The interim June 17 MOU between the U.S. and Iran continues to face violent tests as Iran attacks commercial shipping and the U.S. responds with military strikes against IRGC sites. Both sides temporarily stood down and reconvened last week through Qatari mediators in Doha. The back-and-forth hostilities center around Article 5 of the memorandum—who controls the strait—which is Iran’s only real leverage. Yet even as the politics whipsawed, the physical recovery cautiously continues. Gulf oil exports have returned to near pre-war levels and Brent has fallen sharply from its wartime peak, even as this week’s re-escalation has renewed volatility. Forecasters now predict crude below $60 barrel before the end of the year.
At home, the economy continues to move in opposing directions: record S&P 500 margins, a historic second-quarter rally, and a never-ending AI capital cycle (e.g., government nuclear loans, utility megadeals, SK Hynix’s listing, and $2.77 trillion in total dealmaking) vs. just 57,000 jobs added in June, a housing market that continues to struggle, and inflation running at multi-year highs. The new Warsh Fed is holding hawkish through it all as the bond market prices rate increases and the White House studies how to remove Governors Lisa Cook and Jay Powell. In the President’s favor: May’s inflation reading looks like the peak as oil prices fall. Running against him: consumer relief as a lagging tail.
Abroad, Washington is continuing to build its leverage throughout the globe. The Administration is reconstructing its tariff regime through Section 301, threatening 100% tariffs on any country that taxes U.S. tech and fighting the EU on numerous non-trade barriers. The U.S./China contest is widening from critical minerals to AI models to the multilateral system, while trade diplomacy quietly resumes and both leaders prepare for a late September state visit in Washington. Rounding things out, the Western Hemisphere consolidates rightward with conservative candidate wins now official in both Colombia and Peru, and a U.S. relief-and-reconstruction opening in earthquake-stricken Venezuela, all further extending the reach of the Donroe Doctrine.
THE FIVE TAKEAWAYS
1. The Iran ceasefire is “over” but diplomacy continues. Tit-for-tat strikes on shipping and U.S. bases have resulted in both Doha talks and renewed concerns about safe passage of Hormuz. The MOU is bending, but has not exactly broken, as both sides remain incentivized while also flexing their leverage (military and economic power vs. control of shipping). As we await the aftermath of this week’s attacks, the August 18 nuclear deadline is fast approaching.
2. Oil has normalized faster than predicted even without U.S./Iran progress. Gulf exports are now back to near pre-war levels despite recent strikes and every major forecaster sees Brent retreating lower. The rapid supply recovery means May’s PCE is the likely inflation peak of the war and the most important economic indicator for central banks, global markets, and cost-of-living concerns.
3. The Fed is holding while Chair Kevin Warsh remakes the institution. Of concern, June hiring slowed to 57,000 and housing has yet to rebound in a fulsome manner. But equity expansion is undaunted as a booming AI capital cycle results in record margins, $2.77 trillion in deals, and a Q2 rally that added more than $8 trillion in value. The White House is now reportedly studying how to remove Fed members Lisa Cook and Jay Powell, following the Supreme Court’s recent decision on independent agencies in the hopes of blunting the investor consensus that rate increases are inevitable.
4. Washington’s rebuilding of global trade alliances moves forward as Section 301 investigations near completion. A 100% digital-tax retaliatory threat and the unsurprising announcement against USMCA renewal add predictable volatility to ongoing trade talks, particularly with respect to the EU and Canada. Meanwhile, the Administration welcomed right-aligned candidates in Latin America, bringing two more countries under the Shield of the Americas security framework. The Donroe Doctrine still faces uncertainty, however, as Delcy Rodríguez’s handling of the earthquake response faces domestic criticism and the humanitarian crisis reaches an energy tipping point in Cuba.
5. The existential race for AI dominance is widening from inputs to the IP of frontier models. Both sides seek to counter each other and gain leverage via alliances throughout the Indo-Pacific, European continent, and Western Hemisphere.
KEY DATES AHEAD
The week has been dominated by the NATO summit in Ankara and escalating attacks in the Middle East. Key economic data points have included the Fed’s minutes, the IEA oil report, China CPI, and SK Hynix’s U.S. debut.
Today
– Diplomacy: Secretary of State Marco Rubio meets with Saudi Ambassador Reema bint Bandar Al Saud at the White House
– Economy: IEA Oil Market Report; Ecofin meets in Brussels; Brazil IPCA June inflation index; Canada releases June jobs; France and Germany report June CPI; Mexican industrial output for May; Delta Airlines Q2 results; SK Hynix’s U.S. listing begins trading
– Legislation: Bipartisan housing legislation becomes law absent a presidential veto
The Look Ahead
– July 14-15: House Financial Services hearings with the Fed and the CFPB
– July 19: World Cup final (Trump to attend)
– July 20: U.S./Mexico joint USMCA review meetings (Mexico City)
– July 23: House scheduled to depart for the August Recess
– July 24: Section 122 10% global reciprocal tariffs expire (replaced with Sec. 301 and/or renewed)
– July 29: FOMC
– August 7: Senate scheduled to depart for the August Recess
– August 27-29: Jackson Hole Fed Conference
– August 31-September 1: G20 Finance Ministers and Central Bank Governors Meeting
– September 16: FOMC
– September 21: UN Week
– September 24: President Xi Jinping official state visit to Washington expected
– September 30: U.S. discretionary government funding expires
Note: Section 702 of FISA remains expired (Trump pushing for inclusion of the SAVE America Act)
SECTION BOTTOM LINES
Geopolitical Update: Just two weeks into the signing of the MOU, the ceasefire has ended. Passage of the Strait of Hormuz is front and center for the immediate future and nuclear talks are now on the backburner. Despite this, the MOU remains in place. This week’s attacks will not only provide insight into whether the diplomatic track remains viable but may very well act as a harbinger of future U.S. participation in NATO. Turkey’s hosting of the annual leaders’ summit proved productive with renewed comity between leaders and fresh commitments by the U.S. Should allies come off the sidelines as military operations restart in the Middle East, NATO may very well end the month in a far more durable spot than has been predicted.
Economic Outlook: The U.S. data cut both ways: an upgraded Q1 GDP print and a five-month activity high against a slow housing market and June hiring at just 57,000. Wall Street and the AI trade set records throughout. Inflation is still near multi-year highs at 4.1% PCE, but May looks like the peak. Bond markets still expect Warsh to hold the line and are now pricing rate hikes where they once expected cuts. In Europe, a less-bad PMI and a sliding euro quietly pull the EU about recession but the global recovery continues to be mixed, with Asia still showing the most signs of wear.
Oil Shock: Crude and gas are normalizing weeks if not months ahead of schedule, pulling the near-term inflation threat down with them. The same shock is accelerating structural investments to avoid a repeat in the near-term or long-term, betting on everything from pipelines to nuclear and solar to deep well shale. Combined, global producers are meeting the moment of the war’s supply shock while planning for long-term AI-driven demand.
Shipping: As the reopening proves uneven and Iran’s tolling extortion continues, global shipping is relying on the U.S.-backed Omani route to offload stranded supply and re-routing ships outside the Gulf to other global passageways. Demand has not waned, forcing operators to pay premiums that will keep inflation sticky until Hormuz finally settles.
Trade Update: Trade policy is being rebuilt through the more durable Section 301 with final determinations possible before Section 122’s expiration on July 24. With the IEEPA tariffs struck down, refunds are acting as an earnings wildcard for corporate America which the Administration’s legal challenges will continue to drag out through this year’s earnings. Bilateral reciprocal agreements continue to move forward (and may now replace USMCA) but irritants remain, particularly with existing and proposed EU regulatory regimes.
Donroe Doctrine: The Western Hemisphere is consolidating into a U.S.-aligned bloc, albeit through close margins. Colombia’s De La Espriella joins the Shield of the Americas on August 7 and Keiko Fujimori’s win in Peru extends a rightward wave now running from Buenos Aires and Bogotá to Lima and San Salvador. The Administration is tightening its pressure campaign against the holdouts through fresh GAESA sanctions on Cuba and the Section 301 investigation on Brazil. Key inflection points this year include the fate of Cuba, the Brazilian elections, Venezuela’s debt offering, and USMCA negotiations with Mexico. For now, the Donroe Doctrine is banking wins at China’s expense.
China: China’s tech conflict is widening on three fronts: a calibrated minerals embargo on Japan to force a Taiwan retreat; an Anthropic-Alibaba distillation fight hardening into legislation to wall Chinese labs off from U.S. chips and models; and a U.S. government-wide effort to lock allies onto the American AI stack and prevent the growth of Chinese technology. The bind is that Washington’s own export controls, now reaching U.S. firms’ frontier models, are nudging allies toward digital sovereignty and cheaper Chinese models and vehicles.
OUTLOOK / ANALYSIS
The MOU remains but the ceasefire does not. Control of Hormuz under Article 5 is decidedly unresolved and now the source of renewed military operations. While we expect attacks to continue, the question is whether subsiding inflation will again flare. Both sides have leverage and risk in the sputtering talks. Iran retains the ability to disrupt Hormuz but wants its funds and sanctions relief; Washington controls the revenue and the air but needs commercial shipping flowing and the price of oil down. For now, the nuclear track is on the back-burner and is likely to run past the August 18 deadline.
The economic story is a race between a cooling real economy and a booming financial-AI complex, refereed by an inflation print that has likely peaked. If oil keeps sliding toward $60, the disinflation the market is pricing could arrive in time for the midterms. What Warsh does in the interim depends a great deal on data yet to arrive. A softening jobs market, sticky inflation, and booming margins point in different directions.
Abroad, the second half of 2026 will be defined by the Administration’s creation of a lasting tariff regime centered around reciprocal trade agreements and Section 301 duties. Tariff refunds, non-tariff barriers, USMCA, the China truce, and the rightward shift of Latin America all act as daily inflection points. Resting above all is an energy industry that is quickly reforming, rerouting, and reimagining itself in the face of the Iran conflict and the AI buildout. Meeting the energy demand is the defining economic and national security issue of the year. As Secretary Rubio aptly puts it, “One of the most important issues in the world today, as we’re reminded of even now with events happening in the Straits of Hormuz and in other places, is energy security.”