On September 16, 2026, the day the Federal Reserve raised involvement rates, an Iranian politician posted a math equation on social media.
His name is Mohammad Bagher Ghalibaf. He is the speaker of Iran’s Parliament.
Millions of group saw the post, but most did not comprehend what they were looking at.
The math equation was a copy of the equation that American chief bankers use to decide whether to lift or lesser involvement rates.
Ghalibaf had slightly altered the formula.
He added two new variables to the equation, the two named following waterways that Iran and its partners control.
Although the article was plainly a cheeky jab at the US administration, it was not necessarily a joke.
It was a message - concerning who sets the cost of prosperity in America. The cost of your mortgage, your car debt and the diesel in all truck that stocks your market store.
One week following Ghalibaf’s post, diesel hit $6.53 a gallon, the highest cost always recorded in the United States.
To comprehend his message, you archetypal need to comprehend the equation he was mocking.
In 1993, Stanford economist John Taylor wrote a equation for chief banks. It became known as the Taylor Rule, and chief bankers and Wall Street have used it always since.
The regulation asks two questions. First, are prices rising faster than the chief financial institution wants? Second, is the economics operating hotter than normal? If the answer to either inquiry is yes, the regulation says to lift involvement rates. If the answer is no, it says to lesser them.
For reference, current it is.
i = r* + π + 0.5(π − π*) + 0.5(y − y*)
Now translated, in English:
Interest charge = Neutral charge + Inflation + ½ × (Inflation − Target) + ½ × (Economy’s gap)
Interest rate: the charge the chief financial institution should charge.
Neutral rate: the "in-between" involvement charge that neither pushes the economics onward nor holds it back.
Inflation: how accelerated prices are rising correct now.
Target: how accelerated the chief financial institution wants prices to rise, normally 2% a year.
Economy’s gap: whether the nation is making and marketing additional than it comfortably can, or less. More method businesses are straining to keep up. Less method businesses are cutting rear and group are losing jobs.
If that misplaced you, don’t concern - the logic is simple, and current is the outcome:
If prices are rising too fast, the Fed volition lift involvement rates, making borrowing additional expensive. When borrowing expenses more, group and companies get less, expend less, and prices chill down.
Now Ghalibaf kept all of that in his equation. But he added two additional parts.
He labelled the archetypal new part “SOH,” which stands for the Strait of Hormuz. He labelled the second “BEM,” which stands for Bab el-Mandeb, the narrow strait at the southernmost end of the Red Sea.
He mockingly called it the “Straits Taylor Rule.”
Below the formula, he wrote, “You can’t 25bp a chokepoint.”
Ok. What does all this mean?
Part of today’s elevated oil cost is driven by fear. Buyers pay additional for all cask since they do not cognize whether the Strait of Hormuz volition be open tomorrow. Iran controls that fear; therefore, Iran controls that additional cost.
This is the “SOH hazard premium” he is referring to, and in his words, “We set it.”
So what is the association between the SOH hazard premium on oil prices and Ghalibaf’s assertion that Iran now holds a hand on the direction of America’s involvement rates?
Here it is: Higher oil prices = higher everything prices.
The Federal Reserve raises rates to tame rising prices, assuming those prices arrive from too much cheap prosperity being lent into the economy. But if cost increase is caused by elevated energy prices because of restricted oil supply, raising rates won’t help.
If the Fed raises rates all period oil prices jump (to combat rising prices, as per the Taylor Rule), afterward whoever controls oil prices controls the Fed.
And the cheapest way for Iran to move oil prices is to create oil harder to ship.
That’s what Ghalibaf meant whenever he said: “You can’t 25bp a chokepoint”.
He was claiming that since Iran influences the oil price, Iran influences the cost increase rate and therefore takes the power out of the hands of the Federal Reserve.
The Fed is using a tool built for too much borrowing to combat a issue caused by too small oil.
Now let’s appearance at the track record.
Leading up to the Fed’s September 16 involvement charge decision, tankers were attacked in and about the Strait of Hormuz, and a Saudi refinery at Jizan was hit. The Iran-backed Houthi militia seized the shoreline alongside Bab el-Mandeb, and drones launched from Iraq forced Saudi Arabia to close its chief oil pipeline. Oil climbed rear complete $100 a cask that week. On September 15, the day before the decision, another tanker was attacked near the entrance to the strait.
The identical item happened before the Fed’s July meeting, whenever Houthi missiles struck two Saudi tankers, and oil touched $100.
The Fed’s next decision is due on October 28. Remember that date. I would not be amazed to see attacks spike again.
Maybe.
Just for fun, let’s obtain Ghalibaf at his term and stroll his scheme all the way to the end. We volition interrupt it downward into four steps.
The United States and Israel struck Iran on February 28, 2026. Within days, Iran declared the Strait of Hormuz closed.
In September, the Iran-backed Houthi militia seized the isle that sits in the center of the Bab el-Mandeb strait, rendering it closed as well.
Those are the two waterways in Ghalibaf’s formula, and together they defender the Gulf’s way out and its chief way around.
Hormuz is the lone sea path out of the Persian Gulf. The biggest detour is a Saudi pipeline that carries oil throughout the wilderness to the Red Sea, and tankers taking that oil to Asia must afterward sail through Bab el-Mandeb. Whoever controls the two straits can obstacle the forefront entrance and the rear entrance at the identical time.
Now current is the point.
Oil is refined into diesel, and diesel fuels America. Diesel-powered trucks transport concerning 73% of all the freight in the United States. Before the war, diesel disbursal concerning $3.76 a gallon. By the week of September 21, it disbursal $6.53. That is an addition of approximately 74%.
Farmers awareness it first. Tractors and combines run on diesel, and the autumn crop (right now) is the busiest period of the year.
The Gulf additionally makes much of the world’s fertilizer. The Middle East ships nearly a fourth of the world’s urea, the most average nitrogen fertilizer. Between February and April, urea prices jumped 80%.
Airplanes run on jet fuel, which comes from the identical barrel. Jet energy prices approximately doubled following the war began. By August, airfares were 23% higher than a twelvemonth earlier.
Why does all of this matter?
Add it up, and you get the August cost increase report.
Prices throughout the economics were 3.4% higher than a twelvemonth earlier. Energy prices were 16% higher.
Now the Taylor Rule does exactly what it was built to do. Prices are rising faster than the Fed wants, so the regulation says to lift involvement rates.
On September 16, 2026, the Fed did that. It raised rates for the archetypal period since 2023.
This is the trap Ghalibaf was pointing at.
A charge hike plant by making group get small and expend less. But Americans aren't paying additional for diesel since lending markets are too cheap. They are paying additional since oil cannot get out of the Persian Gulf.
Once again: The Fed is using a tool built for too much borrowing to combat a issue caused by too small oil.
A charge hike does not fix the oil shortage, but it does attain all borrower in the country.
On February 26, 2026, two days before the war began, the average 30-year home loan charge in America was 5.98%. It was the archetypal period in three and a fractional years that rates had dipped below 6%. By September 24, the average charge was 7.03%.
Here is what that method for a genuine family. On a $400,000 mortgage, the monthly fee at 5.98% is concerning $2,393. At 7.03%, it is concerning $2,669. That is $276 additional all month, or additional than $3,300 a year, for the identical house.
The identical item happens to car loans, endeavor loans and credit cards. So the family already paying additional for diesel, groceries, and flights is now additionally paying additional to borrow.
The biggest borrower in America is the American government.
When the authorities spends additional than it collects in taxes, it borrows the difference. It borrows by marketing IOUs called Treasury bonds. A association is a promise: contribute the authorities prosperity today, and it volition pay you rear afterward alongside interest.
On September 21, 2026, America due concerning $40.1 trillion. Every charge hike makes that borrowing additional expensive.
The invoice is already enormous. In the archetypal eleven months of its 2026 prosperity year, the United States spent concerning $1.05 trillion on involvement on its debt. It lone spent $833 milliard on its armed forces complete the identical months. America now spends additional on paying its lenders than on defending itself.
The historian Niall Ferguson has a name for this. He calls it Ferguson’s Law: spending additional on debt than on defence signals a receding empire. Spain traversed it in the 1500s. France traversed it in the 1780s, fair before its revolution. The Ottoman Empire traversed it in the 1870s. Britain traversed it between the two earth wars. Each was a awesome power, and all misplaced that position shortly following they began spending additional prosperity on debt servicing than on defending themself.
By Ferguson’s count, America traversed the identical row in 2024.
Follow the steps in a circle.
Iran makes oil harder to ship.
Expensive oil becomes costly diesel
Expensive diesel becomes inflation.
Inflation pushes the Fed to lift rates.
Higher rates create the government’s debt additional expensive, so the authorities has to get equal additional to pay its own interest.
At several point, the Fed has to choose how the circle ends.
It can keep raising rates until item breaks - the accommodation market, the inventory market or the association market itself. Or it can halt raising rates during prices keep climbing, and imprint prosperity to prosperity itself whenever another countries halt purchasing its bonds. That way protects the association market, but it makes the dollar value less, and prices ascend equal faster.
That is Iran’s bet. It is a grave bet.
But Iran is not the lone flank alongside a plan.
If we now comprehend Iran’s agenda, we should try to comprehend America’s.
Iran is trying to interrupt America through its debt. America is trying to win through energy dominance.
In February 2025, President Trump created a National Energy Dominance Council. It tasked the secretaries of the Interior and Energy alongside pushing American oil, gas and power production as elevated as it can go (drill baby drill).
Washington never says the goal out loud, but I think it is plain: America does not desire to be one provider among many. It wants to be the provider the earth cannot do without.
Trump stated as much before he took office. In December 2024, he told the European Union to fix its commerce gap alongside America “by the large-scale acquisition of our oil and gas,” or visage tariffs.
In 2025, the United States produced a document 13.6 myriad barrels of crude oil a day. That’s additional than Russia and the Saudi’s combined. America has additionally rotate into the world’s biggest exporter of liquefied natural gas.
But appearance at what has happened to everyone else’s energy manufacturing in 2026...
On March 18, Israel struck Iran’s South Pars gas field. Iran answered by firing missiles at Ras Laffan in Qatar, among the largest natural gas export sites on Earth. The strikes knocked out concerning 17% of Qatar’s export capacity, and repairs are expected to obtain years.
In September, drones launched from Iraq hit Saudi Arabia’s East-West pipeline, the chief path for Saudi oil to evade the Strait of Hormuz. Saudi Arabia close it down.
In Russia, Ukrainian drones hit an oil refinery concerning once all three days during the archetypal eight months of 2026, according to the International Energy Agency. By June, Russia’s refineries were operating concerning 30% below a twelvemonth earlier.
Iran’s own exports are being choked off on purpose. In September, America’s Energy Secretary, Chris Wright, stated the biggest job of the U.S. armed forces in the area correct now is to “stop the export of any Iranian crude.”
That’s a lot of energy offline. Who is strolling in to inhabit the gap?
In April 2026, American crude oil exports hit a document 5.6 myriad barrels a day, up 21% from the former record. In the archetypal fractional of the year, American gas exports rosy 23%, and exports to Asia more than doubled. Europe is expected to get concerning two-thirds of its imported gas from America this year.
The most striking alter is in Qatar.
By the end of July, the province business QatarEnergy had bought 33 shiploads of American gas this twelvemonth to fulfill contracts alongside its buyers in South Korea, Taiwan, Japan, India and Bangladesh. One of the world’s awesome gas sellers has rotate into a client of America.
Long-term contracts are being signed, too.
In July 2025, the European Union promised to buy $750 milliard of American energy by 2028.
On September 1, 2026, following the grasp of Venezuelan President Nicolas Maduro, the United States signed a agreement alongside Venezuela’s interim authorities that gives an American-led business 100-year entitlements to 17 of the country’s oil sectors - allegedly the biggest on earth.
Here is the theory in one sentence:
America does not need to win a association war if it can create the entire earth depend on American energy, priced in American dollars.
Important to note: America did not blaze the missiles that destroyed the earth energy infrastructure.
Iran hit Qatar. Ukraine hit Russia. Militias in Iraq hit Saudi Arabia.
In March, America bombed armed forces targets on Iran’s Kharg Island, anywhere concerning 90 percent of Iran’s oil is loaded, but deliberately remaining the oil terminal standing. Trump stated he spared it “for reasons of decency.”
I think it gave America item additional helpful than a burning oil terminal. It gave America plausible deniability.
A scheme akin this lone plant if America is never seen bombing the world’s energy provision itself. America lone have to be the one nation that gets stronger all period person else’s energy burns.
So far, that is exactly what has happened.
This is anywhere the two wars collide. It's a bit weird, and value thinking about.
Iran’s attacks create oil expensive. Expensive oil drives customers distant from the Gulf and into America’s arms.
So all tanker Iran threatens helps America’s energy war.
But America’s energy war keeps oil expensive, too.
Every competitor provision that stays offline keeps energy prices high, and elevated prices keep cost increase high. High cost increase tells the Fed to lift rates, and higher rates create America’s debt additional costly to carry.
So all cask America sells at a elevated cost helps Iran’s association war.
America volition never say it wants costly oil. It says the opposite. But costly oil is what happens whenever the world’s another suppliers are knocked offline.
So…
Iran is creating costly oil overtly. America is creating costly oil covertly.
Both countries are creating costly oil, but they desire distinct things from it.
Iran needs oil to remain costly for as lengthy as possible. Every duration of elevated prices is another duration of elevated involvement rates on America’s $40 trillion debt.
America lone needs oil to remain costly for a while. As lengthy as competitor suppliers are knocked offline, the earth signs lengthy contracts alongside Texas, Alaska and Venezuela (via America). Once those customers are locked in, America no longer needs costly oil. It needs the opposite. Cheaper oil would chill inflation, let the Fed lesser rates and shrink the involvement bill.
That is what Treasury Secretary Scott Bessent was describing on August 8, whenever he stated that over the next two years the Strait of Hormuz would rotate into “just another build of water.” If most of the world’s energy flows about the strait alternatively of through it, the fear built into all cask disappears, and Iran loses the cost it claims to set.
So this is a competition between two clocks. America’s clock is measured in energy contracts. Iran’s clock is measured in Fed meetings.
Go rear to Ghalibaf’s equation. His two additions, SOH and BEM, lone matter as lengthy as the world’s oil has to continue through those two straits. America’s entire scheme is to create those straits worthless.
The Fed makes its next decision on October 28. Watch the Persian Gulf and the Red Sea in the weeks before it. If a tanker is hit or a pipeline goes quiet, and oil jumps fair as the Fed sits downward to vote, you volition cognize Ghalibaf’s equation is motionless working.
Honest inquiry - let me cognize in the comments: what am I missing?
That’s it for today,
Jay Martin
If you value my writing, delight portion it alongside someone!
