WS #2139

The Strait of Hormuz crisis remains the dominant market signal, with escalating geopolitical tensions driving immediate financial implications. Trump's public criticism of NATO allies as 'cowards' for not helping secure the strait, corroborated by BBC and Guardian reports, signals deteriorating transatlantic relations and potential strain on military coalitions. Concurrently, reports indicate the U.S. is preparing to deploy thousands of additional troops to the Middle East, specifically targeting the Persian Gulf region, which heightens risks of broader military conflict and sustained energy supply disruptions. New developments include drone attacks causing a fire at Kuwait's largest oil refinery for the second consecutive day, directly impacting regional energy infrastructure. Additionally, the French Navy, with UK support, seized a Russian 'shadow fleet' tanker in the strait, indicating European escalation of sanctions enforcement that could further complicate global oil logistics. These events, combined with Iran's continued monetization of the blockade through $2 million payments from shipping firms for safe passage, sustain upward pressure on energy prices and supply chain fears. The crisis is reviving monetary policy concerns, with U.S. 2-year yields posting their biggest daily move since April 2025 and Polymarket pricing a 21% chance of a Fed hike. This reflects shifting expectations toward tighter policy amid inflationary pressures from energy disruptions. While Putin's offer to halt intelligence sharing with Iran if the U.S. cuts Ukraine support introduces a potential de-escalation lever, the U.S. rejection maintains current tension levels, limiting any immediate bullish impact on energy markets.