Strait jacket: Wall Street is worried President Trump has no good options for ending the war with Iran

It is slowly dawning on Wall Street that President Trump has no good options for ending the conflict with Iran, according to research notes seen by Fortune. In fact, he may be stuck in an as-yet-unsolvable dilemma: He cannot reopen the Strait of Hormuz without handing a “victory” to Iran, and he cannot keep it closed because the midterm elections are approaching and the war is unpopular with voters who dislike rising gasoline prices.

Until the fighting restarted earlier this week, the U.S. had been attempting to usher ships through the Strait via a southern route that hugs the coast of Oman. The Iranians don’t like that. They want ships to use a northern route that hugs the coast of Iran, in order to extract tolls. That’s why Iran began attacking oil tankers earlier this week—they don’t want ships using the Strait for free.

“Iran recognized that if it didn't attack these vessels, it would risk being perceived as having lost the Strait as a tool of leverage,” according to Macquarie’s Thierry Wizman and Gareth Berry.

Iran's threats against ships that pass through the Strait without paying tolls all but force the U.S. to continue its strikes.

“Iran's strikes violated the one MOU [memorandum of understanding] provision Washington considered non-negotiable: keeping the Strait open,” Alpine Macro’s Dan Alamariu argued in an email to Fortune. “With Iran again choking the Strait, the U.S. has zero incentive to ‘play nice’; the closure negates President Trump's main motivation to deal: the lower oil prices he needs ahead of the midterms.”

One solution: “Domestic fallout is still too early to call, but Trump could pin the talks’ failure on JD Vance, a leading MOU public proponent,” Alamariu said.

Trump’s oil-price problem is real. While the U.S. and China still have a decent amount of oil in their national reserves, those reserves are nonetheless declining as the months go by. The U.S. strategic Petroleum Reserve is now at its lowest point since 1983, as this chart from Alpine shows:

The price of Brent Crude oil declined today, perhaps in reaction to a surprising dearth of headlines from the Middle East this morning. While some explosions were reported in Iran, the U.S. did not say it engaged in further strikes. One U.S. official told Bloomberg that talks between Tehran and Washington are continuing.

Yikes. Ed Yardeni and Elias Griepentrog of Yardeni Research had a cold, cold reaction to the resumption of fighting in the Gulf. In a note to clients titled “War! What Is It Good For?” they said, “History shows that geopolitical crises, including wars, often have been good buying opportunities for stocks. That was true during [this year’s] Gulf War III, as the S&P 500 bottomed on March 30 and rose 18.3% through yesterday's close. The ceasefire in the war between Iran and the US ended abruptly today; will that present another buying opportunity? We think so.”

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Companies worried about mounting AI bills are increasingly shifting to cheaper, open-source models, Amazon’s chief technology officer, Werner Vogels, told Fortune’s Bea Nolan. That’s bad news for OpenAI and Anthropic—which are both heading toward IPOs later this year—because it suggests that their customers see AI models as interchangeable commodities that can be arbitraged based on price.

“We see a shift happening between the cheaper open-source models and the bigger expensive models,” Vogels said.

While the best models deliver superior results, second-ranked models are often adequate for more basic tasks at a lower cost. “Cost is a very important part of your architecture, you need to take that into account,” Vogels said. “Do you really need to have the biggest, highest‑end model to solve this? The answer is no, you don’t.”

Social media is often a toxic pit of bad-faith AI slop, but there’s one corner of it that bucks the trend: Reddit. “The front page of the internet” continues to baffle, surprise, and delight users no matter how obscure their interests are. And it’s paying off in terms of ad revenue, according to John Colantuoni and his team at Jefferies. A straw poll of ad agencies showed that Reddit was  “gaining additional share of social budgets,” they said in a note seen by Fortune. Agency sources said LinkedIn, Pinterest, Snap, and X were the platforms losing ad dollars to Reddit. Jefferies estimates Reddit will make $3.2 billion in revenue this year.

Spending at restaurants and bars in cities that hosted World Cup games rose 5.3% versus the previous year, on average, according to Bank of America’s Aditya Bhave. In cities without World Cup matches, spending rose just 3.8%.

The amount of additional annual spending on the military that would occur if European countries hit their NATO commitment to spend 5% of GDP on defense, according to an estimate by Thierry Wizman and Gareth Berry at Macquarie. 

Above: Harry Styles fans in Amsterdam waiting to see their idol—and generating inflation in the process. Photo via Getty Images.

The European Central Bank recently raised interest rates Europe-wide by 25 basis points, to 2.4%, to fight off inflation in the services sector, Fortune’s Preston Fore reports. Harry Styles was partly to blame, according to Carsten Brzeski of ING. The minutes of the ECB’s last meeting say that services inflation ticked up to 3.5% in part because of “concert-related hotel prices in the Netherlands.” 

That, notes Brzeski, was a reference to Styles’ 10-day residency at a massive arena in Amsterdam, which jacked up the price of hotel rooms city-wide for an extended period.