The Walls are Closing in on Trump

For all the talk of a ceasefire holding in the Middle East, the events of the past 24 hours suggest the truce exists more on the President’s social media feed than in the waters off the Strait of Hormuz.

US Command said it conducted strikes on multiple Iranian sites last night after the three American destroyers came under ‘unprovoked’ attack.

Iran’s military, in turn, accused Washington of breaking the ceasefire by hitting its tankers.

Trump told ABC News the ceasefire was still in effect and dismissed the strikes as ‘just a love tap’.

Markets have grown used to looking through presidential bluster. But the Hormuz situation deserves more weight than his usual loose claims.

Roughly a fifth of global seaborne crude transits the strait. Even a small chance of further disruption will continue to keep a risk premium baked into Brent for the foreseeable.

With 90% of our liquid fuels imported, Australia is downstream of every escalation.

That pressure may not be felt at the pump right now, but that has been in no small part due to unseen efforts.

The most recent response by our government was a $10 billion funding package to boost our fuel reserves to ~50 days and to increase minimum holdings for private fuel companies.

Add to that the halving of the fuel excise and outbidding deals. Overall, there’s been a lot of effort on our part to land at average prices (in Melbourne) of A$1.83 per litre today.

In fact, if we compare it to the US, Melbourne is roughly 16 cents, or 10%, more expensive right now.

Source: Claude

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(Interestingly, if you strip out taxes, the prices are only 2 cents apart at around A$1.46–1.48/L)

Comparing our fuel situation versus the world’s oil superpower, you’d be forgiven for asking why those prices are anywhere near comparable.

These higher fuel prices are now reflected in Trump’s latest dim polling.

A man under pressure.

So far, the White House’s response has been absent from these cost concerns.

A coalition fracturing in real time

The political fragility behind these strikes matters more than the strikes themselves.

Trump’s second-term coalition was always an uneasy alliance between MAGA nationalists (who wanted the United States out of foreign wars), and the older Republican hawks.

The first Iranian exchange in late February split that coalition. The second round is widening the crack.

Joel Webbon, a Christian nationalist podcaster, described the internal fracture as ‘a generational coalition squandered for Israel.’

Webbon is one voice among many. Tucker Carlson, Steve Bannon, Marjorie Taylor Greene and a long list of America First commentators have spent the past several weeks publicly accusing the White House of betraying its promises.

Internal coalition disputes rarely move markets in the moment. But they tend to register at the midterms.

With redistricting battles in Texas and California, the likelihood of a divided Congress in November is growing.

A divided Congress would complicate his tax-cut extensions, further tariff legislation and Treasury funding plans.

All of which the administration has been counting on to deliver its second-term economic agenda.

‘It’s the economy, stupid,’ as Clinton’s strategist put it in ’92.

Lose it, and you lose your mandate.

Tariffs and the Xi problem

The third pressure point is trade.

The administration’s 10% blanket global tariff, in place since February, has now run into serious legal and diplomatic resistance.

The US Court of International Trade ruled on Thursday that the tariffs were not justified under the 1974 Trade Act.

That’s the second major court loss for the tariff regime this year.

The administration will no doubt appeal.

Against that backdrop, Trump is scheduled to fly to Beijing next week for a rescheduled summit with Xi Jinping.

That’s a lot of leverage lost for Trump before heading into the dragon’s den.

It will be his first visit to China as president. Most are expecting little.

A sprinkle of soybeans relief here, a dash of jet engines there.

Reportedly, Chinese officials are kicking up a fuss about hosting the meeting before the Iran situation is resolved.

China is the largest single buyer of Gulf crude and has the most to lose from continued blockages of the Strait or changes to the Iranian regime.

The optics of a US president negotiating with Xi while his Navy exchanges fire with Iran will not be lost on Beijing.

China has already moved to dilute US sanctions on Iran-linked trade. It intends to walk into the room with maximum leverage.

The Aussie read-through

For you, looking at the ASX, three threads matter.

The first is energy. Woodside and Santos have been the simplest domestic plays in a sustained showdown in the Strait.

Now, with talks of peace, prices are on their way back down. But I’m not so sure we’re done yet.

This can obviously shift in a heartbeat, but the current situation still has plenty of messy details to solve before the oil and gas may flow freely again.

The second thread is China. Trump’s meeting with Xi could throw some curveballs at Aussie critical mineral producers.

Any tariff concessions the US may offer to secure access to rare earths are likely to come at the expense of Australian processors, which have been positioned as an alternative supply chain.

The third thread is gold. Looking at the XGD [All Ords Gold Index] hints at a poised, sharp recovery on hopes of peace and oil returning to earth.

If peace is sealed in the Strait, expect our miners to rip.

For now, all three pressures converge on the same date and place: a Beijing meeting room on 14 May, where Xi has every reason to extract maximum value from a President with limited room to manoeuvre.