Trump's Iran sanctions pivot lifts bond yields, oil above $88

The White House has shelved fresh strikes on Iran for financial sanctions and a naval blockade, a pivot that pushed the 10-year Treasury yield to 4.721 percent and Brent crude above $88 a barrel.

"Economic pressure is a possible element in his strategy, but he's yet to explain the purpose," said Richard Nephew, a senior research scholar at Columbia University who helped direct Iran sanctions strategy in the Obama administration.

The pivot comes as eurozone government bond yields climb on inflation concerns, with the 10-year Bund up 2.3 basis points to 3.198 percent and the French 10-year yield rising 3.4 basis points to 4.009 percent, Tradeweb data show. LSEG data put the probability of a Federal Reserve rate hike in September back above 50 percent, while the dollar index held flat at 99.834 ahead of Wednesday's U.S. inflation report.

The stakes are high for global energy markets. The Strait of Hormuz, which shipped roughly 20 percent of global oil supplies before the conflict, remains largely closed, and U.S. Treasury data show Iranian oil loadings have fallen from 1.8 million barrels a day before the war to less than 500,000 barrels a day over the past month.

Operation Economic Fury

The administration has since April 16 been running what it calls "Operation Economic Fury" against Iran, with Treasury Secretary Scott Bessent describing the sanctions as the "financial equivalent" of a bombing campaign. Countries that buy oil from Iran or bank with it face sanctions. Trump told reporters Monday that Iran is "broke, totally broke," citing inflation he put at 300 percent — higher than the 88.6 percent annual rate the Iranian government recently reported.

The International Monetary Fund estimates Iran's economy will shrink 5.4 percent this year. The pivot is a reversal for Trump, who has long derided past presidents for relying on sanctions that date back to November 1979. "It's been 47 years, but really, it's been 50 years," he said in a Las Vegas speech last week, defending the bombing campaign that began Feb. 28.

Sanctions bite more slowly than the shuttered strait, and Trump has not articulated a clear strategic goal, at times stressing that Iran cannot have a nuclear weapon, then emphasizing the strait, then talking about ballistic missiles. "Trump has systematically weakened his own hand through his inadequate use of force, inarticulate elucidation of an objective, and vacillation on negotiations," Nephew said.

Iran does not appear intimidated. "Whenever Washington proves itself incapable of pursuing diplomacy, it retreats into sanctions," Esmaeil Baqaei, spokesman for Iran's Foreign Ministry, said on social media.

Bond Yields Climb as Rate-Hike Bets Return

The market reaction is already visible across assets. Eurozone government bond yields are higher on inflation concerns as prospects of a near-term resolution fade, with the 10-year Bund climbing 2.3 basis points to 3.198 percent and the French 10-year yield rising 3.4 basis points to 4.009 percent, Tradeweb data show. LSEG data put the probability of a Fed rate hike in September back above 50 percent after Friday's weaker-than-expected U.S. nonfarm payrolls report briefly scaled it back. The dollar index held flat at 99.834 ahead of Wednesday's U.S. inflation data.

The last time the U.S. leaned this heavily on sanctions against Iran was under the Obama administration, when the 2012 oil embargo cut Iranian exports by more than half and helped bring Tehran to the negotiating table within two years. Whether the current squeeze works depends on how far Washington is willing to go to constrict Iran's oil trade and threaten third countries with severe sanctions, said Juan Zarate, a deputy national security adviser in the George W. Bush administration. "The ultimate question will be whether it has the patience to test whether the economic pain will change the regime's behavior," he said.

For the U.S., the war and higher gasoline prices are unpopular, and borrowing costs have risen in ways that have hurt Trump's approval. Trump is essentially arguing that American voters can tolerate economic inconvenience better than Iranians, who have endured years of hardship. Defense Secretary Pete Hegseth said Monday that "we've got the most powerful economy in the world as well," and that a motivated Treasury secretary "can pull a lot of levers."

If the sanctions fail to force Tehran's hand, Trump faces a choice between a wider war that could shock oil markets and a retreat that would leave Iran's nuclear program intact. A bad agreement, former officials warn, could effectively subsidize Iran's reconstruction.

This article is for informational purposes only and does not constitute investment advice.