Rising Middle East Conflict Risks Accompanied by U.S. Government Shutdown Concerns and Hawkish BOJ Signals
FastBull FeaturedSummary:
Trump threatened to destroy Iranian power plants; the weakening yen is intensifying inflation risks, with reports suggesting the Bank of Japan is open to a faster pace of interest rate hikes.
Highlights
1. Trump threatens to destroy Iranian power plants.
2. Iranian military source: If the U.S. attacks Iranian bridges or power plants, Iran will respond in kind.
3. Iran's Revolutionary Guard warns ships not to use alternative routes to enter or exit the Strait of Hormuz.
4. EU fails to reach agreement on its 21st round of sanctions against Russia.
5. Iranian Parliament Speaker: If Iran cannot sell its oil, no one else will.
6. U.S. federal government expected to face a shutdown in September.
7. Weak yen heightens inflation risks as the BOJ is reportedly open to a faster pace of rate hikes.
Details
Trump Threatens to Destroy Iranian Power Plants
U.S. President Donald Trump said on July 22 that from now on, whenever Iran opens fire on ships in the Strait of Hormuz—whether using missiles, rockets, drones, or any other weapon or device—the United States will bomb and destroy an Iranian bridge or power plant, including facilities located in or near the capital, Tehran.
Iranian Military Source: If the U.S. Attacks Iranian Bridges or Power Plants, Iran Will Respond in Kind
On July 22 local time, an Iranian military source responded to Washington's latest threats, saying Iran remains firmly committed to exercising its sovereignty over the Strait of Hormuz and will never allow the waterway to become a tool used against the country.
The source stated that vessels coordinating with Iran and complying with Iranian navigation arrangements can pass safely through the Strait of Hormuz. Otherwise, Iran will not relinquish its determination to maintain control over the Strait in order to ensure its long-term security.
The source further warned that if the United States attacks Iranian bridges or power plants, Iran will carry out proportional strikes against infrastructure and bridges across the region, including energy facilities in which the United States has strategic interests.
Earlier in the day, President Trump posted on social media that any Iranian attack on vessels in the Strait of Hormuz—regardless of whether missiles, rockets, drones, or other weapons are used—would prompt the United States to bomb and destroy an Iranian bridge or power plant.
Iran's Revolutionary Guard Warns Against Using Alternative Routes Through the Strait of Hormuz
On July 22 local time, the Naval Command of Iran's Islamic Revolutionary Guard Corps (IRGC) stated that the designated shipping routes through the Strait of Hormuz are clear and remain fully under Iran's control.
The IRGC warned that any alternative routes are unsafe and extremely dangerous, urging all parties not to use them, or they could face serious and irreversible consequences.
EU Fails to Reach Agreement on the 21st Round of Sanctions Against Russia
On July 22 local time, diplomats from EU member states held another meeting but once again failed to reach agreement on the bloc's 21st package of sanctions against Russia.
The proposed sanctions are aimed primarily at Russia's banking sector. However, Greece has called on the EU to ease restrictions on Russian liquefied natural gas (LNG) supplies. Last week, Greece argued that a planned ban on Russian LNG transshipments would merely shift market share outside Europe without reducing Russia's revenues.
Iranian Parliament Speaker: If Iran Cannot Sell Oil, No One Else Will
Iranian Parliament Speaker Mohammad Bagher Ghalibaf wrote on social media that the logic of the conflict is straightforward: either everyone can sell oil, or no one can.
"If we are unable to sell oil in this region, then no other country will be able to do so either," he said.
Ghalibaf added that if Iran's security cannot be guaranteed, no infrastructure in the region will be safe. He also argued that security in the Strait of Hormuz depends on the absence of U.S. military forces in the region, reiterating that conditions in the Strait will not return to their pre-conflict status.
U.S. Federal Government Expected to Face a Shutdown in September
On July 22 local time, President Trump said during a speech in Georgia that the U.S. federal government is likely to experience a shutdown in September due to disagreements between Republicans and Democrats over spending priorities.
On July 21, the Republican-controlled House of Representatives passed a short-term funding bill that would finance federal government operations through December 4, helping avoid a shutdown before the midterm elections caused by a lapse in funding.
The temporary funding measure, known as a Continuing Resolution (CR), will now be considered by the Senate. Senate Republican leaders are currently negotiating with Democrats and are reportedly considering introducing their own short-term funding proposal.
If Congress fails to pass appropriations legislation in time, funding for most federal agencies and programs will expire at midnight on September 30, the end of the current fiscal year.
Weak Yen Heightens Inflation Risks as BOJ Reportedly Open to Faster Rate Hikes
After the Japanese yen weakened beyond 163 against the U.S. dollar, reaching its lowest level in 40 years, people familiar with the matter said Bank of Japan officials are becoming more open to raising interest rates at a faster pace than most economists currently expect, as the persistently weak yen increases upside inflation risks.
According to the sources, BOJ officials are aware that many market observers expect rate hikes roughly every six months. However, if necessary, policymakers are prepared to move more quickly and have not committed to any fixed timetable.
The Bank of Japan raised its benchmark interest rate to 1.0% in June, the highest level in 31 years. Most BOJ watchers expect the central bank to leave policy unchanged at its meeting on July 31 and resume rate hikes in December.
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