The War Continues
The US-Israeli military campaign against Iran entered its second week with no signs of de-escalation. Defense Secretary Hegseth declared the US is "winning decisively" on Wednesday, even as Iranian missile and drone strikes continued across the Gulf region. A US submarine sank an Iranian warship off Sri Lanka — the first such attack since World War II.
The Strait of Hormuz is now effectively closed. An IRGC commander declared it shut on Monday, warning any vessel attempting passage would be "set ablaze." Major insurers pulled war risk coverage. VLCC (supertanker) freight rates hit an all-time record — $423,736 per day, up 94% from the previous Friday.
This isn't a risk premium anymore. It's an actual supply crisis.
The Oil Shock Is Real
Kuwait announced it's cutting production because it can't export through the Strait. Iraq has already cut 1.5 million barrels per day. JPMorgan warned that if the strait remains closed for three weeks, Gulf producers will exhaust storage capacity and be forced to shut down production entirely — potentially removing 4 million+ barrels per day from markets.
Goldman Sachs estimates $14 per barrel in risk premium is already embedded in prices. If disruptions persist for two months, European natural gas could exceed €100/MWh.
President Trump announced the US Navy will escort tankers through the strait and that the Development Finance Corporation will provide political risk insurance. Whether this restores commercial shipping confidence remains to be seen.
Jobs Report Adds to Concerns
Friday's employment report was worse than anyone expected:
• Nonfarm payrolls: -92,000 (vs. +59,000 expected)
• Unemployment: 4.4% (up from 4.3%)
• December revised down: from +48,000 to -17,000
The three-month average for job creation now stands at less than 6,000 per month. The labor market has essentially stalled.
The combination of oil shock + weak jobs creates a classic stagflationary setup. The Fed cannot cut (inflation risk from energy) but may need to cut (growth risk from weak employment). Fed Governor Waller suggested a weak jobs report could change the calculus at the March meeting.
Tariffs Back to 15%
Treasury Secretary Bessent confirmed the 15% global tariff would be implemented this week, up from the 10% rate imposed after the Supreme Court struck down Trump's IEEPA tariffs. The new tariffs are limited to 150 days under Section 122, during which USTR and Commerce will complete studies to rebuild the tariff framework under more robust legal authorities.
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