US-Iran Economic War Escalates as Oil Transit Through the Strait of Hormuz Resumes

Daily News

Summary:

Trump announces the toughest economic sanctions ever imposed on Iran; the United States launches an operation to facilitate oil shipments through the Strait of Hormuz...

【Highlights】

1. Trump announces the toughest economic sanctions ever imposed on Iran and warns other countries against providing any support.

2. The US Treasury Department significantly expands its long-term Treasury buyback program, signaling a stabilizing policy stance and easing supply pressures.

3. The United States launches an operation to facilitate oil shipments through the Strait of Hormuz.

4. Fed minutes: July meeting sends a hawkish signal.

5. The United States plans to halve tariffs on Canadian steel and aluminum.

6. Iran may shift its strategy from defense to offense.

7. US federal government debt surpasses $40 trillion for the first time.

【Details】

Trump Announces the Toughest Economic Sanctions Ever Imposed on Iran, Warns Other Countries Against Providing Support

US President Donald Trump announced on social media that the United States would impose the most devastating economic sanctions ever levied against any country on Iran. He said that although the United States had given Iran the best opportunity to negotiate, Tehran had failed to seize it. As a result, the US would launch an unprecedented economic war and isolation campaign against Iran.

Trump said in his statement that Iran’s navy had been wiped out, its air force had been destroyed, its military-industrial facilities had been reduced to ruins, its currency was worthless, and its economy was on the verge of collapse. He also warned that any country that allowed its financial institutions, businesses, airports, or government agencies to provide any form of support to Iran would itself face severe economic consequences.

Trump explicitly demanded that all activities supporting Iran—including oil smuggling, currency swaps, cash transfers, vessel registration, and the use of shell companies—cease immediately. He described the campaign as an economic equivalent of D-Day and called on all US allies to stand with Washington in isolating and defeating the threat posed by Iran.

US Treasury Significantly Expands Long-Term Treasury Buybacks, Signaling Support for Market Stability

The US Treasury Department announced that it would at least double the size of its liquidity-support buyback operations for long-term nominal coupon securities. The program covers two maturity ranges: 10 to 20 years and 20 to 30 years. The maximum size of each operation will increase from $2 billion to at least $4 billion. The changes will take effect on September 9 and remain in place through the end of the current refunding quarter.

The expansion reflects the Treasury Department’s growing concern over liquidity in the long-end Treasury market. A surge in corporate bond issuance, combined with the expansion of the federal budget deficit, has continued to increase the supply pressure on long-term Treasuries, pushing up term premiums. By increasing buybacks, the Treasury is signaling its concern about stabilizing long-term Treasury yields.

The timing is notable, as markets remain divided over the monetary policy stance of the incoming Federal Reserve chair, while long-term Treasury yields have climbed to multi-year highs in recent months. Although the Treasury’s increased buybacks do not directly amount to an intervention in yields, they can help smooth supply-demand imbalances in the secondary market and provide dealers with greater liquidity outlets.

The next key focus will be whether the November refunding announcement introduces a longer-term framework for the buyback program. If the scale of buybacks is expanded further or the maturity range is extended, it could have a more significant impact on long-term interest-rate pricing. For now, the program remains positioned as a liquidity-support tool rather than a return to quantitative easing.

US Launches Operation to Facilitate Oil Shipments Through the Strait of Hormuz

Two US officials told Axios that the US military has quietly established a shipping corridor through the Strait of Hormuz, allowing millions of barrels of oil to transit the strait each day. Although the broader conflict remains deadlocked, the operation has achieved significant results.

The operation has been underway for several weeks, with 1,520 oil tankers reportedly traveling through the southern shipping route along the Omani coast. Officials said approximately 10 million barrels of oil are being transported through the strait each day into global energy markets, roughly half of the pre-war volume.

The officials said the operation was made possible by a two-week military campaign recently conducted by US Central Command, which weakened Iran’s radar and maritime surveillance systems.

Fed Minutes: July Meeting Sends a Hawkish Signal

Minutes from the Federal Reserve’s July meeting showed that most Fed officials supported keeping interest rates unchanged, although several officials favored a 25-basis-point rate hike. Many participants said that further rate hikes could be necessary if inflation failed to continue declining. Some officials argued that raising rates immediately could help avoid the need for larger rate increases later.

Some Fed officials believed that the current degree of financial tightening was insufficient to bring inflation back to the 2% target. Several policymakers noted that price increases for goods and services had become increasingly broad-based. The inflation outlook was largely unchanged from June, while the assessment of the economic outlook was somewhat weaker.

Nearly all participants supported maintaining the Federal Open Market Committee’s commitment to price stability. Fed officials noted that strong economic growth, combined with market expectations for further monetary tightening, had already tightened financial conditions.

The Fed also discussed reducing the number of annual policy meetings to six to allow more time to accumulate economic data, but no decision was made.

US Plans to Halve Tariffs on Canadian Steel and Aluminum

People familiar with the matter said a preliminary US-Canada trade agreement would reduce tariffs on certain Canadian steel and aluminum exports to 25%. The details have not yet been finalized, and the reduction is not expected to apply uniformly across all products. Certain downstream products containing these metals could be subject to different tariff rates.

The United States had been preparing to impose 50% tariffs on billions of dollars worth of Canadian goods, but President Trump delayed implementation to allow more time for negotiations. Less than 24 hours later, US and Canadian trade advisers resumed talks on Wednesday.

The proposed adjustment to metal tariffs could pave the way for a longer-term agreement and help avoid broad-based tariff increases before Friday’s deadline. Trump has previously demanded changes to trade agreements at the last minute and, in some cases, scrapped agreements altogether.

Iran May Shift Its Strategy from Defense to Offense

In an interview video released on August 19, Mohammad Reza Naqdi, an adviser to the commander-in-chief of Iran’s Islamic Revolutionary Guard Corps, said the war had demonstrated that the United States and Israel were much weaker than previously believed.

Naqdi said Iran had previously maintained a defensive strategy, which he argued had allowed its enemies to launch repeated attacks. He suggested that Iran may need to adopt a more offensive strategy to establish a higher level of deterrence against the United States and Israel, force its adversaries to withdraw, and discourage them from launching further attacks.

US Federal Government Debt Surpasses $40 Trillion for the First Time

Data released by the US Treasury Department on Wednesday showed that total federal government debt surpassed $40 trillion for the first time on Tuesday, highlighting the continued rise in federal borrowing and interest costs. Marc Goldwein, senior policy director at the nonpartisan Committee for a Responsible Federal Budget, warned that the federal debt problem is not only about its size, but also about how rapidly it is increasing.

US national debt stood at around $20 trillion in 2017 and has now risen to $40 trillion, meaning it has doubled in less than a decade. The surge in federal debt has been driven by government spending exceeding revenues, forcing Washington to borrow more to cover its fiscal shortfall. Over the past year, the United States added $3 trillion to its debt, marking the fastest increase on record outside the pandemic period.

Although the Trump administration has pledged to reduce government spending, the continued expansion of federal debt is raising serious concerns about the outlook for public finances. The Congressional Budget Office projects that publicly held federal debt as a share of GDP will surpass the post-World War II peak of 106%, recorded in 1946, around 2030 and rise further to 120% by 2036.

【Today’s Key Events】

14:00 (UTC+8) Germany July PPI, MoM

22:00 (UTC+8) US July Conference Board Leading Economic Index, MoM

23:10 (UTC+8) St. Louis Fed President Alberto Musalem Speaks

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