Trump Threatens Strait Control and Transit Fees, Sending Oil Prices Soaring

[Chart 1: United States and Iran Illustration]

Relations between the United States and Iran have deteriorated sharply following the signing of a memorandum of understanding. U.S. forces have carried out consecutive airstrikes against Iranian targets, while President Donald Trump warned that Iran could face a “major strike tonight or tomorrow.” He also announced the reinstatement of a maritime blockade against Iran and suggested that the United States could assume control of the Strait of Hormuz and impose a 20% transit fee on commercial shipping passing through the strategic waterway.

Iran responded with strong rhetoric, warning that if the conflict escalates, “the flames of war will engulf every country in the region,” while also threatening to close the Strait of Hormuz. The U.S. military stated that the strikes were conducted in response to Iranian attacks on commercial vessels, while Tehran claimed it had successfully shot down a U.S. military drone.

Trump also indicated that a diplomatic agreement with Iran remains possible but argued that America's Middle Eastern allies should contribute more toward regional security costs. He specifically mentioned Saudi Arabia and the United Arab Emirates, stating that countries benefiting from U.S. security protection should share the financial burden. Trump further emphasized that the United States is no longer heavily dependent on Middle Eastern oil supplies.

The escalating conflict triggered a sharp rally in energy markets. Brent crude surged more than 7% intraday, while WTI crude gained nearly 6%. Trump dismissed concerns about rising oil prices, arguing that global oil supplies remain abundant and prices would eventually decline. Nevertheless, markets have begun pricing in a renewed supply disruption premium as shipping risks through the Strait of Hormuz rise significantly.

Iranian oil exports had partially recovered under a temporary 60-day sanctions waiver. However, after the United States revoked the exemption, the outlook for Iranian supply once again came under pressure. Meanwhile, the United Arab Emirates is reportedly planning a new port project along its eastern coastline to diversify shipping routes and reduce dependence on the Strait of Hormuz.

Federal Reserve Governor Christopher Waller stated that additional interest rate hikes could be necessary if core inflation remains elevated. His comments pushed market expectations for a July rate hike to approximately 45%. Meanwhile, former Federal Reserve Governor Kevin Warsh is scheduled to testify before Congress, and his remarks are expected to provide important clues regarding the future policy path. As geopolitical tensions continue to drive energy prices higher, inflationary pressures facing the Federal Reserve are once again intensifying.

The ongoing escalation between the United States and Iran has disrupted the fragile balance established by previous temporary agreements. Trump's aggressive stance and Iran's firm response have transformed the Strait of Hormuz into a critical flashpoint for global energy security. The recent surge in oil prices is likely to amplify inflationary pressures worldwide, potentially affecting Federal Reserve policy flexibility and global economic growth expectations.

In the near term, repeated military actions and potential disruptions to maritime traffic through the Strait of Hormuz are expected to remain the primary drivers of volatility in energy markets. Over the longer term, meaningful de-escalation will likely require both sides to return to negotiations, establish an enforceable ceasefire framework, and ensure the uninterrupted flow of shipping through the strait.

At present, geopolitical conflict risks have emerged as one of the most significant sources of uncertainty for the global economy and financial markets. Investors should closely monitor developments and remain vigilant regarding potential market impacts.

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