Middle East tensions affect oil flows, putting pressure on global assets

Huo Xing Finance reports: On July 22, tensions in the Middle East intensified further. Trump stated he has “no interest in meeting” with Iran and threatened to launch a fierce strike on the Kuh-e-Mohammad region, allegedly housing underground nuclear facilities. Iran retaliated, warning that if its nuclear facilities are attacked, all U.S. and allied interests in the region will become targets. Although Pakistan continues to play a mediating role, the U.S. signal demanding Iran “pay a price” indicates that military pressure will remain high in the short term. What is truly noteworthy is the data on energy transportation. Commercial traffic through the Strait of Hormuz has dropped to approximately 15% of pre-war levels, with many international shipowners withdrawing. Two oil tankers carrying Saudi crude even turned back in the Red Sea and rerouted via the Suez Canal. The Red Sea route, previously considered an alternative, has also become uncertain due to threats from Houthi militants to block passage. Meanwhile, Kazakhstan has announced a suspension of oil exports through the Black Sea, signaling that global energy supply risks have evolved from a “single strait issue” into a “dual-route pressure” scenario. This supply shock is reshaping the Federal Reserve’s policy backdrop. Recent ADP data shows weakening momentum in U.S. private-sector hiring, yet market expectations for rate hikes this fall have not faded—because rising oil prices could reignite inflation. In other words, the Fed faces a combination of “slowing employment and rising energy inflation,” not merely general economic cooling. This explains why U.S. $8 trillion money market funds continue to shorten duration and increase allocations to overnight and floating-rate assets—large investors are willing to sacrifice some yield to preserve pricing flexibility. Foreign exchange markets also reflect rising funding costs. The USD/JPY pair surged past 163, hitting its highest level since 1986. Even after the Japanese government intervened with over ¥11 trillion, it struggled to counter the triple pressures of rising oil prices, higher U.S. Treasury yields, and carry trades. The market now views 165 as the next key level, with some institutions forecasting a potential challenge to 170 within the next year. On trade policy, the Trump administration is laying groundwork for new measures following the expiration of a 10% temporary tariff, potentially implementing new tariffs on dozens of countries as early as this week. It has also announced that generic pharmaceuticals failing to relocate production capacity back to the U.S. within two years will face a 100% tariff in 2028, rising to 200% in 2029. This “deadline-first, stepwise tariff-increase” design essentially forces global supply chains to restructure prematurely—India’s generic drug industry will be hit first. New cost signals are emerging in the tech supply chain. TSMC is reportedly set to raise wafer fabrication prices by up to 10% starting in 2027; OpenAI has acknowledged a breach at Hugging Face, indicating rising security costs for AI models and open-source ecosystems. The AI industry is no longer merely a race for computational power—it has entered an era defined by integrated costs: wafers, electricity, cybersecurity, and supply chain resilience. I believe the most critical observation point now is not whether oil prices will briefly break $100, but how long the low-flow conditions in the Strait of Hormuz and the Red Sea will persist. If these low-traffic states continue for several weeks, global inventory buffers will be rapidly depleted, further reinforcing the Fed’s hawkish pricing and extending the period during which the dollar and short-term rates remain elevated. In this environment, correlations among assets will rise, and liquidity and cash management will become significantly more important than chasing high-volatility narratives.