Today’s update regarding the conflict in Iran is being published earlier than usual due to a brief illness that I experienced earlier. I am back to normal now, but I encourage you to revisit this page around 8:00 AM EDT for a finalized version.
Currently, the front in the Iran conflict appears calm, especially with the ongoing Trump-Xi summit capturing widespread attention in the media. It’s essential to note that we won’t validate President Trump’s assertion that Xi Jinping essentially offered an open-ended commitment supporting the U.S. efforts to secure the Strait of Hormuz:
BREAKING: China has explicitly informed the US that it recognizes Iran’s “exercise of sovereignty” over the Strait of Hormuz, contradicting the White House readout of the Trump-Xi summit that claimed Xi opposed Iranian “militarization” of the Strait and any “toll” for its use,…
— The Hormuz Letter (@HormuzLetter) May 15, 2026
I haven’t seen other reports echoing this information, but it aligns with the context. High-ranking Chinese officials held discussions with Iranian Foreign Minister Abbas Araghchi right before the Trump-Xi meeting. China had already been supplying military and intelligence assistance, primarily for defensive purposes. Thus, it makes sense for China to continue supporting Iran, which has been effectively undermining U.S. interests.
However, significant economic shifts are occurring, which could lead to major disruptions or new opportunities. From a global power perspective, these changes might inadvertently favor the U.S., which has maintained aggressive tactics against China.
Trump finds himself in a deteriorating situation. The optimal strategy for him would be to accept defeat and withdraw. Historically, though, when faced with unfavorable options, Trump tends to adopt a combative approach, hoping to intimidate his opponents and create new opportunities. However, such tactics, especially concerning Iran, are likely to backfire and take time to execute. Delays in action only serve to benefit Iran while worsening Trump’s position. The economic consequences of restricted access to the Strait of Hormuz will inflict significant damage on the global economy far more swiftly than new sanctions on Iran could.
Supporting this view, Chas Freeman, a former U.S. ambassador to Saudi Arabia, recently indicated in a conversation with Pascal Lottaz that there are signs of Gulf States, excluding the UAE, exploring a modus vivendi with Iran:
We previously suggested that one pathway to concluding this conflict sooner rather than later would involve some Gulf States reaching an understanding with Iran to allow shipping through the Strait of Hormuz. This would necessitate adopting a neutral stance and ceasing U.S. support.
Notably, Freeman has contended that an arrangement between the Gulf States and Iran is vital. It is well-known that these countries have faced repercussions from Iran’s retaliatory actions. For further insight, The Conversation provides an analysis titled How severe has the economic impact of the Iran war been for the Gulf states?, highlighting key points:
Since the war began in February, the World Bank has downgraded its 2026 GDP growth forecast for the region from 4.4% to just 1.3%. Some think tanks, including Oxford Economics, even predict that some GCC economies will enter recession in the latter half of the year.
However, the effects of the war have varied across the region…
Countries like Qatar and Kuwait have experienced significant disruptions to their oil and gas exports due to the near-closure of the Strait of Hormuz. In contrast, Saudi Arabia and the UAE, which have access to alternative infrastructure, have been somewhat able to navigate this limitation.
Disruptions to energy exports are just part of the narrative. The war has also inflicted severe physical damage to energy infrastructure throughout the region…
Repairing this damage, which is estimated to reach US$58 billion, will take months or even years post-conflict…
The GCC states have constructed strategies to reduce their economies’ reliance on hydrocarbons, with tourism and aviation as two central components…
Unfortunately, these sectors have also suffered due to the conflict. A financial analysis firm, Moody’s, recently projected that hotel occupancy in Dubai could drop to 10% in the second quarter of 2026, down from 80% pre-war…
The Iran war has also imposed increasing financial strain on Gulf airlines such as Emirates, Etihad, and Qatar Airways. Over 30,000 flights to the Middle East were canceled within the first month of the conflict, and jet fuel prices—a significant operational expense for airlines—have soared by 90% compared to the annual average.
The logistics sector is also crucial for Gulf diversification. It has seen rapid growth since the early 2000s, thanks to the region’s strategic location along vital trade routes. For instance, the UAE’s Jebel Ali Port is now one of the world’s largest container ports and serves as the headquarters for Dubai-based logistics company, DP World.
Yet, Jebel Ali has witnessed a 40% decline in vessel traffic due to the ongoing conflict, resulting in container ships rerouting to alternative ports like Salalah in Oman and Colombo in Sri Lanka. Although DP World has opened emergency land corridors to ports outside the Gulf to facilitate cargo movement, these routes are costly and have limited capacity.
Both the UAE and Qatar serve as critical air freight hubs, linking cargo between Asia and Europe. However, the war has negatively impacted this aspect as well. Freight rates have surged due to assaults on Dubai and Doha, forcing grounded flights and airspace closures.
Operationally speaking, the rising temperatures typical of this season, coupled with high humidity levels, are likely to complicate any ground operations significantly.
Perhaps on Sunday, we will witness the much-anticipated extensive U.S.-Israeli air strike campaign, likely accompanied by a notable Special Forces operation, as indicated by sources associated with NO1:
Iran diplomacy dead — second U.S. military operation imminent. Trump dismissed Iran’s proposal “after reading the first sentence.” Operation Epic Fury has been declared over, with the next phase focused on reopening Hormuz. Reports indicate a buildup of U.S. military forces, including B-2s and F-35s, in preparation. Iran is reportedly ready and has positioned forces such as the Houthis on standby.
Nonetheless, given that Saudi Arabia, Kuwait, and Qatar have blocked Trump’s “Project Freedumb” by denying access to their airspace, it stands to reason that they would obstruct any substantial U.S. bombing campaigns against Iran. Can the U.S. execute these attacks at the necessary scale if most Gulf nations refuse to permit access to their airspace and the remainder of their bases? These countries have ample reasons to avoid escalating matters, especially since Iran has threatened to destroy their energy production if attacked.
Additionally, U.S. military leaders remain acutely aware of the significant risks and limited advantages associated with a renewed offensive against Iran. If key Gulf States are unwilling to allow the U.S. to use their resources for a futile demonstration of force—potentially devastating their communities through the destruction of desalination facilities—it complicates U.S. strategies considerably. It is conceivable that officers opposed to escalation are taking longer to navigate revisions and approvals, effectively delaying actions while allowing economic and political forces undermining Trump to gain momentum.
A significant source of economic pressure, not only in the U.S. but globally, stems from rising interest rates as investors come to terms with the likelihood of persistent inflation. Generally, when bond prices fall, stock markets should similarly decline, as elevated interest rates impede business activities and diminish the valuation of riskier assets like stocks due to the need for cash flows to be discounted more severely.
This Bloomberg segment offers a rather pessimistic outlook for stocks and bonds:
Countries that anticipated benefiting from China’s indications of an easing on refined-product export bans have yet to see an increase in product availability. An article from the Financial Times notes ongoing ambiguity regarding China’s official stance on this matter: China’s fuel exports fail to rebound after Beijing signals easing of ban:
Data suggests shipments of refined fuels are not picking up in blow to Asian economies starved of supplies by Iran war
Chinese exports of jet fuel, gasoline, and diesel remain significantly lower than pre-war levels, even as Beijing has indicated a potential relaxation of the export ban. This disappoints Asian nations desperate for resources to alleviate shortages caused by the conflict…
China exported only 417,000 barrels per day of refined products in the first two weeks of this month, much less than the typical levels seen before the war. In contrast, January and February figures stood at approximately 750,000 barrels per day.
While rising inventories might encourage China to increase exports, some state-owned oil companies have reported ongoing shortages of export permits, which the government strictly controls.
Though oil companies might prefer to sell refined products to the highest bidders, the government prioritizes safeguarding the country’s energy security, according to Michal Meidan, head of China energy research at the Oxford Institute for Energy Studies.
Turning to China, Jeff Snider’s recent talk is quite insightful, if one can overlook his inaccurate interpretation of the Xi-Trump summit. A general observation regarding Snider is that while he effectively organizes data, some conclusions are misguided.
In this discussion, his analysis reveals a persistent weakness in China’s internal demand, suggesting that traditional remedies for addressing this issue may no longer be effective. Consequently, China’s best alternative appears to be reliant on foreign demand, especially for exports, which do not seem promising given the deteriorating state of the global economy, particularly in its major markets in Southeast Asia and Europe:
As for supply shortages, Autoblog reports that Toyota is About to Run Out of Motor Oil:
It’s well-documented that the Iranian conflict has strained the global oil supply. Fuel prices have surged, and now it appears a shortage of motor oil may be imminent, according to a bulletin from Toyota issued to North American service managers.
Moreover:
Nissan joins Toyota in warning of looming motor oil shortage
Nissan confirmed the authenticity of a draft bulletin warning U.S. dealers about a 45% year-over-year cut in motor oil supply, https://t.co/a1xo8PHNLA
— 🔻Rio Slade 🔻 (@RioSlade) May 15, 2026
There are also indications of retailers experiencing motor oil shortages, as observed in this anecdote:
I went to Walmart to investigate the oil shortage; here’s what I found:
1. Walmart hasn’t ended their discounts on oil, as much of it is still on rollback/clearance, including Shell Rotella.
2. Employees mentioned delays on… https://t.co/6uep11xuAe pic.twitter.com/2s0PPEYebe
— George Roush (@GeorgeRoush) May 13, 2026
We previously cautioned that El Niño would exacerbate food shortages. This presentation highlights how it could lead to significant harm, independent of fuel and fertilizer shortages:
On the latest @theallinpod, @friedberg discusses a potential food shortage arising from “El Niño.”
This could lead to spikes in commodity prices as crop yields decline, resulting in a global calorie deficit and economic downturns. pic.twitter.com/S7IRYZRSzf
— Finn (@finnjclancy) May 16, 2026
Futures markets are predicting significant increases in potato prices. According to RT (credit to Kevin W):
Potatoes have emerged as the latest casualty as futures prices have surged in recent weeks amid escalating warnings regarding food security and supply chain disruptions.
Financial contracts linked to potatoes have skyrocketed over 700% in the past month, with an increase of over 34% year-on-year by mid-May, according to Trading Economics data.
We have noted that Iran has taken considerable time to establish a system for processing vessels in the Strait of Hormuz, and it is yet to finalize its approach. According to Al Jazeera:
Exclusive: Iran plans to charge fees for Strait of Hormuz passage under new system, lawmaker says
Iran has developed a mechanism to manage traffic through the Strait of Hormuz, which will be announced shortly. A senior Iranian lawmaker, Ebrahim Azizi, who heads parliament’s national security and foreign policy committee, stated that only commercial vessels and countries cooperating with Tehran would be eligible for this arrangement. He also indicated that Iran would impose fees for specialized services provided under this new system.
Axios recently reported on an issue we emphasized at the outset of the war: rising financial pressures on farmers could lead some to go out of business, further reducing food supplies. From Farmers growing desperate amid rising energy and fertilizer prices:
Farmers across the Midwest are entering the planting season under increasing financial strain due to the Iranian conflict, which has driven up diesel and fertilizer costs—creating an agricultural downturn some describe as the worst since the 1980s.
Why it matters: Rising fuel and fertilizer expenses are likely to push more family farms out of business, inflate food prices further, and intensify the strain on rural economies already battered by trade disruptions, inflation, and extreme weather.
Returning to updates from the Middle East:
The portrayal of operational downtimes in tanker-loading at certain Kargh Island slots as a significant development appears overstated:
Earlier this morning, Windward posted satellite imagery revealing a vessel loading oil at Kharg Island. This is significant, as it demonstrates that Iran maintains the ability to load oil, extending the timeline until they deplete their remaining storage options.
— Brett Erickson (@BrettErickson28) May 14, 2026
The purported ceasefire between Lebanon and Israel is expected to persist:
⚡️ 🌟Journalist Khalil Nasrallah:
The ceasefire extension in Lebanon lasts for 45 days. A fourth round has been scheduled, and a “security” track has commenced with the military presence of both Lebanese and Israeli forces at the Pentagon. The announcements from the U.S. State Department confirm this…— Middle East Observer (@ME_Observer_) May 15, 2026
That’s all for now; see you tomorrow!
