U.S. Warns Gulf of Possible Short, Intense Renewal of Iran War After Midterms
The U.S. has told several Gulf Arab countries to be prepared for a short, intense military campaign after the U.S. midterm elections, people briefed on the conversations said. (…)
President Trump hasn’t decided to go ahead but is leaning toward a large postelection attack that could target Iranian infrastructure and nuclear sites, people familiar with his thinking said.
The alternative would be to try to cut a deal. Diplomatic efforts by regional mediators continued but had yet to bear fruit. (…)
Many analysts believe Iran isn’t likely to capitulate under further attacks. Iran weathered more than 20,000 strikes by the U.S. and Israel during the most active phase of the war. It nevertheless has continued to attack ships in the Persian Gulf, target U.S. troops and warships, and bring tough demands to the negotiating table.
“I believe one of the biggest mistakes Israel and the United States continue to make is assuming that another round of strikes against Iran, including attacks on critical infrastructure or the elimination of senior officials, could somehow bring down the regime,” said Danny Citrinowicz, a former Israeli military intelligence official. (…)
Iran has warned through public and private channels that it would respond to any attack with harsh strikes on economic and civilian targets across the region. It made similar threats ahead of the war, then hit U.S. bases and diplomatic facilities as well as energy facilities and airports across the Gulf. (…)
Middle East mediators are scrambling to revive talks with Iran to head off a new wave of combat. So far they have had little luck, with the U.S. insisting on discussing Iran’s nuclear program and Tehran laying out tough demands for resuming talks.
No surprise there. Trump has been saying that for a while.
But here’s a surprise David uncovered that we have not seen in mainstream media:
Iran and “Mecca Pact” countries agree to continue talks amid fears of renewed regional conflict (my emphasis)
Iran and representatives of Saudi Arabia, Pakistan and Turkey have agreed to continue diplomatic discussions following an initial meeting in Tehran [on October 26], amid growing concerns over a renewed escalation of conflict in the Middle East.
The talks brought together officials from the three countries that signed the “Mecca Pact” joint defence agreement, as regional tensions intensify following renewed hostilities involving Saudi Arabia and Yemen’s Houthi movement.
Saudi Defence Minister Prince Khalid bin Salman traveled to Tehran for the meeting, alongside Pakistan’s Army Chief Asim Munir, Turkish intelligence chief Ibrahim Kalin and other senior officials.
According to a statement from the Saudi Ministry of Foreign Affairs, the delegation’s visit was intended to “de-escalate the current crisis and promote dialogue and diplomatic solutions.”
Iranian state television reported Monday that the participants had agreed to continue discussions aimed at strengthening cooperation, including in the areas of regional peace and security.
The meeting took place amid warnings from the United States and Israel concerning the possibility of renewed military hostilities in the region.
It marked the first joint visit to Tehran by senior officials from Saudi Arabia, Pakistan and Turkey since the three countries established their defence alliance last August.
The diplomatic initiative comes against the backdrop of renewed confrontations between Saudi Arabia and the Iranian-backed Houthi movement, which resumed in July following the collapse of a truce that had been in place in Yemen since 2022.
Riyadh supports Yemen’s internationally recognized government, while the Houthis remain a major force in the country’s prolonged conflict.
The talks also coincided with the Egyptian parliament’s approval of defence support for Saudi Arabia in response to Houthi attacks originating from Yemen.
The agreement to maintain discussions signals a continued diplomatic effort by Iran and the three countries to address regional security concerns, although no specific commitments or outcomes beyond further talks were announced.
Reuters quoted a senior Iranian official as saying that Tehran’s talks with members of the “Mecca Alliance” did not cover Iran’s nuclear programme.
The official added that Iran would not discuss its nuclear programme until the United States responded to its demands for ending the war.
Significance? GCCs taking over their security, seeking durable solutions with Iran and the Houthis. The end of US presence in the Middle East?
- This meeting, set up within a week, was the first high-level contact between Iran and all members of the Makkah Defence Alliance since Saudi Arabia was drawn deeper into the conflict.
- Andreas Krieg of the London-based risk consultancy MENA analytica said Prince Khalid’s presence in Tehran was “hugely significant”, calling him the “strategic mastermind of Saudi Arabia”. Prince Khalid, brother of Crown Prince Mohammed bin Salman, the de facto ruler, has emerged as one of Saudi Arabia’s key diplomatic interlocutors, repeatedly dispatched on sensitive regional missions. “Riyadh is investing serious political capital in dialogue with Iran, seeking to contain escalation and create a credible diplomatic path out of the crisis,” Ali Shihabi, a Saudi analyst who is close to the government, posted on social media.
- All other participants were also very senior and influential people.
- A Pakistani security official told Reuters that participants discussed a regional non-aggression framework, US-Iran negotiations, Houthi attacks, shipping through the Strait of Hormuz and the US blockade of Iranian ports.
- Iranian President Masoud Pezeshkian said: “Muslims are brothers to one another and must stand together as a united front against threats and actions targeting Muslim nations.”
- Rezaei, Iran head of Supreme National Security Council, told state television, “Very good discussions took place between us. I feel that a new atmosphere is emerging in the region … I sensed a very positive atmosphere in the discussions among the gentlemen.”
- IRNA quoted Iran’s foreign ministry spokesperson Esmaeil Baqaeias saying that this meeting could be a prelude to further steps towards shaping “endogenous security — an issue that we have been insisting on for decades”. He added that the topic of “top priority on the agenda was consequences of the US-Israeli aggression against Iran and its ramifications for the entire region”. “We emphasise that regional security will not be ensured except by relying on the … security considerations of the countries of the region,” he said, adding that events of the last two years, especially the past eight months, had shown that sustainable and reliable security would only be made possible by “building trust and cooperation among the countries in the region”.
BTW, Egypt’s parliament authorized military support to help defend Saudi Arabia “if requested”, potentially drawing another regional power more directly into the confrontation.
Oilprice.com writes:
The oil markets are counting down the days until the November 3 midterm elections in the US, with expectations of impending hostilities rising into next month. Last-minute efforts to negotiate some form of de-escalation are ongoing, with both Qatar and Pakistan seeking to mediate between the Trump administration and Tehran, temporarily capping the upside for ICE Brent at $115 per barrel. Simultaneously to Hormuz tensions, the Saudi-Houthi conflict appears to be gaining self-sustaining momentum.
In reality, Saudi Arabia and other Gulf countries know that they will, again, bear the cost of another US attempt to find a win. They are proactively trying to protect themselves, seeking solutions among themselves, Iran and the Houthis. While Israel is pressuring Trump to hit, Saudi Arabia is pleading the other ways.
The GCCs, and the rest of the world, simply cannot allow this to become a forever war.
Hormuz is not as peaceful as many think as oilprice.com explains:
October has seen the most acute escalation in maritime attacks since the US-Iran war started eight months ago, with already more than 30 incidents recorded in the Strait of Hormuz and surrounding waterways, up from 14 in September.
The most recent addition to the list of maritime targets is a crude tanker in Iraq’s exclusive economic zone, signaling that it is not only tankers seeking to surreptitiously transit the Hormuz that get targeted by Iran.
VLCCs, the largest crude tankers available, account for 28% of all drone and missile attacks in the Persian Gulf, with the 32 impacted ships representing almost 4% of the global VLCC fleet.
Freight rates from the Gulf remain elevated, with a Saudi Arabia-China voyage still costing around $33 per barrel, whilst regional demurrage rates have been rising since mid-August to their current level of $1,000,000/day.
UKMTO, a provider of maritime security alerts, recently admitted that it is becoming increasingly more difficult to report on strikes as transiting ships prefer to sail unnoticed and charterers are wary of pushing freight rates even higher.
Meanwhile, “Yemen’s Houthis claimed a ballistic missile strike hit Saudi Arabia’s 550,000 b/d Ras Tanura refinery, causing a fire and disrupting operations at the Middle Eastern kingdom’s largest plant, with an earlier March attack shutting it for three months.”
US-Friendly Nations Slash Treasury Purchases by 60%, Led by Asia
Countries and regions most aligned with the US bought a net $174.3 billion of Treasuries, excluding bills, in the first eight months of 2026, according to an analysis of Treasury and State Department data. That was the lowest for the period since 2021 and down more than 60% from a year earlier.
The shift is noteworthy in Asia, where economies running large surpluses are putting less of that money into US debt. Japan, the biggest foreign holder of Treasuries, bought just $389 million in the first eight months — down 99% from a year earlier. South Korea sold $23.8 billion, the most for the period in records going back to 1977. Taiwan was also a net seller.
There’s no single explanation for the shift. Governments have said little about any plans to move away from Treasuries, and the data don’t separate government buying from private investment at the country level. Several factors may be contributing, including weak currencies, rising yields at home, growing demand for stocks and unease over US policy.
“The Treasury market isn’t losing foreign buyers — it’s losing automatic buyers,” said Masahiko Loo, a senior fixed-income strategist at State Street Investment Management, which oversees over $6 trillion. “An increasingly unpredictable US makes large structural overweights and the automatic recycling of capital into Treasuries harder to justify.”
The US government’s debt pile has climbed past $40 trillion, leaving the world’s largest economy more reliant on investors to fund its spending. At the same time, President Donald Trump’s tariffs and uncertainty over US policy have spurred concerns about the dollar’s longer-term outlook. And with yields rising in markets from Japan to Europe, global investors have more alternatives to Treasuries than they once did.
Asia’s big savers have typically converted their surpluses into dollars and parked the money in Treasuries. This year, weakening currencies eroded their buying power and pushed governments to dip into reserves. (…)
The Treasury data may attribute securities to the country where they are held through custodians or intermediaries, rather than to the nation of the ultimate owner. Holdings and purchases attributed to financial centers such as the UK and Belgium may therefore partly reflect investors elsewhere. (…)
That doesn’t mean the US is running out of buyers. Private investors, including hedge funds, banks and mutual funds, have stepped in, boosting their share of federal debt to about 70%, near the highest since 1990.
But they’re more sensitive to price. (…)
Even so, the $32 trillion Treasury market remains unmatched in its depth, liquidity and near round-the-clock trading, while the dollar retains its role as the world’s dominant reserve currency.
Foreigners still owned $7.85 trillion of Treasuries as of August, near an all-time high, though their share of the market has shrunk to less than a third from a peak of 52% in 2012.
“When you look at the alternatives, they’re pretty few and far between,” said Robert Tipp, head of global bonds at PGIM. “So you have had a rebalancing and consistent runoff from some countries, but it’s been absorbed by others.” (…)
“The Treasury will fund itself — the question is the price and the volatility of the price,” said Shoki Omori, Deutsche Bank AG’s chief fixed-income strategist for Japan. “What the level cannot buy back is the patient, price-insensitive money the allies used to supply.”
First time I see this data via Bloomberg:
Alignment can be subjective. This analysis, an update of one first published in February, classifies countries as most-, least- and neutrally-aligned by how often their votes on key United Nations resolutions match those of the US, using State Department data. The approach is commonly used in academia to determine allies and adversaries.
Technology companies recently launched a record scramble for cash to pay for data centers, computer chips, and technology and equipment to power artificial intelligence. This boom is so expensive that even Silicon Valley giants are bleeding cash, and companies are now racing one another to collect or borrow other people’s money for the estimated $10 trillion of AI-related spending in coming years. (…)
In a widely cited draft research paper last month, Columbia University finance professor Stijn Van Nieuwerburgh estimated that it will cost more than $10 trillion through 2032 to build out AI, including data centers and computer equipment.
Measured as a slice of U.S. economic output, the average yearly AI spending works out to more than the combined national commitments for electrifying American households in the early 20th century, building the interstate highway system, and installing the backbone of the 1990s U.S. dot-com boom, he estimated. (…)
AI companies are starting to hunt for funds in nearly every imaginable financial nook and cranny to meet those immense costs, Van Nieuwerburgh and other experts say. They’ve been borrowing hundreds of billions of dollars, selling fresh stock, and cooking up more novel and potentially risky methods of financing.
Meta’s filing said Google, SpaceX, Anthropic and ChatGPT developer OpenAI all want cash to pay for their AI bets, which has “resulted in an increasingly challenging environment for raising capital.”
Some investors have spoken openly about the scary unknowns looming. Jas Khaira of Blackstone, one of the world’s largest investment firms, said it was unclear who would supply all the money that AI companies need. “We have some hypotheses, but the honest answer is we don’t know where all of it will come from,” he told the Information, a tech news publication, last month.
Even the U.S. government is paying more to borrow money because it is going head-to-head with AI companies for investors’ cash. “It’s causing a short-term competition for capital,” Treasury Secretary Scott Bessent said in a CNBC interview in August. (…)
Scott Bessent may be trying to downplay his challenges. This is not “a short-term competition for capital”, it’s going to be an on going competition that a debt-hungry US government can only lose against AI companies fighting for their dominance/existence. For many of them, the cost of capital is secondary to the access to capital.
Per Bloomberg, AI-related funding in global high-grade markets has already zoomed past $300 billion in 2026, roughly triple that of last year, providing investors with an array of choices after decades of low-yielding bonds.
The five major hyperscalers (Amazon, Alphabet, Microsoft, Meta, and Oracle) are projected to spend nearly $800 billion on capex this year and more than $1 trillion in 2027. JP Morgan expects that cashflow will only cover 20%.
Blackrock’s chief investment officer for global fixed income Rick Rieder says that the 10-year Treasury has “taken a backseat” to other opportunities in fixed income. Even with its yield above 5%.
The AI debt market will pull the entire interest rate curve up and the US Treasury will increasingly favor shorter-term financing right when the Fed might be raising short-term interest rates.
Let’s hope inflation stays reasonable.
BTW: @carlquintanilla quotes Goldman Sachs:
“.. we are starting to see clearer signs that the AI impact is spreading beyond the technology sector. .. the share of US firms that have adopted AI in regular business functions now shows a statistically significant negative correlation with employment growth ..”
Ed Yardeni:
September durable goods orders rose 1.8% m/m, the largest increase in five months. Orders excluding transportation increased 0.5%, while core capital goods orders (nondefense excluding aircraft), a key gauge of business investment, rose 0.5% and 13.5% y/y to another record high.
The average prices-paid index across regional Fed surveys stood at 57.0, near levels last seen in 2022. Meanwhile, the prices-received index climbed to 31.6, suggesting that manufacturers are increasingly passing higher input costs on to customers.
The chart shows that manufacturers are trying to pass their higher costs on to consumers but are only partially succeeding while cost inflation keeps accelerating.
China Set to Lead in AI Models, Other Key Areas by 2030, BI Says
China is well placed to lead the world by 2030 in the large language models at the core of artificial intelligence, and will be at least competitive in every other strategically important technology, according to a new Bloomberg Intelligence report.
The study predicts that China will be ahead in eight out of 17 key industries at the end of that period, including LLMs . In the other categories that are crucial to the AI race — producing the hardware needed to run it, from chips to optical networking components — Chinese firms are mostly behind now but will be competitive by 2030, the BI analysts led by Francis Chan wrote in the report published on Wednesday.
“The US and China are on track for joint technology leadership in AI by 2030, with neither country likely to achieve overall supremacy,” according to the report. American models may maintain a narrow lead at the frontier, while “China’s expertise in software optimization leaves it well positioned in lower-cost AI implementation,” it said. China will likely close the gap in semiconductor tech without achieving full self-sufficiency. (…)
None of this prowess is going to rescue China’s economy from a slowdown, according to the BI study. Bloomberg Economics predicts GDP growth will average 3.6% over the coming decade — down from 5.2% in the last three years. (…)
China’s AI firms — like peers elsewhere — are struggling to figure out how to make money out of their innovations. They “remain locked in a race to the bottom, with profit set to remain elusive until companies adopt a more rational approach to pricing,” according to BI. (…)
“Little excursions”
Cruise Ship Strands Passengers in Cambodia After Fuel Surge
Passengers on a luxury residential ship touring the world were unexpectedly stranded in Cambodia after the cruise company suspended operations, citing “extraordinary increases” in fuel costs.
Villa Vie Residences is now “working with residents to coordinate disembarkation and identify temporary living arrangements,” it said in a statement on Tuesday.
While the company is covering lodging and local transportation, it hasn’t provided funding for passengers to depart Cambodia, where the 650-passenger Odyssey is now moored, Villa Vie founder Mikael Petterson said during a telephone interview. About 200 residents were on board when the company was forced to ask them to disembark, he said.
The company’s fuel costs have risen more than 300% since the start of US-Israel war on Iran, Villa Vie said, with per-cabin fuel costs that had historically averaged about $1,800 a month surging to as much as $8,000. (…)
Passengers balked at a request to pay more to cover the cost of fuel to depart Cambodia. The company is now proposing an additional $500 a month fee, on top of a surcharge, as long as prices remain elevated, Petterson said, adding monthly operational costs have climbed by about 50% to $3 million. (…)
Marine gasoil has surged to $1,321 a metric ton in Singapore — the world’s largest bunkering hub — almost double what it cost before the Iran war, according to data provider ClearLynx LLC. (…)
Villa Vie is far from alone in feeling the brunt of the global fuels crisis. High jet fuel prices helped spell the demise of Spirit Airlines this spring, while Royal Caribbean Cruises Ltd. reported Tuesday that an otherwise strong quarter was dampened by elevated oil costs. (…)
According to port and maritime reports, the Villa Vie Odyssey was carrying 203 passengers of 15 nationalities when it was ordered to halt in Sihanoukville, Cambodia , including 159 US nationals, or about 78% of those on board.
Another excursion Americans will not be happy with.