Iran Adopts a Harder Military Stance as Risks to Crude Oil Supplies Continue to Rise

Daily News

Summary:

Iran warns that the conflict could escalate if its conditions are not met; Iranian officials reiterate that the Strait of Hormuz remains closed...

【Highlights】

1. Iran warns of possible escalation if its conditions are not met

2. U.S. Defense Secretary says the U.S. can maintain a naval blockade of Iran indefinitely

3. Iranian officials reiterate that the Strait of Hormuz remains closed

4. Federal Reserve to suspend Treasury bill purchases for reserve management purposes over the next month

5. U.S. July PPI unexpectedly remains unchanged, further reducing market bets on a September Fed rate hike

6. Houthi drones strike a Saudi oil refinery

7. Hammack: The Fed must raise interest rates now

【Details】

Iran Warns of Possible Escalation if Its Conditions Are Not Met

Mohsen Mokhber, an adviser to Iran’s Supreme Leader, said in a social media post on August 13 that if Iran’s demands are not met, the Supreme Leader has made a clear strategic decision to respond by escalating the conflict. Mokhber said the current situation has demonstrated that the United States lacks the ability to protect its allies in the Persian Gulf. He also said the most sustainable way to establish a new regional order is to promote the implementation of a Hormuz Economic Security Mechanism, reducing reliance on U.S. military protection.

U.S. Defense Secretary Says Naval Blockade of Iran Could Be Maintained Indefinitely

U.S. Defense Secretary Pete Hegseth said on August 13 that the U.S. military has sufficient forces to maintain a naval blockade of Iran indefinitely. According to U.S. media reports, Hegseth made the remarks to reporters in Panama after addressing personnel aboard a U.S. warship. He said the U.S. Navy is fully capable of sustaining the blockade indefinitely because it can continue rotating naval vessels as it has done in the past.

Iranian Official Reiterates That the Strait of Hormuz Remains Closed

On the evening of August 13 local time, Brigadier General Ali Azmaei, Commander of the IRGC Navy, said that the Strait of Hormuz is currently closed. He said Iran maintains comprehensive and firm control over developments in the strait, and that no activity will take place beyond the monitoring and control of the Islamic Revolutionary Guard Corps Navy.

Fed to Suspend Treasury Bill Purchases for Reserve Management Purposes Over the Next Month

The Federal Reserve said Thursday that it would not purchase U.S. Treasury bills for reserve management purposes over the coming period, indicating that policymakers believe bank reserves in the financial system are currently at an appropriate level. According to the Federal Reserve Bank of New York’s website, the New York Fed’s Open Market Trading Desk does not plan to conduct reserve management purchases (RMPs) during the monthly operating period through September 14, although it still plans to reinvest approximately $17 billion during the period.

The pause suggests that, despite the possibility that rising government cash balances could drain liquidity from the market, monetary authorities remain confident that funding markets can continue to operate smoothly. Market conditions have also supported this assessment. The Secured Overnight Financing Rate (SOFR) remained below the Interest on Reserve Balances (IORB) rate for most of July. As of August 12, the SOFR fixing stood at 3.62%, three basis points below the IORB rate. The adjustment does not signal a change in monetary policy or the Fed’s balance-sheet strategy.

U.S. July PPI Unexpectedly Flat, Further Reducing Market Bets on a September Fed Rate Hike

U.S. producer prices were unchanged in July as lower goods prices offset only modest increases in service prices, strengthening expectations in financial markets that the Federal Reserve will leave interest rates unchanged next month. The Producer Price Index (PPI) for final demand was unchanged month-on-month in July, following a revised 0.1% decline in June. The PPI rose 4.7% year-on-year in July, down from a 5.5% increase in June.

Because most PPI data are collected early in the month, the sharp rise in oil prices toward the end of July may not yet be reflected in the latest figures. Economists therefore expect PPI to rise in August, while some still believe the possibility of another rate hike later this year has not been completely ruled out.

The U.S. Department of Labor reported that initial claims for unemployment benefits totaled 209,000 in the week ended August 8, an increase of 9,000 from the previous week and above the market expectation of 202,000. The previous reading was revised to 200,000. The four-week moving average of initial jobless claims was 199,000 last week, unchanged from the previous week. Continuing claims totaled 1.777 million in the week ended August 1, down 22,000 from the previous week and below the market expectation of 1.794 million.

Houthi Drones Strike Saudi Oil Refinery

Yemen’s Houthi movement said Thursday that it had used drones to attack a Saudi Aramco refinery in the Jizan region of southwestern Saudi Arabia. According to the Houthi-controlled Saba News Agency, two drones were used in the attack, which it described as highly precise.

The Houthis said the strike was the latest in a series of attacks targeting the Saudi refinery, which has remained closed since late July. They said the attacks were intended to retaliate against Saudi Arabia for what they described as violations of Yemen’s airspace and sovereignty in Saada and Hajjah, adding that they would continue to respond to any actions violating Yemen’s sovereignty. On the previous Sunday, the Houthis also said they had carried out a precision drone strike against the Saudi Aramco refinery in Jizan.

Hammack: The Fed Must Raise Rates Now

Cleveland Fed President Beth Hammack said Thursday that the Federal Reserve must raise interest rates now because current monetary policy is not sufficiently restrictive and inflation has been rising amid recent shocks. She warned that excessively rapid economic growth could put additional pressure on prices.

Hammack acknowledged that higher interest rates could cause economic pain, but said the Fed cannot allow economic growth and investment to accelerate so rapidly that the economy overheats. She emphasized that current inflation is broad-based rather than concentrated in just a few sectors. She added that it is crucial for the Federal Reserve to remain accountable for inflation data.

【Today’s Key Events】

20:30 (UTC+8) U.S. July Retail Sales MoM

22:00 (UTC+8) U.S. August Preliminary One-Year Inflation Expectations

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