AAIG’s Macro Pulse #8

Written by Jochem Verzijl

Welcome to this eighth edition of AAIG’s Macro Pulse. Week 16 was the week the diplomatic scaffolding around the Iran ceasefire visibly cracked. Talks collapsed twice, a dual blockade hardened, oil crossed $100 again, the UAE announced it was leaving OPEC today, and Powell held his final Fed meeting as chair. Every one of these events connects to the others, and taken together they point to a macro environment that is becoming structurally more difficult, not temporarily more volatile. Let’s work through it!

1) KEY METRICS / DATA POINTS

Let’s walk through the main events again. Last week began with the ceasefire technically expiring on April 22. Trump extended it at the last minute, but the framing of that extension matters as much as the decision itself. He did not extend it because progress was being made, but extended it because Pakistan’s army chief personally asked him to and because, in his own words, Iran’s leadership was “seriously fractured” and needed time to produce a unified proposal. This is seen as an acknowledgment that the other side cannot even agree internally on what it wants, which makes any near-term agreement structurally improbable.

The Iran that the US is now negotiating with does not have a functioning supreme leader in any conventional sense. Khamenei was killed in the February 28 strikes. His son Mojtaba has been named as successor but reportedly remains injured, and the CFR noted this week that unnamed US officials cited difficulty communicating with him as a direct factor in the ceasefire extension decision. What that means in practice is that the IRGC, the foreign ministry, and what remains of the civilian government are pulling in different directions simultaneously, which is exactly why the IRGC closed the strait hours after the foreign minister opened it two weeks ago. The US is trying to negotiate with an entity that cannot yet speak with one voice, which is just extremely difficult.

The week’s most telling sequence came on April 25. Witkoff and Kushner had been scheduled to fly to Islamabad for a second round of talks. Iran’s Foreign Minister Araghchi arrived in Pakistan first, met with Pakistani officials, and then left without meeting the US delegation. Trump cancelled the trip minutes after Araghchi departed, posting that “if they want to talk, all they have to do is call.” Within ten minutes of the cancellation, Iran submitted what Trump described as a “much better” but still insufficient proposal. That ten-minute turnaround is worth pausing on. It tells you that Iran was watching the US response in real time and adjusting, which suggests the negotiating dynamic is more active beneath the surface than the public posturing implies. This means both sides are still probing each other’s limits.

Iran’s current formal offer, confirmed by Secretary Rubio on April 27, is straightforward: lift the US naval blockade of Iranian ports, end the war, and the strait reopens. Nuclear discussions would be deferred to a later, separate process. Rubio rejected this immediately, calling the nuclear issue the “core” of any lasting agreement. Trump reportedly told advisors he was not satisfied with the proposal, though his exact objections were not disclosed publicly. What this offer tells us is that Iran is trying to separate the two issues that the US insists must be solved together: Hormuz and nuclear enrichment (make sure to read AAIG’s nuclear articles for insights into this industry). That is a negotiating move designed to get immediate economic relief (sanctions lifted, blockade ended) while preserving its nuclear programme for a later round where it might be negotiable on better terms. The US, rationally, recognizes this and is refusing to play along.

On the oil market, the consequences of this stalemate are now moving from the energy sector into the broader economy with increasing speed. WTI crossed $100 again today and Brent touched $105. I want to make a small reminder that the war officially began on the 28th of February, so it has lasted 2 months already today.

The World Bank published its Commodity Markets Outlook this week, forecasting a 24% surge in energy prices for 2026, the largest spike since Russia’s invasion of Ukraine in 2022, and raised its Brent forecast to average $86 for the full year. That full-year average, however, assumes disruptions begin easing in May and normalize by year-end. Neither of those assumptions is currently supported by events on the water and the negotiation situation.

Today’s UAE’s announcement that it is leaving OPEC and OPEC+ effective May 1 adds a further complication. The stated reason is a restructuring of its energy strategy. The more direct interpretation is that the UAE, which relies on the strait for its own energy exports and whose economy has been hit hard by the closure, is freeing itself to boost production unilaterally and redirect flows without being constrained by cartel quotas. Whether that production actually reaches markets depends entirely on whether there is a safe corridor through which to ship it, which brings everything back to Hormuz, again.

2) AAIG’S PERSPECTIVE

The dual blockade is now the defining feature of the global energy market, and it is important to be precise about what that means. The US blockade stops ships from accessing Iranian ports. Iran’s blockade stops commercial ships from transiting the strait. These two restrictions are now mutually reinforcing. Neither side can lift its blockade without the other going first, and neither side is willing to go first. CFR described it this week as both countries being “complicit in keeping the strait closed” and noted that this shared complicity is paradoxically the strongest argument for a face-saving simultaneous opening, where neither side loses credibility because both move at the same time. That is intellectually elegant and diplomatically plausible. This all reminds me of my primary school’s economics course; this would make a perfect prisoners dilemma. The obstacle is that it requires a level of trust between Washington and Tehran that simply does not exist right now.

Iran’s offer to separate Hormuz from nuclear talks is worth taking seriously as a diagnostic, even if the US is right to reject it. Iran is telling you what it values most right now: economic relief. The country’s economy has been devastated. Treasury Secretary Bessent cited reports this week of Iranians bartering cooking oil to survive. The IRGC’s offshore accounts may be holding up, but the civilian economy is under severe strain. A government operating under that kind of internal economic pressure has a powerful incentive to get the blockade lifted, which is why the ten-minute turnaround on the proposal after Trump cancelled the trip was not surprising. The question is whether that economic pressure is strong enough to force a concession on nuclear enrichment, which is not primarily an economic issue for Iran. For them it is more of a sovereignty and security issue. Iran watched what happened to Libya and Iraq after they gave up their weapons programmes as examples of case studies. The IRGC, which holds real power right now, will not repeat that calculation lightly.

The World Bank’s 24% energy price surge forecast matters for a reason that goes beyond the headline number. It connects directly to what we see in the inflation data. March CPI came in at 3.3%, driven almost entirely by energy. April’s reading, due in May, is going to be built on an even higher energy base, with WTI having averaged above $95 for the month and briefly touching $100. The second-order effects, logistics costs, food transport, fertiliser prices (also disrupted by the war), and consumer goods, are still feeding through. Clinton put it bluntly at a Democratic event this week: “Americans see the truth at the gas station and in the grocery aisle.” She is not wrong on the data, whatever one thinks of the framing, and of Clinton itself.

This brings us to the Fed, and to a transition that deserves more attention than it is receiving. April 28 and 29 mark Powell’s final meeting as Fed chair. His term expires May 15. Kevin Warsh is his nominated replacement, and the Senate Banking Committee is scheduled to vote on his confirmation tomorrow. The Senate was previously blocking Warsh’s confirmation over a Justice Department investigation into Powell, which was closed last Friday by US Attorney Jeanine Pirro, clearing the path. The combination of a new Fed chair arriving into an active inflationary shock, with a war ongoing and a structural blockade in the world’s most important shipping lane, is a significant institutional moment. Warsh is a market credibility figure, which is why Trump nominated him. But inheriting the chair at a point where inflation is 3.3%, core PCE was 3.1% in January, rate cuts have been on hold since December 2025, and a second wave of energy pass-through is incoming, is not a comfortable starting position to say the lightest.

The Fed’s decision tomorrow will be a hold at 3.5% to 3.75%, with 100% probability priced in by markets. What matters is the language. If Powell, in his final press conference, signals that the one projected cut for 2026 is still on the table, markets will take that as a green light for risk. If he effectively removes it by framing energy inflation as persistent rather than transitory, the Treasury market moves and equities face a repricing. J.P.Morgan has already shifted its base case to no cuts through 2026 and a potential hike in Q3 2027. That scenario, no cuts and eventually higher rates in a softening labour market, is the stagflation outcome that asset prices are still not fully reflecting, which I wrote about in previous editions as well. Small reminder: all three major indexes are trading near their all time high levels.

3) WHAT TO WATCH

Three developments in the coming week will define the macro environment for the rest of Q2, and they are all connected.

The first is Powell’s final press conference tomorrow. The specific language around inflation and the forward rate path is the most consequential single communication event of the week. Watch for any shift from “transitory energy shock” toward language that acknowledges persistence or second-order pass-through effects. That shift would be the signal that the one remaining projected cut for 2026 is effectively off the table, which has direct consequences for mortgage rates, corporate borrowing costs, and equity valuations. The handover to Warsh is also relevant. A Senate confirmation this week means Warsh takes the chair in three weeks, inheriting an economy where the Fed’s room to maneuver has been progressively narrowed by eight weeks of energy disruption.

The second is whether Iran produces a serious unified proposal in the coming days. The ten-minute turnaround on April 25 suggests that Iran’s diplomatic track is more responsive than its public posturing implies. The critical question is whether the civilian government and the IRGC can align on a position that includes any meaningful concession on the nuclear programme. Right now the IRGC has the stronger hand inside Iran, and the IRGC’s view is that nuclear capability is non-negotiable. If Iran submits a proposal that is simply the Hormuz-for-blockade swap with nuclear talks deferred, Rubio has already told you the answer is no. The realistic deal-maker, if one exists, is a partial concession from Iran on enrichment limits (not elimination) paired with a partial lifting of the US blockade and a simultaneous Hormuz reopening. That is a narrow path, but it is the only credible off-ramp we can see.

The third is the UAE’s production boost and what it means for oil markets. The UAE leaving OPEC on May 1 and promising to raise output is a significant supply-side development. If the UAE can route production through the Omani corridor or directly via the southern Gulf, it could add meaningful supply to markets that have been starved of Gulf crude for two months now. That would put downward pressure on oil prices independent of any Iran deal, which in turn reduces inflationary pressure and gives the Fed marginally more room ultimately. The practical constraints on that routing remain real, mine clearance, insurance, and IRGC patrol activity, but the UAE’s move is the first significant supply-side variable to shift in weeks and it deserves close attention.

The connection between all three is simple: oil is the transmission mechanism between the geopolitical standoff and every other economic variable. If oil stays hovering around $100 through May, inflation accelerates, the Fed is boxed in, consumer confidence deteriorates further, and the corporate earnings will start to show the cracks. If oil falls toward $85 on diplomatic progress or a possible UAE supply, the picture improves materially and quickly. The entire macro outlook for Q2 sits on that single variable, and that single variable sits on a diplomatic process that is, as of Monday morning, stalled.