#USIranWarCloudsGather

US and Iran at odds with full on direct military conflict – Trump calls ceasefire dead and Iran threatens complete Hormuz shutdown

Let me give you community the whole honest picture because July 7-10 represented the most serious escalation of geopolitics since any of our current traders remember and the market absolutely needs full macro impact clarity here.

The chain that shattered the June 17 ceasefire in less than 3 weeks occurred extremely quickly. 3 commercial vessels struck off the Strait of Hormuz (7/7). US strikes against over 80 targets in Iran (7/8). Iranian forces strike 85 US targets in Bahrain & Kuwait (7/8). Trump: memorandum of understanding is “dead” and future talks are a “waste of time” (7/9). US second, larger wave of strikes (7/9). Iran threatens to close the Strait of Hormuz, an artery that accounts for nearly 20% of global oil supply. Tankers are avoiding it at record rates.

Oil soared over 6% on the news. Gold and silver simultaneously fell-an extremely rare event that suggests an even rarer market phenomenon. The typical playbook of geopolitical risk drives safe haven demand higher. The selloff in metals instead suggests institutional investors are liquidating their favorite assets to cover margin calls elsewhere in their portfolios, the textbook signature of a cascading risk-off liquidation event as opposed to clean geopolitical trade.

Here’s the macro transmission chain for everyone: BTC from 57.9k to 64k has been driven by three primary pillars of recovery – weak NFP decreasing rate hike probability, oil below 70bbl improving PCE dynamics and the DXY collapsing 40 points. Iran’s revocation of oil waivers and disruption of the Strait of Hormuz attacks the second pillar – if oil price cannot break below 70 (as we are about to see if it does by July 25th’s CPI report) and the current trend reverse, the positive June inflation print is neutralized. If the narrative flips to re-acceleration from July’s data, rate hike probability moves up from the 17% we are currently pricing and the summer headwind returns.

The good news here is that at least at the time of this writing Trump announced Iran has contacted us for a deal. Back channel communications indicate that despite escalating conflict, diplomatic resolution is still possible. This isn’t a “breakdown in communications and escalating conflict” – this is what Iran specialists refer to as “limited strikes and indirect negotiations.” Both parties still maintain communication channels with each other even while engaged in military action.

BTC is holding resilient at 63.2k, up 1.5% on the day despite ongoing hostilities. We attribute this to multiple factors that counteracted negative pressures – SKHY (the largest foreign IPO on Nasdaq to date) listing is providing risk appetite stimulus, back channel negotiations offers diplomatic hope, whale accumulation between 59k and 62k last week was substantial, and the return of the CLARITY Act in the Senate on July 13th provides a catalyst for upside.

July 17th, the date in which Iran's waiver on its oil shipments formally expire, remains the key date. If we can get to July 17th with a stabilized oil price and the Strait of Hormuz functioning, the combined impact of Iran's waived oil production rejoining the global supply and the functioning of the Strait is manageable. If however oil prices remain elevated, and the Strait remains disrupted then the risk of a major H226 oil supply shock is significant and will undoubtedly impact July's CPI release and potentially July 25th.

We are caught in a rock and hard place where one party has to blink. Currently, the market is pricing in gradual de-escalation and indirect negotiations. Only time will tell if the indirect communication channel is sincere enough to de-escalate hostilities, or if both parties have become too entrenched in the current conflict for quick resolution before the July 17th deadline.

With Trump declaring the ceasefire dead, Iran threatening complete Hormuz closure and July 17 oil waiver expiry approaching - do you think the indirect diplomatic contact is genuine enough to prevent a sustained supply shock, or has the conflict escalated beyond the point where quick resolution is realistic before the July 17 deadline?

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