Merlin Weekly Macro: Trump faces congressional challenge over Iran war

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Donald Trump’s military “diversion” against Iran was deliberately labelled as such. It is the War That Never Was: to have declared War on Iran would have required Congressional approval. Trump neither sought nor has any such mandate.

Constitutional crunch milestones

The “diversion” is eight weeks old this weekend; more specifically, Tuesday 28^th April will be the 60^th day since Saturday February 28^th when the initial “diversionary” attacks were launched by US forces. The 60-day milestone is key: the War Powers Act of 1973 limits the authority of the President (who is also the Commander-in-Chief) to commit US forces to active operations for a maximum of 60 days. Beyond that limit, there is provision for another 30 days but only to cover the complete withdrawal from the conflict zone; inevitably during the disengagement, forces may still be in combat but these activities do not require Congressional Authorisation for Use of Military Force. For the same 30-day extension period, but in a grey area of distinction, the President can deem ongoing operations to be a “national security” requirement. But whatever the fuzziness of language or intent (e.g. what is the legal status of an open-ended ceasefire in the context of the timetable?) regarding that third month of hostilities and Trump being sure to push the boundaries of legality, without a Congressional mandate 90 days from the beginning is a hard stop. The 90 days in this case will be up on Thursday 28^th May. Transgressing the Act and exceeding his authority would not merely be challenged in the Supreme Court, in this case there might be constitutional grounds for impeachment.

Since the first missile strike there have been five Democrat-led Senate votes to halt American involvement; all have failed. The latest saw 46 opposing Trump and 51 giving him support. As reported by Politico, led by Senator Lisa Murkowski (R-Alaska, not entirely coincidentally the closest part of the US landmass to Russia, 50 miles away across the Bering Strait and therefore for a domestic American immediately sensitive to the proximity of geopolitics), a group of Republicans is drafting an authorisation for a continuation of operations against Iran to be debated and voted upon. Everyone has Google: if we know the significance of the timeline milestones in this game of bluff and counterbluff, of the main players involved, Israel, Iran and its proxies are three steps ahead.

US tying itself in knots of its own making

There is a new extension to the ceasefire. It has no deadline. The Americans are trying to work out a) of the remaining Iranian leadership they and the Israelis have not so far killed, who exactly they are negotiating with and b) whether those who might turn up have the authority to make commitments.

Both sides have problems. With varying cards in their hands neither appears to have (excusing the pun) a trump card that wins the game. The Iranians have been severely degraded physically, militarily, politically and increasingly economically, but have not been defeated. US forces are almost entirely unscathed but have demonstrated the limits of air power to be able to bring a campaign such as this to a close; in failing to bring about both regime change and unconditional surrender, a transactional Donald Trump has handed the advantages of legitimacy and endorsement to the Iranian regime by suggesting joint management of the Straits of Hormuz. Trump gives the impression that he is desperate to treat with a government he despises and has vowed to destroy; in Washington, amid echoes of his first term, the revolving door is spinning as Trump fires administration heads and military top brass. These are hardly the actions of a war leader fully in control of the situation.

Joining the hydrocarbon dots

Which leaves us where we are today: an open-ended nominal ceasefire but the Straits of Hormuz double-blockaded and military force still being applied, albeit at a relatively low-level. The US is preventing the movement of sanctioned Iranian “shadow” shipping while the Iranians are simultaneously ensuring anything else that moves is attacked. In an ironic reversal of Trump’s initial pitch, both are managing the Strait to keep it shut rather than keeping it open. Adding to the joys of spring, the Houthis in Yemen have threatened to close the Bab El-Mandab Strait at the southern end of the Red Sea. One of the reliefs to global oil supplies was the swift Saudi reaction diverting exports that would normally be loaded in the Persian Gulf, through their “Petroline” pipe 750 miles across the Arabian peninsula to the port of Yanbu on the Saudi Red Sea coast; were the southern strait to be closed to the Indian Ocean (either by Houthi force or financially by Lloyds of London), all Saudi exports directed at Asian markets would have to be routed north through the Suez Canal, west through the Mediterranean and south all the way around the Cape of Good Hope.

Kpler, the global trade-watch consultancy, publishes average daily seaborne oil shipping data on a monthly basis. In April 2026, thanks to the combined effects of the Hormuz paralysis and the destruction or damage to refining and storage facilities in the Gulf states (not that any of it is moving other than by pipeline, even if it is extracted and processed), global shipments are currently as low as they were in June 2020 at peak worldwide lockdown in Covid. They average 34.912 million barrels per day (mbpd) now against 34.540 mbpd six years ago. In context, the figure in February this year, before the conflict started, was 43,717mpd. Shipments have dropped by 20%. 2020 was a demand-led crisis; 2026 is a structural supply-side shock. Six years ago, such was the oversupply glut, as demand fell precipitously, that crude briefly traded at negative prices, with refiners paying wholesalers to take it  away as they rapidly began curtailing production; today, demand remains at normal levels, around 106mbpd (in 1Q2020, demand fell from 95.3mbpd to a low of 83.7mbpd a reduction of 12.2%), but the constrained supply has rapidly pushed prices higher.

The media and most commentators report the price of Brent that is most often shown: for example, at the time of writing, the quoted price is $107pb, but that is the forward price for the June delivery contract. However, the spot price (i.e. what you pay at the quayside as a cash price today for instant delivery) is $119, an 11% premium. The longer the physical blockage remains and the lower global oil reserves fall, the greater the likelihood is of desperate buyers having to pay the spot price, rather than being able to plan ahead and buy forward.

For all governments of countries which are net purchasers of hydrocarbon energy, this is acutely challenging. It is a juggling act maintaining physical supplies and strategic reserves which may involve having to curb demand to manage, while also being aware of the twin economic problems of energy-related inflation pressure that is not mitigated through the likelihood of lower economic activity (i.e. counterintuitively, you could have both recession and inflation simultaneously).

Ill-equipped to manage supply-side dislocation, central banks are finding this difficult too. Part-way through an interest rate-cutting cycle, a global exogenous geopolitical shock has derailed planned cuts. Should they raise rates to curb incipient inflation? Or reduce them to mitigate against a slower economy? In contrast with the post-Covid/Putin gas manipulation event of 2021 when interest rates and government borrowing costs were rock bottom, today over-indebted western governments are already borrowing at the highest rates of interest in two decades. The inclination of the authorities so far is to sit on their hands and warn of the risk to asset values.

Focus tends to be on fuel prices, the inflationary effect on the supply chain and consumers’ own perspectives on their domestic transport and heating costs. But the ripple effect of the oil supply shock is much wider than that. Oil and gas, their by-products and off-spins are fundamental to the production of fertilisers, plastics, man-made fibres for textiles and other woven goods, in the production of CO2 used in many industrial processes including the means by which poultry and pigs are slaughtered; helium is a by-product of the LNG processing system and is integral to the production of semi-conductor chips. The list goes on and on.

The “R” word: Rationing!

In the UK there might be financial inconvenience from the spike in fuel prices, especially diesel, but there has been no threat to supplies. But the possibility of rationing is increasingly being talked of. It is already a reality in several Asian countries; Australia is contemplating rationing; in the EU, Slovenia is the first to have introduced a retail cap, limiting private motorists to a maximum purchase of 50 litres per day. This week, to combat surging jet fuel prices, German carrier Lufthansa cut 20,000 short-haul flights from its summer schedule. Related, it is being suggested (as reported in the Daily Telegraph) that in the UK, mobile phone operators excluded from the Chancellor’s business energy relief scheme may have to ration phone signal access to contain their power costs—where you can get one at all, that 3/4/5G signal doesn’t generate itself by magic.

Who blinks first?

All of which brings us back full circle to the “diversion that is not a War”. The economic pain is palpable, even in the US which is largely self-sufficient in energy but neither insulated nor immune from global energy price pressures. Politically, Trump’s war is unpopular (an Economist/YouGov survey on April 7: 53% against, 34% in favour). Trump’s approval rating for economic management is grim: 70% disapprove and 30% approve, making that net 40-point deficit the biggest of his presidency. Having started this, Trump will be keen to finish it, move on and put it all behind him, in his mind chalking up yet another peace resolution on his running tally.

But a bad deal which leaves the Iranian regime emboldened and empowered at some future stage to exercise its ability to hold the world to ransom will be self-defeating, including for the interests of the US. If Trump compounds it with something equally expedient but short-sighted with Vladimir Putin to halt the Ukrainian conflict (he wants a “deal” by June), the world will be an infinitely more dangerous place. What happens between now and the November mid-terms could have profound consequences. The eyes are on you, Mr President.

The Choke Point Postscript

Maritime choke points are named as such for an obvious reason. When it comes to the great geostrategic struggle for supremacy between the US and China and the consequences for everyone else, the dominance of those key waterways is a vital element in the control of global supply chains and exerting geopolitical leverage. Today, the focus is on Hormuz and the Bab El Mandab Straits. But equally important are the Taiwan and Bering Straits, the Straits of Malacca and Gibraltar, and the Suez and Panama Canals. Markets are keen to press on and assume the current strife will blow over. But those geostrategic choke points have the potential to be flashpoints as the great powers seek to exert their authority over global trade to their own economic and strategic advantage. When weighing the risks, do not ignore the straits and canals.

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