In his seminal work, On War (1832), Carl von Clausewitz famously wrote: "War is the continuation of politics by other means." The US and Iran agreed to a ceasefire in their war and to talks seeking a diplomatic solution. However, their talks failed, and now they are both resuming the war. On Sunday, US Central Command said the Navy will blockade all maritime traffic entering and exiting Iranian ports on Monday at 10 a.m. ET.
The markets reacted swiftly on Sunday: The prices of Brent and WTI crude oil jumped by about $8 a barrel each, putting them a bit north of $100. The dollar firmed slightly. Gold fell about $100 an ounce. Futures prices for the DJIA/S&P 500/Nasdaq fell a little over 1%.
The financial markets may be learning to live with the war in the Middle East, as they have with the war between Ukraine and Russia. China imports lots of Iranian oil. The White House clearly is leaning on China to pressure Iran to end the war, and also threatened today to impose a 50% tariff on China if Beijing sends advanced defense equipment to Tehran. President Donald Trump offered to facilitate the sale of cheaper oil from Venezuela to China. The unusual negative spread between the Brent and WTI prices suggests that traders believe that foreign demand for US crude oil is increasing as an alternative to oil supplied by Arabian Gulf producers (chart).
