Sunday night the President announced the US–Iran agreement. "Complete," with signing staged for Friday, and a reopening of the Strait of Hormuz.
Markets had a familiar response on yet another peace headline. Oil fell about 5% to the low $80s. Equities ripped, globally.
What are the details of the "deal?" And what does it mean?
The U.S. is reopening the Strait. That means the oil flows, because Washington decides it flows. It's a waterway that now runs at America's discretion.
So, as we discussed last week, a deal doesn't mean withdrawal. It means control.
With that, in my last note, we revisited how this relates to Europe.
And this morning, Von der Leyen (European Commission President) issued her statement on the deal.
She welcomed the agreement, "following sustained diplomatic efforts by several partners."
Keep in mind, the partners consulted in the deal Trump telegraphed last week did not include the European Union.
Then she made a request: "Freedom of navigation must be restored toll-free."
So, Europe wasn't a party to the agreement that governs its own energy lifeline. And it's now petitioning for terms on relief it doesn't control.
With that, as we discussed in my Thursday note: "relief for Europe runs through Washington." And that means the U.S. is leveraging Europe's energy dependency to force political alignment.
And Von der Leyen called it out, saying "energy dependencies have been weaponized."
And Trump's leverage just became stronger over the past week, the European Central Bank raised rates into rising inflation and weakening growth — brought to them by the energy shock.
Which brings us to Wednesday.
Kevin Warsh chairs his first Fed meeting this week. Just as Europe is becoming more and more vulnerable to financial stress, Warsh should be beginning the end of the era of globally coordinated central banking. That means dollar liquidity for Europe becomes conditional.
As we discussed over the past several months, providing "access to dollars" (via swap lines) is a bargaining chip for the Trump administration to incent policy and geopolitical alignment. And Warsh set the table for it back in his April Congressional hearing — indicating that this swap line issue was a government and Fed collaboration (issues of "international finance").
