We are in a highly dynamic period, where change often turns the page to the next chapter. To navigate from here to there, we must assess what we are learning from recent events.
Here are my key takeaways at the moment—most of which point to a materially higher-conviction view that we will see escalating military conflict:
1. The MOU Is Dead
The Islamabad Memorandum of Understanding (signed mid-June 2026) was always aspirational for reasons previously covered in this publication. Iranian strikes on commercial vessels by the IRGC were unhelpful, but actively returning fire against U.S. warships (and recent attacks on multiple merchant ships) represents a significant escalation. The MOU will struggle to regain momentum for multiple reasons, some of which are outlined below.
2. Iran Controls the Strait—for Now
In the current environment, Iran effectively controls the Strait of Hormuz. Shipping slowed dramatically after attacks, with recent strikes on vessels (including a Qatari LNG carrier and Saudi tanker) using the southern “Oman” route. This suggests many operators remain unwilling to engage with Iran—while those attempting alternative paths face punishment. Iranian officials have described the negotiators’ handling of the Strait as a mistake; it remains their greatest leverage, and they know it. It seems highly unlikely Iran will relinquish control willingly, regardless of their public statements.
3. The U.S. Did Not Legitimize the PGSA
Washington skillfully avoided a trap by refusing to legitimize the Iranian Persian Gulf Strait Authority. Had U.S.-linked entities directed ships to “coordinate with Iran,” it would have been an immediate concession on point #2. As long as Iran maintained its stance, no meaningful change was possible absent military force.
4. The Strait Is “Empty”
We have seen many tankers exit the Strait over the past week, including a notable Japan-linked fleet. The backlog has reportedly fallen toward or below 500 ships, down from thousands earlier in the crisis. In an offhand comment, President Trump mentioned getting “the oil out” and then “seeing where we are,” framing it in part as an opportunity to refill the SPR. While the volumes involved are nowhere near enough to refill the Strategic Petroleum Reserve, it provides a modest cushion. With the backlog clearing and some supply pushed out, the cost of fully clearing the Strait has decreased slightly.
5. NATO
There has been a notable uptick in NATO-related airlift and surveillance activity over the Middle East, including German, UK, and Spanish-flagged aircraft—something not seen for most of the conflict. Coincidentally, the NATO summit is underway as tensions in the Strait escalate. Iran is motivated for revenge following the recent funerals, while Europe urgently needs stabilized energy flows. Iran has also directly threatened Germany for its role in the conflict. Further escalation could reasonably draw greater NATO involvement.
6. Iran Is Motivated
Iran appears highly motivated for revenge right now. The public has called for targeting President Trump and has harshly criticized Iranian negotiators as cowards. Authorities prepared for (and reported) millions attending the funerals for the late Supreme Leader— with estimates ranging from hundreds of thousands to over 10 million in Tehran alone, part of multi-day ceremonies. The IRGC holds significant support among the populace, and that sentiment favors confrontation. This materially reduces concerns about Iranian internal concerns around further escalation.
7. The U.S. Gains Control When Fighting
The U.S. military seizes control once engaged. A motivated U.S. force is exceptionally destructive and shifts the dynamics away from Iran’s historical preference for prolonged talks paired with low-level provocations. This meaningfully strengthens the U.S. position.
8. Play for Keeps…?
Given Iran’s current posture of vengeance, “punishment-level” U.S. strikes are unlikely to go unanswered. The core issue is that fighting over the Strait stems from the inability to negotiate a solution—the shooting is unlikely to pause simply to restart talks on the very issue that defied agreement. Finding a viable off-ramp could be more challenging.
9. Broadening Comes with Escalation
Iran has recently praised its proxies for their loyalty and hard work, invoking the “axis of resistance” that could engulf the Middle East in a “ring of fire.” In practice, this suggests Iranian proxies will broaden attacks across the region if fighting persists. That would likely draw additional nations directly into the conflict, with energy and critical infrastructure as prime targets. This would worsen the economic fallout and raise the overall cost of engagement. Iran is signaling willingness to pursue this path.
10. It Is Becoming Existential
The conflict is becoming existential for multiple parties—and could become so for many more depending on its duration. Iran’s actions are impacting global energy flows. GCC nations can credibly foresee a future where Iran dominates their economies. Europe and Asia require reliable energy. Strait closure strikes at several existential nerves in the near-to-intermediate term. For the IRGC, this fight is also existential. This environment makes negotiation extremely difficult and dramatically raises the odds of all-out war.
Many conditions are aligning for this to evolve into something materially larger and more consequential.
More to come.
Disclaimer: This note is provided for informational purposes only and does not constitute investment, financial, or legal advice. The information contained herein is based on current market observations and analysis, which are subject to change without notice. All investments involve risk, including the loss of principal. We do not provide personalized recommendations, and readers should conduct their own due diligence or consult with a qualified professional before making any investment decisions.