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The DXY Index has surrendered more than 80% of its gains from the Iran conflict. The Index is down 1.8% this month to 98.1, approaching the 97.6 level before Operation Epic Fury began. The S&P 500 Index ended overnight above February 27’s 6878 level despite the IMF’s warning that a protracted Iran conflict could trigger a global recession. With Brent crude prices holding mostly below $100 per barrel the past week, markets have been holding out for a diplomatic solution, driven by President Donald Trump’s April 8 temporary ceasefire. Despite the failure of the first talks in Islamabad, Trump’s decision to blockade the Strait of Hormuz has strengthened the resolve of EU nations and China to push for a diplomatic solution.
For now, the worst oil shock scenario appears to be partially contained, not by a lack of conflict, but by a refusal of America’s allies to escalate the Middle Crisis into a total war, which is a significant contrast to previous decades of coalition-based interventions. The fact that Brent has resisted the doom scenario of $120-150 highlights several key factors. The refusal of European and Asian allies to join America’s illegal war or blockade mirrors the same restraint against retaliating against last year's illegal reciprocal tariff. Hence, the recent political shifts in Europe, most notably Viktor Orban’s ouster in the Hungarian elections and the distancing of the European far-right from Trump’s MAGA, have also deprived the US of ideological legitimacy, especially in its blockade of the Strait of Hormuz.
US Treasury Secretary Scott Bessent’s assertion that it is prudent for the Fed to hold rates steady amidst the energy surge is worth noting. As the primary voice of reason in Trump’s inner circle, Bessent highlighted the administration’s tightening timeline. As the Iran conflict enters its third month this May, the US is a mere six months away from the November midterm elections. Bessent’s hawkish hold warning is a reminder that a perceived victory in Iran could prove pyrrhic if it triggers a domestic economic backlash. Without a stabilized inflationary environment, the administration faces the very real risk of losing control of the Senate or Congress, potentially relegating the remainder of this term to the same lame-duck paralysis that characterized the second half of his first administration.
For President Trump, the calculus is shifting from military victory to political survival.
Quote of the Day
“We should feel sorrow but not sink under its oppression.”
Confucius
April 15 in history
The “unsinkable” Titanic broke in two and sank in 1912, in the North Atlantic Ocean, taking over 1500 lives after hitting an iceberg.
Topic
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