decline in treatment charges caused by a shortage of copper concentrate. However, increased domestic availability of acid following the export halt may cap or reverse price gains, weakening that support.

“Acid prices may slow down their rising pace or even flip into a fall, but neither is good for us,” said an official with a Chinese smelter.

Spot treatment charges for imported copper concentrate in China fell to a historic low of minus US$77/t on April 10, compared with minus US$76.7 a week earlier and minus US$28.6 a year ago, according to Argus data. The negative margins reflect intense competition for limited concentrate supply, leaving smelters increasingly dependent on byproduct revenues

With or without a sulfur export ban, closing the Strait of Hormuz is producing significant and broad price shocks throughout China’s industrial sectors.

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Not Just China

Digging even further into the industrial chemical market, it is readily apparent that several parts of the world rely on Persian Gulf refinery output for large portions of their sulfur supply.

According to BusinessAnalytiq, however, the price impacts of losing Persian Gulf sulfur production vary widely.

China and Asia are feeling the worst price shocks, with India not far behind.

The US, on the other hand, is feeling much less impact, and is unlikely to feel much more of a pinch for the foreseeable future.

Contrast that with Chile, which buys over a million tons of sulfuric acid from China every year, the price has risen 44% in just the past month. The chemical plays a vital role in copper production, and Chile is the world’s number 1 producer of copper.

Disruption of sulfur production in the Persian Gulf or from Persian Gulf oil stocks will likely impact a variety of industries worldwide. Sulfur, and particularly sulfuric acid, has a number of industrial applications.

Primary Industrial Applications:

• Fertiliser Production: 65% of total consumption for phosphate rock dissolution

• Metal Processing: 20% for copper leaching operations and other metallurgical processes

• Chemical Manufacturing: 10% for intermediate compound synthesis

• Specialised Applications: 5% including battery production and petroleum refining

As Africa sources much of its sulfur consumption from the Middle East, the surge in sulfur prices is hitting countries with large resource extraction economies—Zambia and the Democratic Republic Of Congo in particular—extremely hard.

The longer the Strait of Hormuz is closed, and the longer Persian Gulf oil production is offline, the more challenging the sulfur supply situation gets for these countries.

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Not The US

The disparity in sulfur prices shown above brings us back again to the caveat about narratives. Recognizing the bias within media narratives is crucial to making sense of media reporting on any issue.

While ZeroHedge is focusing on overall global industrial impacts, America’s military thinkers at West Point see potential military and national security concerns arising from the supply dislocation.

While the United States produces significant sulfur domestically, the near-total disruption of shipping through the Strait of Hormuz, which accounts for approximately 50 percent of global seaborne sulfur trade flows, has compounded an already tight market. US sulfur prices have increased 165 percent year-over-year to over $650 per metric ton; and now the price has surged by 25 percent just since the Iran war began. This makes domestic procurement fiercely competitive, while also threatening the import of specific ultra-high-purity grades required for advanced manufacturing. It is squeezing one of the most consequential inputs to modern industrial power.

The West Point narrative bias is clear, and it emphasizes immediate logistical and pre-logistical impacts without regional differentiation. While logistics is hugely important to successful warfighting, what matters most is having better logistics than potential adversaries.

As with all commodities, all markets have some exposure when there is a supply rupture. That is certainly the case with sulfur. Just this month US sulfur prices have surged 34%.

Yet a price surge is not the same as a supply dislocation. One point the West Point narrative brushes past is that the US is itself a major producer of sulfur—it is the number 2 sulfur producer in the world, after China.

Even more significantly, virtually all the sulfur the US does import comes from right next door, in Canada.

As the Strait of Hormuz does not lie between the US and Canada, it is safe to say that the war with Iran is not disrupting physical supply chains for sulfur.

We should also note the quantities of sulfur the US imports: 999,718,000 kilograms is just under 1.1 million tons. The US produces domestically ~8-8.6 million tons of sulfur, which means the US imports between 12% and 13% of its annual sulfur demand.

The price of sulfur in the US is up because the price of sulfur is up worldwide, but the US still has physical access to nearly all the sulfur it uses. The same is not true for Africa, nor is it true for Asia (including China).

Hence the extreme price differentials between sulfur prices in the US and sulfur prices in China. China is grappling not just with a price shock but a supply shock. The US is experiencing only the price shock.

The difference becomes clear when we consider last month’s Producer Price Index data. Virtually all the inflation surge the United States experienced within producer prices in March was due to energy-related products, and fuels especially.

Outside of energy-related products, there was not a lot of inflation in March, and even some disinflation.

Thus far at least, the inflation impact of the war with Iran is still narrowly confined for the US. That could change, and if the war lasts long enough it almost certainly will change, but as of this writing it has not yet changed.

That lack of broad inflation so far in the US economy highlights the particular advantage the US has with respect to Iran and the Middle East: the US is considerably less reliant on the Middle East than is Europe or Asia. Even a cursory glance at price surges for oil and gas both here and in Europe illustrates that, for natural gas especially, the price differentials are quite significant.

Dutch TTF natural gas is still up nearly 40%, and that’s after talks and rumors of talks have calmed markets down. US natural gas has actually declined in price.

Even West Texas Intermediate crude is up less than its European counterpart, Brent Crude.

Diesel prices show the same disparate impact from the war with Iran:

Energy inflation is bad in the US, but it’s worse in Europe.

The same is proving true for industrial chemicals such as sulfur/sulfuric acid. There is a cost burden from the war that is being felt by the US, but it is being felt far more in China, in India, and in Europe.

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A World Problem

The economic reality of the war’s impact is still very much what I pointed out a few days ago:

Whether Starmer or any other world leader agrees with Donald Trump on the war itself, Iran’s closure of the Strait of Hormuz is far more a UK issue, a France issue, an India issue, than it is a US issue. Even if one concedes that Operation Epic Fury is not “Europe’s war”, the closure of the Strait is indisputably Europe’s problem.

The economic fallout from the Strait’s closure was never going to be limited to just oil or diesel, even if those are the commodities that get noticed first. Yet, as we are seeing with sulfur and sulfuric acid, the dislocations brought on by the closure of the Strait of Hormuz are felt to a far greater degree nearly everywhere but the United States. In nearly every regard, the US is experiencing far smaller economic impacts than the rest of the world.

Does this make ZeroHedge’s take on sulfur production inaccurate? Arguably, it does.

Yes, global sulfur production is disrupted. Yes, sulfur prices are up significantly even in the US. These aspects of the war and its consequences are undeniable.

Yet what ZeroHedge overlooks, what the military thinkers at West Point gloss over, is that the cost from that rupture is falling on different parts of the world to different degrees. What ZeroHedge overlooks, and what the military thinkers at West Point gloss over, is that the US has the curious good fortune to be bearing the smallest portion of the overall costs from Operation Epic Fury, the war with Iran, and the current blockade of the Strait of Hormuz.

In a race to the bottom of global sulfur supply ruptures, the winning position is to come in last. At present that position belongs to the United States.

Closing the Strait of Hormuz is imposing a number of supply shocks and dislocations on the global economy. There is a cost to each of those supply shocks and dislocations.

So far, the burden of those costs is falling on just about everyone’s shoulder’s except the United States’.

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The Producer Price Index for final demand increased 0.5 percent in March, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices moved up 0.5 percent in February and 0.6 percent in January. (See table A.) On an unadjusted basis, the index for final demand rose 4.0 percent for the 12 months ended in March, the largest 12-month advance since increasing 4.7 percent in February 2023.

A jump to 4% in factory gate inflation is a sizable surge in any context. At the same time, the context for March’s sizable surge includes Wall Street projections of 4.6% year on year factory gate inflation in March and a Trading Economics forecast of 4.4%.

When an inflation print comes in nearly half a percentage point below forecast, that is unquestionably good news.

Nor is the cooler inflation print the only remarkable item in the summary. Core factory gate inflation actually declined in March, and prices on key items such as fertilizers were impacted by the energy shock far less than might have been anticipated.

We still have inflation, and the PPI summary is still indicating further inflation rises in the CPI data especially.

We do not have signs of hyperinflation—at least, not yet. As the war with Iran is still ongoing, and we still do not know what the endgame for that conflict looks like, we do not know how much more of an energy price shock has yet to be delivered.

The PPI report was a backhanded sort of good news. Energy prices surged. Other prices…not so much.

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Core Producer Price Disinflation

Without a doubt the factor that made the March Producer Price Index Summary a better-than-anticipated report was the decline in core factory gate inflation year on year, even as the headline PPI surged up.

The cooler core inflation print means that, just as with the Consumer Price Index report, inflation has not spread beyond energy into the broader basket of goods and services.

Even month on month saw a decline in core inflation.

Headline producer price inflation barely increased at all month on month, even though it surged year on year.

That core producer price inflation cooled significantly even as headline inflation rose is yet another confirmation that, thus far, the inflation brought on by a war-related energy shock is largely confined to energy, and has not percolated through the wider data set of producer prices.

No matter the surge in headline inflation, a report with declining core factory gate inflation has at least that much good news in it.

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Even Energy Was Cooler

That energy prices surged at the factory gate in March is not at all surprising. Month on month factory gate inflation for energy prices soared over 8%.

After over a year of continued disinflation and deflation, energy price inflation came roaring back in March.

The reasons for the energy price surge are self-evident: Operation Epic Fury and Iran’s closure of the Strait of Hormuz, which has pushed energy and fuel prices up globally.

Surprisingly, despite the significant overall surge, some fuel prices did not rise as fast, and some even declined. Unprocessed fuels dropped by more than 40% month on month in March. In a month defined by energy price inflation, that is a remarkable shift.

Processed energy goods, on the other hand, “only” rose a more modest 11%—still high, but not egregiously so, given the headline data.

There are number of potential reasons why we are seeing anomalous price shifts within energy. In particular, the need for different types of crude oil to economically produce individual fuel types could very well amount to a price dynamic among some fuels that is far less dependent on the availability of Persian Gulf feedstocks.

Regardless of the reason, the end result is still that, even for energy prices, the March PPI report was better than it could have been.

Food prices, the other component of headline inflation outside of the core metric, actually fell in March.

The spike in food price inflation in February proved to be an outlier, with deflation once again showing itself the dominant trend in factory gate inflation for food.

For March, the energy price shock remained confined to energy prices. While that will likely not remain the case for long, for the moment we are not facing a broad inflation surge that spans multiple subindices.

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Not All Fuel Prices Are Equal

The surprising drop in unprocessed fuel prices highlights an important feature of energy and fuel prices: not all fuel prices are the same.

While both retail diesel and retail gasoline prices surged in March, diesel experienced the more dramatic price increase.

Even on futures markets, we see diesel prices increasing by a greater percentage than either gasoline or crude oil itself.

This is particularly relevant when looking at marine fuels. While Marine Gas Oil (MGO), a refined product very similar to diesel, rose significantly in March, the heavier Intermediate Fuel Oil and Very Low Sulfur Fuel Oil both rose considerably less.

Diesel and marine fuels are the essential components of all transportation and logistics. Goods cannot be shipped anywhere if there is not fuel for both ships and trucks.

While MGO is a cleaner alternative to even VLSFO, the far more moderate price increases in IFO and VLSFO will undoubtedly make those two refined products more attractive as bunker fuels for at least the short term.

One reason the apocalyptic predictions surrounding the price rises in diesel have not yet come to pass is that diesel is simply not the whole story on fuels needed to move cargo around the world.

Fuel prices are up not just around the world but across the board. Higher fuel prices are going to challenge freight operators, as they struggle to move goods, pay for fuel, and keep showing a profit. However, while fuel has become significantly more costly, we have so far not seen the levels of fuel scarcity we would need to see to produce the apocalyptic knock-on effects some have predicted would emerge.

If the war with Iran drags on, and especially if the closure of the Strait of Hormuz drags on, there is a possibility we could reach those levels of fuel scarcity. We are not there yet, and we should not reflexively assume that we will get there. A sudden outbreak of peace and we do not get there, now or ever.

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Goods Prices Surged, Service Prices Sagged

Goods were the other subindex besides energy that saw a significant inflation surge, with goods prices climbing 1.6% in March.

In contrast, service prices barely rose at all in March.

Even within the goods subindex, energy goods were a significant contributor to overall inflation.

By comparison, the contribution of goods besides food and energy was quite a bit less.

Even within goods, by far the dominant factor driving factory gate inflation in March was energy. But for the surge in energy prices, there was not much factory gate inflation in March at all.

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Good News For Fertilizer

Another product that warrants scrutiny within the Producer Price Index is fertilizer.

Several fertilizers, particularly ones to enrich phosphorus and nitrogen in the soil, are derived from fossil fuels. Given the surge in crude oil prices, we might expect to see dramatic increases in fertilizer prices as well.

Except we haven’t seen that—at least, not yet. For both nitrogenous and phosphatic fertilizers, producer price inflation was fairly muted in March.

If we look at the year on year inflation prints for both, we see even less indication of a surge easily connected to the war with Iran.

Factory gate price increases year on year for nitrogenous fertilizers have been rising since the start of the year, coming out of a prolonged deflation phase where much of the price surges of the 2022 hyperinflation cycle were unwound.

Phosphatic fertilizers have seen barely any price increase year on year.

This is particularly good news for farmers everywhere. Fertilizers are an essential link in the food supply chain. Without fertilizers crop yields will decline, harvests will be more sparse, and food price inflation will rise. Food price inflation today can become food insecurity tomorrow, especially among the poorer nations in the world.

As with prices for other goods, we may yet see a surge in fertilizer pricing if the war with Iran drags on long enough. If we do see a surge in fertilizer pricing we could see issues with falling harvests and rising food price inflation—and today’s food price inflation can become tomorrow’s food insecurity.

However, as with everything when it comes to either producer prices or consumer prices, the key word in every assessment is “if”. If certain trends prevail then certain outcomes will happen—but if other trends prevail then other outcomes will happen.

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A Look Ahead?

The Producer Price Index has long been seen as a predictor of coming levels of inflation as reported by the Consumer Price Index. One way of looking at the two indices is that the PPI looks at prices when goods are at the loading dock, while the CPI looks at prices when goods are at the cash register with the consumer making the purchase. While that is an oversimplification in many ways, the analogy does illustrate how the PPI can (and occasionally does) anticipate the CPI.

We already have an energy price shock within consumer price inflation. The surge in crude prices has been sufficiently dramatic that it wasted no time in making its presence known within consumer prices.

The March PPI shows the same energy price surge we saw in the March CPI. If the PPI is a predictor of the CPI, then we are looking at the possibility of a further surge in energy prices within the CPI for April, and possibly even for May. We are not (yet) looking at a surge in prices beyond energy goods within the CPI for April or May.

Certainly if the war with Iran continues, and especially if the Strait of Hormuz remains closed, we will see additional price surges primarily in energy. At some point, however, the rise in fuel costs is going to put pressure on other prices, and what starts out as energy price inflation almost exclusively could become far more broadly based. If that should happen, it may be the beginning of a new hyperinflation cycle.

Alternatively, sustained high fuel prices could also suppress consumption, potentially even driving down some prices. In that scenario not only would broader goods prices largely stay the same or decrease, we could also see further declines in employment as well. As I have mentioned before, that scenario could lead us into a stagflationary crisis similar to what this country went through in the 1970s.

There are no crystal balls to tell us which scenario will unfold. If the war with Iran comes off the rails we could easily see a fairly catastrophic inflation scenario emerge. If the war with Iran ends tomorrow we will, in all probability, see a drop in crude oil prices and a rise in Persian Gulf crude oil production.

The economic impacts of the closure of the Strait of Hormuz, along with the wider war prosecuted by Iran before the ceasefire, are likely to persist for some time after the war ends, even if by some miracle the war ends tomorrow. Even if the war ends we will not see an immediate return to pre-war price levels.

For now, those economic impacts are confined primarily to energy. If the price surge lasts long enough, we will see higher fuel costs push up prices in other categories as well, as producers confront the increased cost challenges of bringing their goods to market. However, we do not have that now, and if the war ends quickly we may not have it ever.

If.

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The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9 percent on a seasonally adjusted basis in March, after rising 0.3 percent in February, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.3 percent before seasonal adjustment.

We knew this report was coming. We knew the energy shock was coming.

It was obvious there would be an energy shock when the February CPI print came out.

The energy price inflation spike in March was an economic shock. The news that there was an energy price inflation spike in March was not at all shocking.

Yet there are questions lurking within the data, questions that may end up shaping our understanding of what happens with consumer price inflation in April and throughout the summer months.

Energy prices were up, and so headline inflation was up. Core inflation, however, was far more muted. For some categories inflation is even cooling.

Cooling inflation can be a sign that demand is decreasing. If demand is decreasing then economic growth is slowing.

Slow economic growth coupled with an energy price shock is how we got the stagflation crisis of the 1970s.

It is far too soon to conclude that we are seeing stagflation in the US economy. It is not too soon to wonder if what is unfolding is a fresh hyperinflation cycle or a stagflationary crisis.

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Headline Inflation Rose On Energy Shock

The year on year inflation print shows a dramatic shift for headline inflation in March.

However, the rise in core inflation seems almost a routine fluctuation. Month on month, that core inflation actually cooled gets lost against the backdrop of headline inflation’s energy-driven surge of nearly 0.87%

The reason for the disparity, of course, was energy prices, all of which soared in March as a consequence of Operation Epic Fury, President Trump’s war with Iran. That war has resulted in energy prices rising 10.88%.

As we would expect from a surge of that magnitude, it was an across-the-board increase: Crude oil, diesel, and reformulated gasoline all soared in March.

Natural gas actually declined—a stark demonstration of the significant of energy independence.

That market prices for both crude and refined products are driving consumer price inflation for March is largely confirmed by the fact that, within energy price inflation, the primary drivers were the costs for diesel and gasoline.

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Outside Of Energy, Inflation Cooled In March

While energy prices were soaring, other parts of the March CPI data were showing disinflation and even outright deflation.

Food prices actually dropped in March.

Inflation cooled for services.

Goods, however, saw inflation heating up significantly. Nondurable goods saw month on month inflation of nearly 2.6%.

Even durable goods, which have been printing deflation in recent months, returned to month on month inflation.

Intriguingly, shelter price inflation also rose, with the more conservative BLS subindex printing 0.3% month on month and the more forward-looking ZORI index printing close to 0.4% month on month.

However, outside of energy, the inflation surge was mostly limited to nondurable goods—which is why month on month core inflation actually fell.

It is this seeming dichotomy between core inflation and energy price inflation (and thus headline inflation) which compels us to question if this is the beginning of a stagflationary crisis, with an energy price surge colliding with a cooling economy, or if this is a simple price shock.

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Is The Economy Heating Up Or Cooling Down?

Assessing the risks from the price shock which hit the US economy in March begins with determining whether or not economic activity is increasing or decreasing—whether the economy is heating up or cooling down.

As I have discussed previously, what separates ordinary inflation from stagflation is the level of economic expansion that is (or is not) occurring.

Conceptually, stagflation is when rising prices collide with low economic growth or even economic contraction1.

Stagflation combines stagnant economic growth, high unemployment, and persistent inflation.

Obviously we have rising prices in March. Do we have low economic growth?

We demonstrably have year on year growth in real GDP that has been trending down since the end of 2023.

We demonstrably have year on year growth in Real Personal Consumption Expenditures that has been trending down since the start of 2025, although there are signs that trend may be reversing in 2026.

We demonstrably have year on year real investment growth that is charitably described as “volatile” but which has declined overall since 2021 and 2022.

We demonstrably have year on year real growth in imports and exports that is also broadly trending down.

We demonstrably have what many will receive as good news, year on year real growth in government spending that has trended down since the end of 2024 and turned negative at the end of 2025.

Every major contributing sector to overall Gross Domestic Product has a growth trend that is down. This confluence of trends arguably points to an economy that is softening and slowing down.

That is certainly confirmed by the BEA’s report that real GDP growth fell off a cliff at the end of 2025.

President Trump’s claims of a “Golden Age” in the US economy notwithstanding, there is more than a little evidence to sustain the assessment that the economy is cooling down and not heating up.

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The Job Recession May Not Be Over

While the March Employment Situation Summary report showed far better job growth than anticipated, it is far from clear that this country’s jobs recession has ended.

The Employment Level from the Current Population Survey (Household Survey) portion of the jobs report shows that employment peaked in this country at the start of 2025 and has trend down since.

The Employment-Population Ratio, also from the Current Population Survey, has been declining since 2023.

While unemployment has declined since last fall, in both real and “official” terms, the longer term trend in joblessness is still one of increase rather than decrease.

While the data does not (yet) point to an economy that is unequivocally suffering, the data does show that a considerably amount of job growth is needed for American workers to participate in President Trump’s “Golden Age”.

Rising joblessness trends and falling employment levels certainly call into question the premise that the US economy is growing. As a rule, we look for growing economies to have increased demands for labor. If the economy is growing we should expect to see unemployment trending down and the employment level trending up. At present we see the polar opposite of that.

Even with the positive headline numbers on the March jobs report, it would be a considerable stretch given the current data set to argue that the jobs recession if over. We are not there yet.

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Is This Stagflation?

The degree of stagflation risk posed by the March inflation surge hinges entirely on whether the economy is robust and growing, or sclerotic and declining.

Certainly for the first three quarters of 2025, economic growth overall was strong for an economy as large as America’s.

The fourth quarter GDP print, however, breaks with that narrative completely.

While we cannot infer a trend from a single quarter, there are several trends across the whole of the economy which suggest the fourth quarter GDP numbers may be a confluence of negative factors and not an economic outlier after three strong quarters of GDP growth.

Consumption growth has been softening.

Investment growth has been volatile but broadly declining.

Imports and exports have been declining.

The realities of the ongoing jobs recession also argue against presuming the US economy is hale and healthy. With the Employment Level and Employment-Population Ratio both declining, while joblessness is increasing, the labor portion of the economy is far from in good health.

The sudden rise in fuel costs could potentially further hinder consumption, as every dollar consumers put into their vehicle’s fuel tank is a dollar that cannot be spent elsewhere. That same rise could also produce shipping and transportation dislocations, as trucking concerns must grapple with a price surge that likely exceeded all of their budget forecasts and resource planning.

If that proves to be the case, we will see a drop in consumption over the next couple of months simply because there will be less available to consume, while the resulting scarcity shock will push prices for many goods higher even as overall demand is pushed lower.

That is the stagflation scenario.

However, if US oil producers are able to produce more, and oil refinery logistics can recalibrate for the sudden shifts in global energy markets, even before the Persian Gulf flows are restored the US could see fuel prices and supply trend back towards pre-war levels. Increased oil production could produce job and wage benefits which would help end the jobs recession and bring more Americans to the level of prosperity intimated by Trumpian rhetoric of a “Golden Age.”

That is the inflation scenario.

It will be a few months still before we see which scenario is the one unfolding before us. Jobs, consumption, and inflation numbers all have to trend across a few months to know what the trend is.

What we know for now is that March energy price inflation printed considerably than it has been, while core inflation is still cooling. With only limited improvement in market prices for oil and its refined products, there is little reason to anticipate at present that April will bring any improvement. April could quite easily see even worse inflation. People may be hard pressed to distinguish between the present inflation surge and that from the start of the 2022 hyperinflation cycle.

What happens beyond April rests entirely on the outcome of the next phase(s) of the war with Iran. Will the Strait of Hormuz be reopened? Will Arab oil production be quickly restored? Will the Persian Gulf be consumed in a paroxysm of violence which decimates Middle East oil flows for the next few years?

All of those scenarios lie with the realm of current probability. One of them will happen—but we do not know which one.

Will we have inflation or stagflation? So long as the fog of war lingers over Operation Epic Fury, we are not going to know.

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“We have been at it now for 21 hours, and we’ve had a number of substantive discussions with the Iranians. That’s the good news,” Vance said. “The bad news is that we have not reached an agreement, and I think that’s bad news for Iran much more than it’s bad news for the United States of America.”

With regards to the war and to the broader impasse between Iran and the United States, not a lot has changed over the past few days. My assessment of the state of affairs in the Persian Gulf is broadly the same as it was four days ago:

All scenarios are still on the table. The ceasefire could collapse today, tomorrow, or next week. The Khamenei regime could collapse today, tomorrow, or next week.

There is, however, one notable shift, and we shall have to see how it plays out: President Trump is threatening to impose his own blockade on the Strait of Hormuz.

Is this a collapse of the ceasefire? Not yet, if only because as of this writing there are no new reports of air strikes, missiles, or drone attacks from either side. I will not be surprised if that changes even within the next few hours.

Will this change the strategic calculus in the Persian Gulf? It could. How the blockade unfolds will determine its ultimate impact. For now President Trump’s message to Iran is clear and unequivocal: If the United States’ demands are not met, Iranian oil will not flow.

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21 Hours Of Talking Without Resolution

As diplomatic negotiations go, the Islamabad talks were put together with blinding speed—and collapsed with equally blinding speed.

We must remember the ceasefire was declared less than a week ago, when Donald Trump and Iranian Foreign Minister Abbas Araghchi jointly accepted a Pakistani ceasefire proposal, and agreed to the talks.

Yet even before the talks began, Iran put out some extraordinary claims on what agreements had already been made (or not made)—including an assertion that the US agreed to release some $6billion in frozen Iranian assets.

That claim was quickly denied by the US, and there have been no independent reports of any frozen Iranian funds being released to the Khamenei regime.

The denial of such claims did not stop the head of the Iranian delegation, Parliamentary Speaker Mohammad Bagher Ghalibaf, from doubling down on them during the runup to the actual talks themselves.

While we cannot say if Ghalibaf genuinely believed those claims to be true or was merely attempting to gain leverage in the negotiations, we can say that the effort produced no leverage against the US negotiating team of Vice President JD Vance, Special Envoy Steve Witkoff, and Jared Kushner, President Trump’s son-in-law. In remarks made prior to leaving Islamabad, JD Vance made it clear that Iran did not agree to meet US “red line” conditions for peace.

As I have noted previously, the US “red line” conditions are easily and succinctly stated:

• Iran will not enrich uranium

• Iran will not pursue nuclear weapons

• Iran will not develop long range ballistic missiles

• Iran will not maintain its network of terror militias across the Middle East

• Iran will not close the Strait of Hormuz

• Iran will not threaten Arab states in the Persian Gulf

While we do not know what was actually said during the negotiations themselves, there is little reason to presume the US position on any of that has been altered.

With that as a backdrop, we perhaps should not be surprised that President Trump chose to respond to the failure of the talks by blockading the Strait of Hormuz.

Regardless of how much control Iran has or does not have over the Strait of Hormuz itself, there is little doubt which navy can control the egress to the Strait into the Gulf of Oman. The United States Navy will now be interdicting shipping traffic out of the Strait of Hormuz, thereby cutting off even Iran’s oil exports.

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Did Trump Anticipate This?

While it is purely speculation on my part, I do wonder if the Trump Administration had not been preparing all along for the talks to fail.

While the talks were ongoing, the Trump Administration announced the US Navy was beginning minesweeping operations in the Strait to clear out the Iranian mines.

CENTCOM said USS Frank E. Peterson and USS Michael Murphy transited the strait and operated in the Persian Gulf in a broader mission aimed at removing mines previously laid by Iran’s Islamic Revolutionary Guards Corps.

“Today, we began the process of establishing a new passage and we will share this safe pathway with the maritime industry soon to encourage the free flow of commerce,” said CENTCOM commander Gen. Brad Cooper.

President Trump, in typical Trumpian fashion, was even more braggadocious, not only calling out Iranian failures in reopening the Strait but also the failures of other leading nations to step up and help defend internationally recognized rights of transit passage through the Strait.

All this he posted to social media as the Islamabad talks were getting underway—whatever else one wishes to conclude about Donald Trump’s social media postings, one thing seems clear: Donald Trump was not worried about the Iranians agreeing to reopen the Strait because the US Navy was already starting to reopen the Strait.

One reason the US was doing this was advanced by the New York Times, and has not been refuted by the Khamenei regime: Iran does not know how to locate or remove its own mines from the Strait.

Iran used small boats to mine the strait last month, soon after the United States and Israel began their war against the country. The mines, plus the threat of Iranian drone and missile attacks, slowed the number of oil tankers and other vessels passing through the strait to a trickle, driving up energy prices and providing Iran with its best leverage in the war.

Iran left a path through the strait open, allowing ships that pay a toll to pass through.

Iran’s Islamic Revolutionary Guards Corps has issued warnings that ships could collide with sea mines, and semiofficial news organizations have published charts showing safe routes.

Those routes are limited in large part because Iran mined the strait haphazardly, U.S. officials said. It is not clear that Iran recorded where it put every mine. And even when the location was recorded, some mines were placed in a way that allowed them to drift or move, according to the officials.

If that report is true, then Iran’s claim of control over the Strait is ultimately illusory.

If that report is true, then Iran cannot guarantee safe passage through the Strait to any ship, regardless of whether or not it pays a toll. If Iran does not even know where the mines are, it does not know what the safe sea lanes are.

The New York Times reporting relies on unnamed US officials, and provides no solid provenance for those assessments, but Iran has not said or done anything to rebut the reporting. While we do not know the New York Times is correct on this, neither can we assume the New York Times is wrong.

If the New York Times reporting is at all factual, then the failure of the talks could suit President Trump just fine. If the US Navy succeeds in clearing the mines and reopening the Strait while maintaining a blockade in the Gulf of Oman, Iran’s strategic leverage collapses.

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Oil Prices—Iran’s Real Target?

While the geopolitical calculus over the Strait of Hormuz remains very much an exercise in speculation, what is not a speculation is the impact these events have had on energy prices.

Even with the encouragements of the Islamabad talks getting underway, spot prices for diesel contracts are as of Friday trading still 44% above pre-war levels.

Not only are energy prices up, but significant differentials have emerged between European benchmark energy contracts and American ones, especially for natural gas.

Nor is that the only energy price differential to emerge. Since the war began, Arab “heavy” (or “sour”) crude—the crude type from which diesel is extracted—has gained a significant price premium both over benchmark oil prices for Brent crude and West Texas Intermediate.