I remember realizing shortly after we moved into our North Kingstown home that Tarzan himself once lived here. While lighting one of the enormous bonfires of those early days a combination of dense air, too much gasoline poured onto the pile too soon, and the spark itself resulted in 1,000 times the explosion required to light my fire. The U.S. economy may be approaching a highly combustible combination of its own: an energy supply shock caused by the closing of the Strait of Hormuz, noticeably depleted Strategic Oil Reserves that must eventually be replenished, and an attempt by policymakers to suppress long-term interest rates.
The Strait of Hormuz remains severely disrupted following the ongoing conflict with Iran, with traffic reportedly down about 95% from normal levels. The waterway is a critical conduit for global energy supplies, and even a partial, prolonged disruption can raise the cost of crude oil, refined products, shipping, and insurance. The first-round effect is straightforward: higher energy prices feed directly into gasoline, diesel, transportation and utility costs. The second-round effect is more important. Businesses facing higher energy, freight and input costs eventually pass those expenses through to consumers, potentially broadening an initially energy-driven inflation shock.
The Hormuz-related reduction in oil shipments has led to additional drawdowns from the U.S. Strategic Petroleum Reserve, which remains well under half of its total capacity and at historically low inventory levels.1 Replenishing that lost inventory could eventually require the government to become a significant buyer of crude oil, potentially at prices well above today’s. This creates an additional source of demand in the oil market, putting upward pressure on crude and gasoline prices. Because energy costs are embedded throughout the economy, higher oil prices can feed into a broad range of goods and services, making the eventual replenishment of the Strategic Petroleum Reserve potentially inflationary.
These inflationary headwinds introduce the risk of a lower real (after inflation) return on long-dated US Treasury bonds. As a result, buyers of long bonds have been demanding higher interest payments to substantiate increased risk-taking, driving yields to the highest level since 2007.2 This surge in yields acts as a warning signal to investors of higher inflation, but is not politically expedient approaching a Mid-term Election, and the Treasury Department has responded in what may be an attempt to suppress long-term bond yields by increasing purchases of longer-maturity government debt. Financial repression can artificially lower interest rates in the short term but undermines long-term economic stability by limiting monetary policy tools and potentially fueling future inflation. Historical parallels drawn to the 1960s and 1970s suggest that such measures could backfire.
Energy shocks do not necessarily appear fully in headline inflation immediately. They can work through supply chains over several months. That means today’s disruption could become tomorrow’s broader inflation problem—even if oil prices stabilize before the headline numbers peak. This is therefore less a forecast than a warning: Hormuz creates the inflation impulse; long-rate suppression could amplify the financial response. If both forces persist, the months ahead could look considerably more inflationary than current consensus expectations suggest.
Think about it, and may God bless your effort to mitigate investment risk while earning net-positive (after taxes and inflation) returns. Shaun
“Inflation is not an unexplainable phenomenon; it is our national policy. I define it as a deceptive way to hide excessive debt.” ~Shaun Scott
“He who earns wages does so to put them into a bag with holes”. ~Haggai 1:6
1 Stansberry Research, The Stansberry Digest, “Them’s Fightin’ Words”, August 25, 2026
2 Trading Economics, United States 30 Year Bond Yield, August 28, 2026
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