I had intended to write about Japan today, with 10-year JGB yields hitting 2.9% last week—the highest since September 1996—and the yen hanging around a 40-year low of 162 to the dollar.

Also, on Friday, Japan’s Finance Minister suggested Japan would “steer” the Government Pension Investment Fund (the world’s largest pension fund) to “substantially” boost domestic holdings. And a weekend rumor of a yen-denominated stablecoin lit up social media—a telling sign of how deep the worry runs.

As important as this is for markets, it does not supersede the resumption of hostilities between the US and Iran over the weekend. In fact, events in the Middle East are driving what’s happening in Japan.

So, consider this a two-parter: This week, we will tackle the resumption of the war (a day earlier than usual, as things move fast). Next week, we will look closer at the situation in Japan.

The Situation: War 2.0

The US and Israel began attacking Iran on February 28. The war peaked in April and functionally ended with a 14-point memorandum of understanding (MoU) in June. Between then, oil prices rose from ~$70/barrel to a high of ~$138 before roundtripping back to $71 by July 2. Tanker crossings never fully recovered but reached ~20 ships per day by late June, driven in part by the MoU’s 60-day toll-free window on maritime fees through the Strait of Hormuz.

The MoU was vague enough to be interpreted as victory on each side—but my read, and what I told clients, was that both were simply ready to stop. The White House claimed it had achieved regime change, and rising energy-driven inflation threatened disaster in the midterms.

Re: Iran, it proved its control over Hormuz (although at tremendous cost) and was ready to rebuild and normalize relations with its neighbors.

Guardian of the Strait

This conclusion did not hold. The war has resumed, and while it is technically a continuation of February’s conflict, analytically we should treat it as a new one—because the objectives of the combatants and the macro context are completely different.

The latest round of fighting began on July 6, when three tankers were struck in the Strait of Hormuz. Iran did not claim responsibility but likely allowed the attacks, dissatisfied with US progress on its MoU commitments. In other words: Iran viewed its actions as part of the negotiation process rather than a salvo in a new conflict.

Iran got more than it bargained for. The US and gulf allies, like Qatar and Saudi Arabia, declared Iran responsible for the attacks, igniting escalation. On July 7, the US carried out disproportionately large retaliatory airstrikes on dozens of targets in Iran and has not let up. Trump declared the ceasefire “over” last Friday and, by Monday, had named the US the “Guardian of the Hormuz Strait,” ordering 20% “reimbursements” on all cargo shipped through the passage. The airstrikes continue, Iran is retaliating against US bases throughout the region, and the blockade of Hormuz is back on.

The Goalposts Moved

The initial US objective was regime change, egged on by Israel. It failed and arguably strengthened the Iranian regime by martyring its leader and hardening popular resolve. Now the US’s goal is to deny Iran control over Hormuz, which Iran has effectively asserted since the conflict began. Iran’s objective, meanwhile, has shifted from survival to translating that survival into a deterrent against future attacks and a source of revenue for its battered economy. These are very different objectives than the ones that defined the start of the war.

Moreover, the macro context is different, and the biggest variable is oil. Even with fighting resumed and Hormuz closed again, Brent is hovering around $80—far below the apocalyptic figures some analysts predicted (and higher than I expected, I’ll confess). But we should be careful not to grow complacent just because those predictions missed. They were wrong for four reasons:

1. Oil is roughly 50% less important to the global economy than during the 1973 embargo.

2. Supply is more diversified since the Shale Revolution (OPEC’s share of production has fallen from ~half in the 1970s to ~30% today).

3. Years of low prices left ample inventory to draw down.

4. China cut its oil imports by roughly half once the conflict began.

There is reason to think a longer closure would play out differently. The inventory buffer that absorbed the February–June phase is largely gone. The US Strategic Petroleum Reserve sits at a 43-year low, and OECD strategic stocks are at their lowest since 1990. OPEC+ may not be the force it once was, but the Middle East is still the marginal barrel. In Q4 2025, OPEC surplus capacity was ~3 million barrels per day; as of Q2 2026, it is effectively zero. That is Iran’s real leverage; blocking Hormuz means blocking access to global spare capacity.

How Hot Can It Get?

Two wildcards sit on top of this. Ukraine, having watched Iran stalemate the US in April, has been bombing Russian energy infrastructure with drones, knocking out nearly 1 million bpd; exports are up for now, but Moscow is reporting shortages and Rosneft has halted some product exports. And China, sitting on an estimated ~1.4 billion barrels in February, has absorbed the closure so far. It can’t forever. If it returns to historical import rates, prices go significantly higher.

Ironically, those lower-than-expected prices are part of what is driving the renewed fighting. When energy was surging, the pressure was on the US to declare mission accomplished and accommodate Iran. But oil at ~$80 is not pressure; it is an opportunity to sell more US crude abroad. The White House may have concluded it has more room to strike, which the data suggests is a high-stakes gamble. For Iran, the inability to push prices higher blunts its only real leverage.

All of which is to say: There may be a ceiling on how hot this can get. If Brent climbs into the triple digits, the pressure shifts back toward the US and away from Iran. Both sides are also constrained by weapons: Each has depleted its stocks, and estimates put the US’s rebuild of its interceptor and missile inventory at three to four years, never mind its allies’. Iranian weaponry is cheaper and cruder, but it clears a lower bar—all Iran has to do is field enough firepower to make ship captains unwilling to transit Hormuz. So, this comes down to an attrition race: Iran’s ability to launch attacks against the US and allied efforts to intercept them while keeping pressure on the regime.

Stalemate, Again

This new Iran-US war will likely end as the first one did: in a stalemate. The US does not have the power to police the Strait of Hormuz in perpetuity, a goal arguably more unrealistic than regime change in Tehran.

Iran has proven it can survive a US onslaught and disrupt shipping, but its ambition to be the recognized “Guardian of the Strait” is equally far-fetched. What it has already demonstrated is that access to Hormuz is unreliable, volatile, and subject to disruption at will. The harder question is whether this war ends without lasting damage to global markets. And here geopolitics must admit its limits: It cannot guarantee that state actors will do what an analyst typing in New Orleans thinks is in their best interest.

Map/Chart of the Week:

The only thing that matters in the US-Iran war is this chart. Not Trump’s statements, not Iran’s threats, not the price of Brent crude. This chart. And this week, it flashes red.

Blind Spot: 

Nigel Farage, leader of the Reform UK Party and patron saint of Brexit, resigned his seat in the British Parliament after it was reported he is being investigated over donations to his party and his financial affairs. But Farage is running for instant re-election in Clacton-on-Sea before any investigation concludes, saying, “The people of Clacton should be the judges of my actions.”

The UK’s main opposition parties are boycotting the by-election, believing it to be a stunt meant to distract from the investigation. But one candidate is standing against him. Count Binface is an intergalactic space warrior from the planet Sigma IX, and his manifesto promises include conscripting anyone who uses a speakerphone on public transport and relocating the hand-dryer in the gents’ toilet at the Crown & Treaty pub in Uxbridge to a more sensible position.

Count Binface—née Lord Buckethead—is a satirical character created by comedian Jonathan Harvey, and he has stood against the likes of Sunak and Johnson before. But for the first time, he is more than a novelty: In a recent Ipsos poll, 33% said they would prefer Binface win the by-election, against just 21% for Farage. My first instinct was that this was a good sign—a society that lets a joke candidate run for real office, and can laugh at itself, is open and free.

But that read is naïve. A satirical candidate is supposed to spur introspection and a better real choice, not to actually win. Here the joke is winning. That Count Binface’s tongue-in-cheek lunacy is being taken seriously is ironically the opposite of what his creator likely intends.

Reader Question:

Well, the “rest of the field” didn’t advance, but at least Erling Haaland scored an unforgettable souvenir.

Finally… 

What I’m watching: The Bear, FX

What I’m reading: Conflict and Commerce on the Rio Grande: Laredo, 1775–1955, John A. Adams, Jr.

What I’m listening to: This One’s for You, Luke Combs