[Today’s Iran war update fired before complete. Please return at 8:00 AM EDT for a final version]
Despite reports of the US and Iran finding some solutions for big sticking points such as Iranian control of the Strait of Hormuz, yours truly remains skeptical. The US attack in the Strait of Hormuz, even though not severe enough to derail talks, and the new nutty Abrams Accord scheme from Trump reinforces the idea that Israel not only will not be constrained but is calling a lot of the shots. Iran is holding firm to its position that it will not sign a Memorandum of Understanding until all issues are resolved, and that includes a bona fide ceasefire in Lebanon. Keep in mind that even if that goal is met, it is merely a commitment to trying to reach a final agreement, and not a “deal” per se.
And a deal seems utterly out of reach with Israel doubling down on its refusal to join in a cessation of hostilities and the US backing that.1. From NO1’s daily summary:
Israel declares “full war” on Hezbollah – Netanyahu ordered escalation of Lebanon offensive to “crush” Hezbollah. IDF struck 70+ targets with 85+ munitions in 24 hours, concentrating on Tyre. Reserve soldier call-ups issued. Hezbollah intensifying drone attacks, including first-ever night FPV strike using thermal imaging. 401st Armored Brigade commander seriously wounded in FPV triple-strike at forward HQ.
We’ll cover some of the ideas for closing the gaps in negotiating positions (at least one of which would amount to applying porcine maquillage to a US capitualtion). But Trump has quickly renounced movement toward Iran’s stance before, most famously with recanting his initial acceptance of Iran’s then-10-point framework and and following that up by restarting the war (albeit not on as hot a basis) by imposing the US blockade. So even if there seems to be some movement on the US side, it is not clear if any of that will hold when US commentators correctly depict it as the US folding. And as we will cover, the new Supreme Leader Mojtaba Khamenei’s Hajj address included the fiery promise that Israel’s days are numbered.
In addition, more and more telling factoids from experts confirm that the damage to the world economy from the Strait of Hormuz closure would be more lasting than most recognize. For instance, former JCOPA negotiator Alan Eyre cited private data shop Kpler as forecasting as its best case scenario that Strait of Hormuz traffic would be only at 40% of its old normal at year end 2026 (see here at 1:20). That is a vastly more attenuated recovery than pretty much all investors and pundits assume. It also makes the regular outbreak of oil futures hopium in the form of price declines as the clock keeps ticking look even more delusional.
First to the dustup. The US, in an insult to intelligence, tried to depict its attack as defensive when it was the initiator.2 From the top of Aljazeera’s live feed:
Iran’s Islamic Revolutionary Guard Corp says it “downed” a US Reaper drone that entered it airspace as tensions continue to rise during peace negotiations.
United States forces attacked missile launch sites and mine-laying vessels in southern Iran in what a US military spokesman described as “self-defence” strikes. Earlier, Iranian media reported explosions in the southern port city of Bandar Abbas.
And the US idea of macho is killing fishermen:
Iran claims four fishermen were killed in an attack on their boats near Bandar Abbas tonight, with local media publishing their photos.
The claim contradicts U.S. reports that the strikes targeted IRGC boats.https://t.co/gpd0vC9CQ2
— Egypt’s Intel Observer (@EGYOSINT) May 25, 2026
The Financial Times reported that the attack generated a jump in oil prices to nearly $100 a barrel for Brent futures. But that is still below where they were before Trump started his latest round of peace patter.
The Bloomberg landing page is still in the business of putting the happiest face possible on the state of play, as demonstrated y its headline in the lower right about Khamenei’s speech.
This discussion on TRT confirms what other outlets have said, that this US provocation is not severe enough to upend the talks:
But is Iran as chill as most assume? It is hard to imagine that any discussions will not encompass what if anything Iran does in response to the latest attack:
🇷🇺🇮🇷 A plane carrying high-ranking Iranian government officials is headed to Moscow
Middle_East_Spectator pic.twitter.com/XFKAMQoaVg
— dana (@dana916) May 26, 2026
However, I am bothered by what yet another unwarranted US attacks as talks are on signifies. It shows the US as willing to relentlessly push the envelope to try to obtain advantage, even when that advantage is largely US optics.3
And in another episode of Trump’s overwhelming need to dominate and pretend he is ever and always a winner, he’s just tried to bully the Gulf States bigly. Trump has managed to reach a new level of chutzpah via “mandatorially requesting:”
This is more dead on arrival than Iran having nukes or control of the Strait of Hormuz. https://t.co/7Bss73f6Do
— HFI Research (@HFI_Research) May 25, 2026
Trump issued ab ultimatum to nearly a dozen Muslim-majority nations, threatening to cut them out of his Iran deal if they refuse to simultaneously sign the Abraham Accords.
And there you have it. The entire Iran war was an operation to force the Middle East to bow to ISRAEL. pic.twitter.com/eZj7traGoe
— Stew Peters (@realstewpeters) May 25, 2026
The Saudis cleared their throats and reiterated their long-standing position: no Palestinian state, no Abrams Accords, with Pakistan onside:
🚨 A United Geopolitical Front | Riyadh and Islamabad Reject the Logic of U.S. Bargaining
In a move that goes beyond mere rejection to dismantle the very foundation of this maneuver, a strategic alignment emerges between Riyadh and Islamabad, putting an end to the “comprehensive… pic.twitter.com/2a0YvO3Rlw
— 🇸🇦Abdulsalam Saleh (@abdulslam2017) May 26, 2026
But Trump’s barking chihuahua Lindsey Graham is not taking a clear “no” for an answer. From Middle East Monitor in Republican Senator Graham warns Saudi Arabia of ‘severe consequences’ if it does not join Abraham Accords
US Senator Lindsey Graham said Saudi Arabia and other countries would face “severe repercussions” if they did not join the Abraham Accords with Israel in the event of an agreement between Tehran and Washington…
Addressing Saudi Arabia and others, Graham said: “Now is the time to be bold for the future of a new Middle East.” He added: “I expect, as President Trump has suggested, you will in fact join the Abraham Accords effectively ending the Arab-Israeli conflict.”
Warning US allies in the region, the senator said: “If you refuse to go down this path as suggested by President Trump, it will have severe repercussions for our future relationships and make this peace proposal unacceptable. Further, it would be seen by history as a major miscalculation.”
The new Team Trump formula is that they are 95% of the way to cinching an agreement, as many in the peanut gallery point out that that does not mean the final supposed 5% can be resolved.
There has been and still is so much swirl of unconfirmed gossips that yours truly is loath to go too much into that cesspool. Despite that, the discussion below between Larry Johnson is useful because it presents rumors of solutions to sticking points (you will see that Johnson is skeptical, as I am, as to whether any are “agreed,” particularly given Trump’s fondness for upending apple carts:
Mario depicts the US as having accepted the proposed dodge for Iran collecting what were formerly called tolls, by rebranding them as protection environmental, navigation and other fees. This device is at least important in terms of allowing Oman to participate since this type of charges is allowed undue the UN freedom of navigation provisions of UNCLOS, to which Oman is a signatory.
We had mentioned that Congress having the President to make certification with respect to Iran before releasing funds that are simply not possible given the current givens would seem to mean that a some, perhaps a lot, of the frozen funds could not be released to Iran. Mario said that the current plan would be to lend funds to Iran, secured by the frozen assets. That is clever but would Iran go for that? And even before getting Iran on board, Team Trump would look certain to run into a buzzsaw of criticism and ridicule for any meaningful return of frozen assets to Iran.
Twitter summarizes Tasnim as stating the immediate Iran ask as $24 billion, half at signing of the memorandum of understanding, when recall there is no assurance that a final deal would be achieved:
A possible memorandum of understanding between Iran and the United States would require the release of $24 billion in frozen Iranian funds during negotiations, IRGC-linked Tasnim News reported on Tuesday, citing a source close to the negotiating team.
Iran wanted half of the…
— Iran International English (@IranIntl_En) May 26, 2026
Again, if you click through for the detail, Iran wants $12 billion transferred “when the MOU is announced” and the balance during the 60 day talks. I cannot imagine that US Zionists will let this stand.
Mario also reported that four refueling planes had just left Israel. He and Johnson work through that that could power at least 32 F-35s or F-16s. So is this yet more threat display or pre-positioning?
I cannot get to the English language version of the Tasnim site now (and in any event, translations to English often take a bit to go live) but Mojtaba Khamenei has put Israel in his crosshairs, or perhaps more accurately, says he will extirpate the regime as a result of its unprovoked attack on Iran. From Aljazeera’s live feed:
Iran’s supreme leader issues Hajj message vowing Israel will be ‘uprooted”
Iran’s Supreme Leader Mojtaba Khamenei has issued a message on the occasion of Hajj and Eid al-Adha declaring Israel “must certainly be uprooted and it will be”.
He described Israel as a “dangerous and deadly cancerous tumour of this region”, according to Iran’s Tasnim news agency.
Khamenei said Iran “rendered the Zionist regime helpless under its devastating blows” during what he described as the second imposed war, calling it a “harsh slap” to the United States.
This year’s Hajj season gave the call to disavow the US and Israel heightened importance and that “Death to America” and “Death to Israel” would become “the prevalent slogan of the Islamic Ummah”.
Khamenei also said “the future belongs to the Islamic Ummah and the new Islamic civilization”.
Al Mayadeen give a more detailed recap of Khamenei’s speech in Sayyed Khamenei to Hajj pilgrims: ‘Israel’ out of time, Ummah rising. Some snippets:
Among those goals is one that the martyred leader had declared ten years ago, that “Israel” would not survive another 25 years. Sayyed Khamenei returned to that promise, saying the entity has since drawn close to the final stages of its existence.
The “cancerous tumor,” he underscored, is running out of time….
The US, he noted, is losing ground day by day and will find no safe footing in the region, let alone a base from which to operate. “The future belongs to the Islamic Ummah and to the new Islamic civilization.”
Briefly to the economic front. It is simply astonishing that professionals who hold themselves out as experts in finance or economics cannot see that the world economy is running at close to full tilt into a brick wall. Jeff Currie is the Cassandra of this looming crisis, repeatedly explaining that US reserves will effectively be empty as of around the July 4 weekend and what that protends:
Even though one has to filter out Steve Hanke’s Mises twattle (his discussion of long ago empirically disproven monetarist theories), he makes an absolutely essential point in his talk below, which overlaps with Currie’s take.
Hanke explains that despite higher energy prices, perilous little demand destruction has taken place. Compared to a 14 million barrel a a day shortfall (note some experts put it higher), consumption has dropped by only 2 million barrels a day. The rest of the gap has been closed by using reserves of various sorts that will run out even in the US in July.5
With those boundary conditions in mind, all the supposedly generous (erm, export-market-saving) action by China and Japan has done is rearrange the deck chairs on the TitanicL
The difference between Chinese oil imports (plunging, heading into May to a 10-year low) and Indian oil imports (surging to the highest May ever) can not be more stricking.
Effectively, Beijing (and Tokyo using the SPR) have saved the day for the whole region. https://t.co/Ucp23zZrTl
— Javier Blas (@JavierBlas) May 26, 2026
Serious Economists are (IMHO belatedly) sounding alarms:
Good morning.
Today’s Financial Times neatly captures the escalating economic fallout of the war.
Specifically, Phases I and II (a concentrated energy shock followed by a broader price shock) now risk being joined by Phase III (demand destruction). In turn, this threatens Phase… pic.twitter.com/E1hdjGxnhj
— Mohamed A. El-Erian (@elerianm) May 26, 2026
From the featured article:
US inflation jumped to an annual 3.8 per cent in April, while average hourly earnings increased 3.6 per cent over the year, meaning prices were rising faster than earnings for the first time in two years…
UK workers face a similar squeeze. Average earnings grew at an annual pace of just 0.1 per cent in real terms in the three months to March, excluding bonuses, and are set to fall outright as inflation rises over the coming months against a backdrop of very weak hiring.
In the Eurozone, the energy shock represents a fresh setback for workers who had only just clawed back the ground lost in the 2022 inflationary shock…
Claus Vistesen, at the consultancy Pantheon Macroeconomics, said he expected real wage growth to be close to zero across the Eurozone in 2026. He said it could already be “deeply negative” in countries such as France that had no fiscal space to shield consumers.
And again, this squeeze is going to become more severe very soon. So rationing is soon to come, whether official rationing or the self-imposed type, of markedly cutting purchases in the light of higher prices:
Japan and Europe will not be able to wait much longer, both will soon be forced to announce fuel rationing and restrictions otherwise if they don’t curb summer consumption hard they will have serious problems to make it through next winter
Feel free to bookmark
— JustDario (@DarioCpx) May 25, 2026
And the most likely trigger for a debt meltdown and potential crisis trigger, private debt, goes more rancid by the day:
Ouch! US private credit default rate: 6.0%, a record. PMR sub-index (privately monitored, less scrutinized) at 9.4%. BDC redemptions exceeding inflows! Sentiment at Apollo, Blackstone, Carlyle, KKR: multi-year low. In short: the stress test is live.
— Marc-André Fongern (@Fongern_FX) May 24, 2026
Done for today. See you tomorrow!
_____
1 See this tweet from Barak Ravid:
🚨בכיר אמריקני רמז הערב כי ממשל טראמפ יתמוך בהסלמת הפעולות של ישראל נגד חיזבאללה
🚨הבכיר האמריקני אמר לי: ״חיזבאללה התעלם מבקשות חוזרות ונשנות להפסיק לירות לעבר ישראל, כולל אולטימטום שהועבר לאחרונה. ישראל לעולם לא תידרש לספוג באופן פסיבי מתקפות על כוחותיה ואזרחיה. זה לא ממשל…
— Barak Ravid (@BarakRavid) May 25, 2026
Translated from Hebrew
🚨Senior US official hinted tonight that the Trump administration will support escalation of Israel’s actions against Hezbollah
🚨The senior US official told me: “Hezbollah ignored repeated requests to stop firing at Israel, including an ultimatum that was recently conveyed. Israel will never be required to passively absorb attacks on its forces and citizens. This is not the Biden administration.”
🚨The senior US official noted that since April 17, Hezbollah has launched more than a thousand drones and more than 700 rockets in an attempt to sabotage the ongoing negotiations between Lebanon and Israel. “The status quo is not sustainable,” the senior US official told me.
🚨The senior US official added: “Hezbollah is fully responsible for the current situation. It violated the ceasefire on March 2 and is now determined to prevent the Lebanese people from a path to peace and reconstruction.”
🚨According to the senior US official, Hezbollah fears the negotiations that the Lebanese government is conducting with Israel with US support. “This constitutes an existential threat to Hezbollah,” the senior US official said.
🚨The senior US official added: “A successful ceasefire led by the Lebanese government would deprive Hezbollah of its power and its narrative.”
Middle East Observer reports similar facts but with a very different spin:
⚡️⭕️ Israel cannot sustain the situation in Lebanon anymore and is requesting Washington, Lebanon’s Greatest Ally, to be allowed to commit acts of terrorism on civilians as retaliation on its lost military assets:
⭕️ Enemy Zionist media, quoting an official participating in…
— Middle East Observer (@ME_Observer_) May 25, 2026
2
🤔 US Strikes Targets in Southern Iran
This report is nonsensical.
Bandar Abbas is an Iranian port city. The waters in its vicinity are Iranian sovereign waters, and if they want to lay mines there, it’s their own damn business.
Awaiting reports of Iranian counterstrikes … https://t.co/DW3sXsYx6S
— Will Schryver (@imetatronink) May 25, 2026
3 One can argue that Iran handily won this trade. Four dead fishermen and their boat(s) v. an MQ-9 Reaper? More detail:
İran Ordusu, Basra Körfezi üzerinde ABD’ye ait bir MQ-9 Reaper İHA’sını düşürdüğünü iddia etti.
Yapılan açıklamada ayrıca ABD’ye ait bir RQ-4 İHA ile bir F-35 savaş uçağına ateş açıldığı, söz konusu platformların İran hava sahasını terk ederek geri çekildiği öne sürüldü. pic.twitter.com/mT5tMwAN5A
— SavunmaSanayiST.com (@SavunmaSanayiST) May 26, 2026
Translated from Turkish
The Iranian Army claimed to have shot down a U.S.-owned MQ-9 Reaper drone over the Persian Gulf.
The statement also claimed that fire was opened on a U.S.-owned RQ-4 drone and an F-35 fighter jet, and that the aforementioned platforms had left Iranian airspace and withdrawn.
4 Hanke misquotes Currie as saying the US will be down to minimum operating reserves by the July 4 weekend by incorrectly depicting him as instead saying end of July.
