Dual Throat Crisis Approaches: Markets Face Energy Shock and Long-Debt Pressure

On July 23, the situation in the Middle East has escalated from a "single strait risk" to a "dual throat risk." The Strait of Hormuz and the Red Sea—Bab el-Mandeb Strait are both facing military threats, with Iran and the Houthis exerting pressure on shipping in the Persian Gulf and the Red Sea, respectively. The United States is simultaneously increasing the deployment of special forces, aircraft, and long-range bombers to the Middle East combat zone. What the market truly needs to be wary of is not just the shock to oil prices, but the structural rise in global energy transportation and insurance costs. As Brent crude oil approaches $95 again, this is no longer a short-term supply and demand issue, but rather a risk premium related to global logistics and energy security being re-priced into asset valuations.

Moreover, it is noteworthy that this energy shock is misaligned with global central bank policies. Although the European Central Bank is likely to keep interest rates unchanged this week, energy prices have rebounded significantly within a month, prompting the market to begin reserving space for another rate hike in September. Japan, on the other hand, is open to accelerating interest rate hikes due to a weaker yen and import-driven inflation pressures. In contrast, while the decline in the U.S. June CPI has temporarily alleviated the pressure for an immediate rate hike by the Federal Reserve in July, after Waller canceled forward guidance, the predictability of future policy paths has significantly decreased. The swap market has fully priced in expectations of a 25 basis point rate hike before the end of September, indicating that the market is no longer trading on whether there will be a rate hike this month, but rather on whether the energy shock will keep inflation elevated.

The signals from the long bond market are equally significant. The yield on the 30-year U.S. Treasury bond has remained above 5%, reaching a rare record not seen in nearly 20 years, reflecting the triple pressure of fiscal deficits, AI infrastructure financing, and inflation risks. Weaker overseas buying and domestic funds favoring short-term bonds have raised the financing costs for the U.S. government in the future. The key range that the market is currently focusing on is no longer 5%, but whether around 5.25% will exert substantial pressure on stock market valuations and financial stability.

AI capital expenditure has also become another underestimated variable. Raising the 2026 capital expenditure forecast to $195 billion to $205 billion and increasing the 2030 cloud computing expenditure estimate to $700 billion, along with reaching multi-billion dollar chip and investment agreements, indicates that tech giants will continue to issue a large amount of long-term bonds in the coming years, competing with the U.S. Treasury for long-term funds. The market is entering a phase where "government deficits + AI infrastructure" jointly absorb global savings, making it more difficult for long-term interest rates to fall quickly.

The policy mix of the Trump administration is also increasing inflation uncertainty. On one hand, it is preparing to initiate a new round of 301 tariffs on dozens of economies, while on the other hand, it is granting a two-year zero-tariff buffer period for generic drugs, showing that the White House is still seeking a balance between "external pressure" and "internal price control." The issue is that if oil prices remain high and gasoline prices rise above $4 per gallon again, combined with tariff costs, inflationary pressures may be more persistent than the market currently expects, directly affecting political risks ahead of the midterm elections in November.

From an asset pricing perspective, the most important second-layer signal is that the market is simultaneously facing "energy supply risks" and "funding supply constraints." The former pushes up inflation and transportation costs, while the latter raises global funding costs through long-term Treasury yields and AI financing demands. This combination means that the difficulty of expanding risk asset valuations has further increased, with funds more likely to flow into short-duration assets and those with cash flow defensive capabilities. What truly needs attention is not just whether oil prices can break through $100, but whether the yield on the 30-year U.S. Treasury bond will form a new normal range above 5%; once this level is accepted by the market, the discount rate system for global assets will face re-pricing.