[Today’s Iran war post is launching before final because I felt a bit poorly earlier but am fine now. Please return at 8:00 AM EDT or reload this page then for a final version]
The Iran war front seems quiet, particularly as the Trump-Xi summit continues to dominate the news. We won’t dignify the Trump claim that Xi offered essentially a blank check in support of the US effort to open the Strait of Hormuz:
BREAKING: China has explicitly informed the US that it recognizes Iran’s “exercise of sovereignty” over the Strait of Hormuz, contradicting the White House readout of the Trump-Xi summit that claimed Xi opposed Iranian “militarization” of the Strait and any “toll” for its use,…
— The Hormuz Letter (@HormuzLetter) May 15, 2026
I have not seem other reports like this but it makes complete sense. Top Chinese officials met with Iran Foreign Minister Abbas Araghchi right before the Trump-Xi summit. China had already been providing military and intel support, albeit arguably defensive. Why should China abandon Iran, which is doing a marvelous job of weakening the US?
But tectonic plates are moving, particularly on the market and economic front. Will they produce a big earthquake and tsunamis, as we have feared, or minor tremblors that relieve pressure and make new types of motion possible? Or from a global power perspective, be seen as doing a favor for the US, which has continued to implement belligerent measures against China?
Trump is actively making his bad situation worse. The best of his lousy options is to take the loss and exit. But Trump has a pattern, when faced with choices he does not like, of punching in many directions in the hope that that will cow opponents and open up new space and new opportunities. But even when that process might work (when it has not and won’t with Iran), it takes time. Delay here operates very much in Iran’s favor and very much to Trump’s disadvantage. Economic pressure from restricted use of the Strait of Hormuz will hurt the global economy harder and fastest than any trade restrictions or new sanctions on Iran. And Iranians have and will continue to accept far higher levels of pain than the pampered US can.
Supporting that reading Chas Freeman, once the US ambassador to Saudi Arabia, remarks in a fresh talk with Pascal Lottaz that he sees sign of Gulf States ex the UAE working towards a modus vivendi with Iran:
Recall we had said early on that one way for this war to end sooner rather than later was for at least some Gulf States to come to terms with Iran in order to resume shipping through the Strait of Hormuz. That would require adopting a neutral stance, as in ending US support.
Note that Freeman has argued that the Gulf States and Iran will need to reach some sort of arrangement. It is no news that these countries have already suffered from Iran’s retaliatory attacks. The Conversation takes a stab at an assessment in How severe has the economic impact of the Iran war been for the Gulf states?. Key parts:
Since the war began in February, the World Bank has downgraded its 2026 GDP growth forecast for the region from 4.4% to just 1.3%. Some thinktanks, including Oxford Economics, even predict that some GCC economies will enter recession in the second half of the year.
However, the effects of the war have differed across the region….
Countries like Qatar and Kuwait have seen their oil and gas exports seriously disrupted by the effective closure of the Strait of Hormuz. But Saudi Arabia and the UAE, which have access to bypass infrastructure, have been partly able to circumvent this limitation….
Disruption to energy exports is one part of the story. The war has also caused substantial physical damage to energy infrastructure across the region. …
It will take months – and in some cases years – to repair the damage (which stands at an estimated US$58 billion) once the war ends…
The GCC states have adopted strategies to diversify their economies away from a dependency on hydrocarbons. Tourism and aviation are two central pillars of this…
But these industries, too, have been damaged by the war. Financial analysis firm, Moody’s, suggested recently that hotel occupancy in Dubai is set to plummet to 10% in the second quarter of 2026 from 80% before the war….
The Iran war has also placed Gulf airlines such as Emirates, Etihad and Qatar Airways under increasing financial pressure. More than 30,000 flights to the Middle East were cancelled in the first month of the war and jet fuel prices – the biggest variable cost to airlines – are up 90% on the annual average.
The logistics sector is another area of Gulf diversification. It has grown rapidly since the early 2000s thanks to the region’s strategic position between east-west trade routes. The UAE’s Jebel Ali Port, for instance, is now one of the world’s largest container ports and the base of Dubai’s multinational logistics firm, DP World.
However, Jebel Ali has seen a 40% drop in vessels due to the war, with container carriers rerouting to alternatives such as Salalah in Oman and Colombo in Sri Lanka. And while DP World has opened emergency land corridors to ports outside the Gulf to keep cargo moving, these routes are costly and have limited capacity.
The UAE and Qatar also both serve as major air freight hubs, acting as bridges for cargo travelling between Asia and Europe. But this has been affected by the war too. Freight rates have increased following attacks on both Dubai and Doha that led to grounded flights and air space closures.
On the kinetic front, temperatures in the region are rising to seasonally high heat and humidity levels, which will make any ground operation impossibly difficult.
Now perhaps on Sunday he will launch the very much anticipated massive US/Israeli air strike campaign, likely in combination with a showy Special Forces operation and NO1’s sources see this as still in the works:
Iran diplomacy dead — second US military operation imminent. Trump trashed Iran’s proposal “after reading the first sentence”. Operation Epic Fury declared concluded, next phase targeting Hormuz reopening. Multiple reports of US military buildup with B-2s, F-35s moving into position. Iran says fingers on buttons, Houthis on standby.
But the fact that the Saudis, Kuwaits and Qataris kiboshed Trump’s Project Freedumb by denying use of their airspace makes it logical to assume they would would throw an even bigger spanner as far as a US renewed bombing campaign on Iran is concerned. Can the US mount these attacks on the desired scale if most Gulf states refused to let their airspace and what is left of their airbases be used? These countries have every reason to try to prevent this type of escalation, since Iran has vowed to destroy their energy production in the event of an attack.
On top of that, US military leaders (and certainly the next tier) are very cognizant of the high risks and limited upside of a renewed campaign against Iran. If key Gulf States are are refusing to let the US exploit them to advance a futile show of force that could depopulate their countries via the destruction of desalination plants, that throws a monkey wrench in US plans. One can see escalation-opposed officers emulating Penelope in the Odyssey, of winding ways to make the revisions and approvals take a lot of time, thus delaying any action and letting the economic and political forces undermining Trump grow in power.
A big source of economic pressure, not just in the US but also the wider world, is that interest rates are rising due to investors coming to grips with how serious and lasting inflation increases are likely to be. The stock market often takes a different view than bond buyers, but the paradigmatic relationship is that when bond prices fall, stocks should too, because higher interest rates crimp commercial activity and also hurt the valuations of risky assets like stocks because future cash flows should be discounted at a higher price (as in profits later are worth less than before the interest rate rise).
This Bloomberg segment has a less than cheery take on the outlook for stocks and bonds:
Countries that had hoped to gain from China saying it would relax a refined-products exports ban have not seen more product come on the market. Note the article is pretty fuzzy as to where official China stands on this matter. From the Financial Times in China’s fuel exports fail to rebound after Beijing signals easing of ban:
Data suggests shipments of refined fuels are not picking up in blow to Asian economies starved of supplies by Iran war
Chinese exports of jet fuel, gasoline and diesel are languishing far below their levels before the Iran war despite Beijing signalling it would relax a ban, dashing the hopes of other Asian countries desperate for supplies to combat shortages as a result of the conflict…
But China exported just 417,000 barrels per day of refined products in the first two weeks of the month, much lower than its usual exports before the war, according to data compiled by oil research group Kpler. In January and February China exported about 750,000 barrels per day of refined fuel….
Rising inventories might spur China to facilitate exports and some at state-owned oil companies said they were already selling more to international buyers, while others said they have not yet received permits to export oil products, which are controlled by the government.
While the oil companies would like to sell refined products to whichever buyers could pay the most, the government was focused on preserving the country’s energy security, according to Michal Meidan, head of China energy research at the Oxford Institute for Energy Studies.
On the topic of China, Jeff Snider’s latest talk is very informative, if you look past his wildly-off base attempt to use the Xi-Trump summit as a hook. A general issue with Snider is that he does an impressive job of putting together data, but some of his interpretations are off base.
Here, his lower-level readings, on the persistence of weakness of internal demand in China and that its traditional remedies are in “pushing on a string” terrain. That means China’s best alternative is foreign demand, as in exports….which do not look like a good outlet given the increasingly dire state of the global economy, and in particular its biggest export markets, Southeast Asia and Europe:
On the shortages front, from Autoblog in Toyota is About to Run Out of Motor Oil:
It’s no secret that the war in Iran has put a strain on the world’s oil supply. Fuel prices have shot up, but now it appears a motor oil shortage is on the way, at least according to a post on X about a Toyota bulletin issued to North American service managers.
And:
Nissan joins Toyota in warning of looming motor oil shortage
Nissan confirmed the authenticity of a draft bulletin warning U.S. dealers about a 45% year-over-year cut in motor oil supply,
— 🔻Rio Slade 🔻 (@RioSlade) May 15, 2026
More evidence of retailer motor oil supplies being cleaned out in anticipation of shortages:
Went to Walmart to investigate the oil shortage, here’s what I found:
1. Walmart clearly hasn’t gotten the message to end their discounts as most of their oil is on rollback/clearance, including Shell Rotella
2. The employees stated that they’re experiencing delays on… pic.twitter.com/2s0PPEYebe
— George Roush (@GeorgeRoush) May 13, 2026
We warned that El Nino would amplify food shortages. This presentation describes how it will do serious harm separate and apart from fuel and fertilizer scarcity:
On the latest @theallinpod, @friedberg talks about a potential food shortage that could come as a result of “El Nino”
It could lead to commodity prices to spiking as crops fail, creating a global calorie deficit and economic impacts. pic.twitter.com/S7IRYZRSzf
— Finn (@finnjclancy) May 16, 2026
The futures market predicts potato prices will spike. From RT (hat tip Kevin W):
Potatoes have emerged as the latest casualty as futures prices have surged in recent weeks amid mounting warnings over food security and supply chain strain.
Potato-linked financial contracts have spiked more than 700% over the past month and are up over 34% year-on-year as of mid-May, according to Trading Economics data.
We have noted that Iran has taken an awfully long time to regularize what it is doing with Strait of Hormuz vessel processing. It has yet to fully settle on how to do that. From Aljazeera:
Exclusive: Iran plans to charge fees for Strait of Hormuz passage under new system, lawmaker says
Iran has prepared a mechanism to manage traffic through the Strait of Hormuz along a designated route and will announce the plan shortly, a senior Iranian lawmaker said.
Ebrahim Azizi, who heads parliament’s national security and foreign policy committee, said only commercial ships and countries that cooperate with Tehran would be eligible to use the arrangement. He added that Iran would collect fees for specialized services provided under the mechanism.
Axios reports on an issue we highlighted early in the war: that it would increase financial stress on farmers, which would lead to some going out of business, which in turn would further reduce food supplies. From Farmers growing desperate amid rising energy and fertilizer prices:
Farmers across the Midwest are entering planting season under mounting financial pressure, as the Iran conflict drives up diesel and fertilizer prices — deepening an agricultural downturn that some say is the worst since the crisis of the 1980s.
Why it matters: Rising fuel and fertilizer costs threaten to push more family farms out of business, drive up food prices and further strain rural economies already battered by trade disruptions, inflation and extreme weather.
Back to snippets from the Middle East:
The effort to depict a pause in tanker-loading out of some Kargh Island slots as a big deal looked overdone and has proven to be:
Earlier this morning, Windward posted satellite imagery showing a vessel loading oil at Kharg Island. This is significant because it shows Iran still retains loading ability, and this will greatly extend the timeline Iran has until they run out of remaining storage options.…
— Brett Erickson (@BrettErickson28) May 14, 2026
The fake Lebanon-Israel ceasefire will continue:
⚡️ 🌟Journalist Khalil Nasrallah:
Extension of the ceasefire – continuation of the fire – in Lebanon for 45 days.
A fourth round has been set, and a “security” track launched with Lebanese-Israeli military presence at the Pentagon.
What the US State Department announced confirms…
— Middle East Observer (@ME_Observer_) May 15, 2026
Done for now. See you tomorrow!
