Iran expanded its retaliatory strikes across the Gulf on Sunday and Monday after Washington launched a new wave of attacks against Iranian military sites, while the dollar slipped on Monday as investors watched the conflict and oil prices rose. The exchange of fire kept ordinary people, shipping routes and regional airspace under pressure while state institutions on both sides kept escalating the machinery around them.
The State Monopoly in Motion
Tehran targeted U.S. military facilities in Kuwait and Bahrain and airspace in several countries, and said it had again shut down the Strait of Hormuz, the vital shipping route for global energy shipments. The U.S. military said it struck Iranian military sites with fighter jets, naval forces and drones to protect shipping. That’s the language of protection, at least on paper. In practice, it’s the familiar choreography of armed states claiming security while widening the blast radius for everyone else.
The Times of Israel reported that the U.S. carried out a fresh wave of strikes on Iran and that the Iranian Revolutionary Guard said it targeted U.S. military facilities in Bahrain and Kuwait, destroyed radar systems in Oman and struck fuel depots at Prince Hassan Air Base in Jordan. The report also said there was a drone attack on a base of the Kurdistan Freedom Party in Iraq and missile alerts in Bahrain and Kuwait. The map keeps filling with military targets, alerts and retaliation, while civilian life gets reduced to a series of warnings and closures.
Reuters reported that U.S. and Iranian forces exchanged heavy missile and drone assaults at the weekend, with Tehran targeting U.S. facilities in states across the Gulf on Sunday and saying it had again closed the Strait of Hormuz. The strait matters because global energy shipments move through it. So the state war doesn’t stay neatly inside barracks and command rooms. It reaches markets, ports and the people who have no say in any of it.
Markets Watch the War, Workers Eat the Cost
Reuters said the dollar rose earlier in the session along with oil prices before losing ground, with the euro up 0.15% at $1.1433, sterling flat at $1.339 and the Australian dollar down 0.1% at $0.694. The dollar index rose as much as 0.3% but was last down 0.2% at 100.83. Brent crude futures were up 3% at $78.50 a barrel. The financial system, naturally, translated the violence into price movements before anyone had even finished counting the strikes.
Thomas Mathews, head of markets for Asia Pacific at Capital Economics in Wellington, said, "The dollar was obviously the big winner from the war last time. But it's starting from a pretty different point this time, having strengthened quite a lot and there already having been a fairly lasting repricing of the Fed outlook," and added, "It's not clear to me the greenback would gain as much this time if the situation continued to worsen, which I think is probably reflected in trade so far." The quote says the quiet part out loud: war becomes a market variable, and the market decides how much panic it can price in.
Reuters said Fed funds futures were pricing an implied 50% probability of two or more rate hikes by the time of the U.S. central bank's December meeting, up slightly from Friday, according to the CME Group's FedWatch tool. Westpac analysts wrote in a research report that inflation risks were likely to remain in focus with U.S. CPI data due on Tuesday, PPI gauges the following day, and Fed Chair Kevin Warsh's testimony before the House and Senate. The central bank calendar keeps moving, even as missiles do.
Tokyo, Intervention, and the Same Old Hierarchy
The Japanese yen slid against the dollar on Monday after Reuters reported that Tokyo had no imminent plans to change the asset allocations of its state pension funds. The dollar was last up 0.2% at 162.05 yen, putting traders back on alert for possible intervention from authorities in Tokyo as the Japanese currency continued to languish at 40-year lows. Reuters said the yen and Japanese bonds had rallied on Friday after Finance Minister Satsuki Katayama said the government would seek ways to encourage pension funds, including the Government Pension Investment Fund, to make greater investments in Japanese financial assets.
While the government is exploring ways to boost such investments within the existing allowable ranges of the benchmark portfolio, the initiative will not lead to immediate revisions to GPIF's medium-term objectives, two government sources told Reuters. So even the pension money sits inside the same managed architecture: state funds, state limits, state reassurance, and no immediate change for the people whose savings get folded into the machinery.
Chris Turner, head of global markets at ING, said intervention was a prospect this week, adding that "intervention alone cannot reverse the current bull trend." He said, "For that to happen, energy prices need to come lower and the Fed must conclude that it does not need to hike rates after all." The sentence is almost too neat. War, energy, rates, intervention. A closed circuit, with ordinary people paying the bill while institutions argue over the dials.