As a radical statecraft move, the US could form a 'North American Petroleum and Hydrocarbons Trading Hub Association' (NAPTHA) with allies. This would create a self-sufficient energy bloc, isolating adversaries and fundamentally fragmenting global energy markets.
The Trump administration aims to replace the legacy Eurodollar system with a stablecoin-based architecture. This would create fiscal breathing room, lower domestic interest rates, and sort global allies from foes based on their willingness to accept the digital tokens.
The Fed could pivot from supporting financial markets to funding the physical economy. This would use QE-like mechanisms to provide liquidity for rebuilding infrastructure and military capacity, shocking investors accustomed to broad financial asset support.
The global demand for US financial assets (the Eurodollar system) deindustrialized the US. This weakened the military and manufacturing base that originally underpinned America's global power and the 'rules-based order' the dollar system relies on, creating a self-destructive loop.
Current central banking models are designed for demand management (neo-Keynesianism) and are ineffective against structural supply shocks like the Hormuz crisis. Institutions like the Fed lack the tools and intellectual framework to respond appropriately, like 'a fish understanding a bicycle'.
While moderately high oil prices are inflationary, extreme prices ($500/bbl) become massively deflationary by destroying demand across the entire economy. This paradox complicates the central bank response, as an initial inflationary shock could morph into a severe recessionary impulse.
The US is moving beyond traditional economic policies like inflation targeting. It's now using energy, swap lines, stablecoins, and supply chains as tools of national strategy to achieve geopolitical goals, marking a fundamental policy paradigm shift.
'Losing' in Iran means a strategic retreat due to casualty aversion, not military defeat. This would show the limits of US power, shattering its global image and emboldening adversaries. It would be a '1956 Suez Crisis' moment for The United States.
Despite being Iran's ally, China is highly vulnerable to a prolonged Hormuz crisis. If the economic damage becomes severe enough, China may be forced into an ironic alliance with the US to resolve the conflict, prioritizing its own stability over its geopolitical partnership with Iran.
The Federal Reserve under Kevin Warsh is expected to pivot from its independent, inflation-targeting mandate. It will likely become an integral part of US economic statecraft, aligning its policies with national security and strategic industrial goals, a significant change from past regimes.
China has cut crude imports by 50% without a visible inventory drawdown or economic slowdown. This suggests it's drawing from massive, unobservable strategic reserves, possibly underground, making it a powerful, silent player in balancing the global oil market during the Hormuz crisis.
The oil market's muted reaction to the Hormuz crisis isn't because the supply shock is small, but because presidential tweets have scared speculators out of the market. Once physical buffers are exhausted, this jawboning will fail, leading to an unstoppable price surge.