Iran Just Humiliated the U.S.
The war in Iran is reaching a critical stage.
The world can stomach an energy shock, provided it’s short-lived. The war in Iran is proving not to be short-lived. The Memorandum of Understanding (MOU) between the U.S. and Iran was not signed over the weekend. And numerous reports indicate the two nations are once again at an impasse.
Specifically, during the meeting in Switzerland over the weekend, the Iranian delegation let U.S. officials enter the room first (a sign of weakness) and then refused to shake hands. Things only went south from there, with the U.S. failing to mention nuclear enrichment for the first 80 minutes of the meeting, Iran demanding that the U.S. stop Israel from responding to attacks from Lebanon’s Hezbollah, and Iran demanding the U.S. cede control of the Strait of Hormuz.
In short, the meeting was something of a humiliation for the U.S.
It is clear now that Iran’s tactic is to drag this conflict out for as long as possible, with the hope that political pressure in the U.S. (the war is NOT popular, and 2026 is a mid-term election year) forces the U.S. to abandon the conflict entirely.
That would be a total humiliation for the U.S. President Trump has no interest in a full-scale invasion similar to what the U.S. did in Afghanistan and Iraq. And it is clear Iran has figured this out.
The longer this drags out, the worse the situation becomes from an inflationary perspective. Oil is an input for the entire economy. Some industries can digest higher oil prices via force majeure clauses in their contracts (trucking), but most cannot.
The data is already signaling what’s coming.
Most analysts focus on the Consumer Price Index (CPI) for inflation measures. However, CPI is a late-stage inflation measure: it measures prices that have already trickled through the economy to actual consumer goods.
The Producer Price Index (PPI), on the other hand, is an early-stage inflation measure: it measures the average change in prices that producers receive for their goods and services — basically inflation at the wholesale/factory-gate level, before it reaches consumers.
And PPI is ripping higher.
May 2026’s PPI reading rose 1.1% in a single month. On a year-over-year basis, PPI is now clocking in at 6.5%, the highest since November 2022. And remember, we’re talking about inflationary pressures that have yet to reach consumers!
The point I’m trying to make here is that the longer the situation with Iran drags out, the greater the risk of an inflationary storm hitting the U.S. I know it, you know it, and the markets know it.
The yield on the 2-Year U.S. Treasury — the bond the Fed typically follows — is breaking out to the upside. This is a major warning to the financial system that inflation is on the rise.
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Best Regards
Graham Summers
Chief Market Strategist
Phoenix Capital Research