The ceasefire between the US and Iran has come unstuck, with America completing a 13th night of strikes on the Middle Eastern country yesterday. As of now, both countries appear to be moving further away from an off-ramp, with the danger of the conflict escalating to new levels.
Not only has Iran hit US targets in its neighbouring countries in retaliation, but Tehran’s Houthi allies in Yemen this week attacked two Saudi Arabian vessels in the Red Sea. This broadens the war to another chokehold in the oil market. US President Donald Trump, meanwhile, is threatening an attack of unprecedented proportion to achieve his goals.
This raises the question of why both parties have reignited a high-intensity conflict after agreeing to a temporary ceasefire. The costs of continuing the war are steep on both sides and it would seem in the interests of Iran and the US to forge a more enduring peace agreement.
For the US, higher prices at the gas pump threaten to fuel inflation and stoke voter dissatisfaction ahead of the midterm elections. On the Iranian side, resumption of hostilities will bring more pain to an economy already shattered by war and years of sanctions.
Yet both governments have strong political reasons to keep fighting rather than fold. Iran wants to show that it can resist US military pressure, preserve the credibility of its regional deterrence strategy and secure concessions on issues such as sanctions. It sees control over the Strait of Hormuz as key to securing these objectives.
Complicating matters further is the fragmentation of Iran’s ruling class. Some diplomats favour a settlement to ease economic pressure and restore stability. But ideological hardliners in Parliament and the military may fear that major concessions would undermine the longevity of the regime.
Trump and his administration, meanwhile, are caught in a political ‘Catch-22’. Higher gas prices are a threat to the Republicans’ prospects in the November midterms, and polls show the war is not popular with American voters. But backing down without achieving its objectives could be even more damaging to the US government.
Washington wants to show it has degraded Iran’s military capability, weakened its proxy network across Lebanon, Yemen and Gaza, and closed off the path to a nuclear weapon. Ending the war without achieving these goals would expose weakness on the geopolitical front, while domestic audiences could question why American lives and treasure were sacrificed for a lost cause.
The continued standoff has already had a significant impact on global energy markets. Brent crude has jumped roughly $12 over the past week to trade above $100 a barrel, its highest level since before the original ceasefire. European gas prices, too, neared Iran war highs due to supply concerns ahead of winter in the northern hemisphere.
The reaction from global equities markets has, although negative, been relatively muted so far. The Dow Jones Industrial Average fell around 0.83% for the week at the time of writing, the S&P 500 slipped 0.66%, and the Nasdaq Composite dropped 1.5%, with the losses led by tech sector weakness rather than concerns about the war. (Yet, at a level of 7,408.30 as at Thursday’s close, the S&P 500 was 7.7% up from its level on 27 February, the day before the onset of the war in the Middle East).
The reaction from equities markets suggests investors are still pricing in de-escalation. The balance of probabilities is that Iran and the US will negotiate a combination of concessions that lets both sides claim wins. Trump, especially, has many reasons to seek an exit, including dwindling munitions stocks, weak public support and the upcoming midterms.
But the dangers of an escalation trap, where each retaliatory strike raises the political cost of stopping, should not be underestimated. Higher oil prices are already pushing bond yields up and reviving concerns about a tighter rate environment. Containment of the conflict is not a foregone conclusion.
“It’s like being in an airplane and I have to choose between crashing the plane or jumping out. I do not have a parachute.”
– Former US President Lyndon B. Johnson speaking to his wife about the escalating war in Vietnam
“A Catch-22 is a paradox in which the only apparent escape is blocked by the very conditions that make escape necessary.”
– Inspired by Joseph Heller’s Catch-22
Global News
- Trump threatened to intensify attacks on Iran on Thursday, saying he was close to deciding on a “massive attack” and would hold Tehran responsible for further Houthi strikes on Red Sea shipping. The warning came as US forces launched a 13th consecutive night of strikes and Iran reportedly rejected a new ceasefire proposal. At the same time, Houthi attacks on Saudi oil tankers opened another front in the conflict. With neither side signalling a return to negotiations, the escalation increases the risk of a broader regional war.
- Iran sent Revolutionary Guard commanders, military advisers and missile- and drone-related equipment to Yemen’s Houthis earlier this month, strengthening evidence of Tehran’s direct role in widening the conflict, it was reported on Thursday. The support, which included missile training and gold to help finance the group, arrived days before the Houthis announced a blockade of Saudi shipping and attacked oil tankers on a Red Sea route used to bypass disruptions in the Strait of Hormuz. Iran denies arming the group.
- Oil surged 7% to settle above $100 a barrel on Thursday for the first time in two months and remained above $101 on Friday, as Houthi attacks on two Saudi oil tankers intensified fears of supply disruption. The attacks threaten the Bab el-Mandeb route Saudi Arabia has relied on to bypass the Strait of Hormuz, where tanker traffic fell to just one vessel on Thursday, creating a two-chokepoint risk to Middle East oil flows.
- The World Bank’s worst-case scenario for the Iran war is close to materialising, with chief economist Indermit Gill warning on Tuesday that prolonged hostilities could more than halve global growth to 1.3% this year and push inflation to 4.5%. Higher inflation and borrowing costs could squeeze health and education spending in heavily indebted countries. At the same time, 40% of low- and middle-income economies are already in or at high risk of debt distress, with some potentially requiring debt forgiveness.
- The estimated cost of the US war with Iran has risen to $37.5 billion, including projected costs through September, as the Trump administration seeks nearly $90 billion in additional funding, mostly related to the conflict. Defence Secretary Pete Hegseth told lawmakers on Tuesday that without urgent funding, military training and other capabilities could be affected, as the war strains the Pentagon’s nearly $1 trillion budget. Lawmakers from both parties have criticised the administration over the escalating cost and a lack of transparency around the conflict.
- US opposition to the Iran war has risen faster than during the conflicts in Iraq and Vietnam, with a Washington Post-Ipsos poll last week finding 68% of Americans believe the war is not worth fighting. Within two months of the conflict beginning, 61% already viewed it as a mistake, a level of opposition that took nearly four years to reach during the Iraq war. Political pressure is also mounting, with the House passing a second resolution on Thursday calling on Trump to end the war. While Iran ranks relatively low among voters’ top concerns, the conflict risks worsening Trump’s bigger political vulnerability, the economy, as petrol prices have climbed back above $4 a gallon.
- Pakistan is seeking a $10 billion US financial backstop after its role in brokering Iran peace talks strengthened its diplomatic standing with Washington. The proposed facility would bolster foreign-exchange reserves, support the rupee and reduce reliance on multilateral financing as higher energy costs strain the country’s fragile external finances. The request, made on Tuesday, highlights Islamabad’s efforts to translate its enhanced role in the Iran negotiations into greater US economic support.
- Trump’s temporary 10% blanket tariffs expire on 24 July, with the administration replacing them with new duties of 10% and 12.5% on imports from 60 trading partners, using a separate trade law tied to forced-labour enforcement. The new tariffs cover countries accounting for 99.4% of US imports, although oil and gas, fertiliser, certain foods and goods already subject to sectoral tariffs are exempt. The move largely preserves Trump’s tariff wall while putting the duties on a potentially stronger legal footing after the Supreme Court struck down his earlier tariffs.
- Generic drug manufacturers must move production to the US or face a 100% import tariff from August 2028, rising to 200% a year later, Trump said on Tuesday. The plan risks raising prices and disrupting supplies of generic medicines, which account for more than 90% of US prescriptions. India, the largest supplier of generics to the US, faces the greatest exposure, although the proposal is seen as a potential negotiating tactic rather than settled policy.
- Andy Burnham took office as Britain’s new prime minister on Monday, succeeding Keir Starmer, and moved quickly to ease cost-of-living pressures. His first initiative, announced on Tuesday, will scrap VAT on household electricity bills from 1 October, saving the average household about £45 a year. The move comes as Middle East tensions keep energy prices elevated, while investors are watching how further support will be financed after UK borrowing costs rose on Monday.
- The Nasdaq Composite was down 2.15% and the S&P 500 shed 1.21% on Thursday mostly due to the Magnificent Seven group of stocks suffering its steepest one-day decline since the tariff-driven market sell-off of April 2025. Alphabet and Tesla led the decline, falling 7.1% and 14.5%, respectively, following their quarterly results.
- China has launched one of its broadest market interventions in years to stem a selloff in AI and semiconductor shares, with state-backed investors and major insurers moving to restore confidence. The STAR 50 ETF attracted a record 13.8 billion yuan ($2 billion) on Monday amid signs of state-backed buying, helping the STAR 50 index rebound 11% on Tuesday after falling about 17% last week. The intervention aims to prevent the tech rout from developing into a broader market crisis.
- Chinese AI lab Moonshot plans to begin a final pre-IPO funding round in August at a valuation of up to $50 billion, buoyed by enthusiasm for its Kimi K3 model, whose performance is approaching OpenAI and Anthropic’s leading frontier models. The company is expected to close its current funding round at a $31.5 billion valuation within days, ahead of a potential Hong Kong listing as soon as this year. Annual recurring revenue reached $300 million in June, while daily sales have surged at least sixfold since K3’s launch.
- Intel delivered a third-quarter revenue forecast that comfortably beat Wall Street estimates, as booming AI-driven data-centre spending accelerates the chipmaker’s long-awaited turnaround. Data-centre sales surged 59% last quarter as demand for Intel’s CPUs outpaced increasing supply, prompting the company on Thursday to raise capital spending to about $20 billion this year to meet demand. Intel shares have more than doubled in 2026 as confidence grows that the company is emerging as a broader beneficiary of the AI investment boom.
- Super Micro Computer shares surged as much as 25% on Wednesday after the AI server maker reported more than $60 billion in new quarterly orders, pushing its backlog to a record. Gross margins of 15%-17% also beat expectations, signalling improved profitability as demand for Nvidia-powered AI servers remains strong. While quarterly revenue is expected at the low end of its $11 billion-$12.5 billion guidance, the record backlog points to strong revenue growth in coming quarters.
- Tesla’s second-quarter profit fell sharply despite a recovery in vehicle sales, as discounting squeezed margins and spending on AI, robotaxis and robotics surged, pushing free cash flow negative for the first time in two years. Adjusted earnings of 33 cents a share missed expectations of 51 cents, while the company spent $5.8 billion during the quarter and expects capital expenditure to exceed $25 billion this year. Shares fell 14.5% on Thursday as investors weighed the escalating cost of Tesla’s AI ambitions against their still-uncertain returns.
- Novo Nordisk has sued Eli Lilly in the US over allegedly misleading advertising that compares Lilly’s weight-loss drug Zepbound with a lower dose of Wegovy than Novo now sells. While Zepbound beat Wegovy in a head-to-head trial last year, Novo has since launched a higher-dose version that it says makes Lilly’s comparisons outdated. The lawsuit escalates competition for an obesity-drug market expected to reach $120 billion by 2030, where Lilly has overtaken early leader Novo in sales.
- Two of OpenAI’s most advanced AI models escaped a controlled test environment and autonomously breached Hugging Face, one of the world’s largest AI platforms, while completing a cybersecurity test. The models exploited a previously unknown vulnerability to access external systems and obtain test answers, OpenAI said on Tuesday. Described by the company as unprecedented, the incident raises concerns about whether safeguards can keep pace as AI becomes increasingly capable of acting autonomously.
- As at Thursday’s close, the S&P 500 was 0.66% down for the week.
Local News
- The South African Reserve Bank unexpectedly kept the repo rate unchanged at 7% on Thursday, despite inflation reaching a two-year high of 5% in June, largely due to higher fuel prices. The decision leaves prime at 10.5%, providing relief to indebted households. Four of six MPC members voted to hold, while two favoured a 25-basis-point increase. The rand fell as much as 2.5% following Thursday’s rate decision and was trading 2.2% weaker at R16.76/$ later in the day, making it the world’s worst-performing currency. The benchmark 10-year bond yield rose 16 basis points to 8.96%.
- The World Bank has approved a $1.5 billion (about R25 billion) loan to support South Africa’s infrastructure reforms across electricity, freight transport, water and sanitation, National Treasury said on Tuesday. The programme builds on reforms that have virtually eliminated load-shedding for 18 months, increased private investment in renewable energy sixfold and lifted rail and port freight volumes by more than 50% since 2023. The improvements are expected to support about 280,000 jobs by 2027, rising to more than 560,000 by 2032.
- National Treasury has defended its decision to withhold R13.5 billion from 69 municipalities, saying on Wednesday that the move complied with constitutional and legislative requirements. The response follows concerns from the Financial and Fiscal Commission over whether parliamentary approval was required. National Treasury said the funding freeze was aimed at enforcing fiscal discipline and addressing persistent audit failures and non-compliance with municipal finance laws.
- Deputy Finance Minister David Masondo resigned as chair of the R3.6 trillion Public Investment Corporation (PIC) on Thursday, deepening a governance crisis at Africa’s largest asset manager. His exit follows the suspension of CEO Patrick Dlamini and the resignation of at least six non-executive directors in the past week, leaving the PIC without a permanent CEO or CIO. The turmoil comes as the fund grapples with its unlisted portfolio, more than 40% of which was reported to be distressed last year.
- South Africa has launched a five-year initiative to build a local EV battery value chain, using its automotive industry and mineral resources to capture more value from the global shift to electric mobility, it was announced on Wednesday. Funded by the Global Environment Facility and implemented by the United Nations Industrial Development Organisation with the South African National Energy Development Institute, the programme will develop battery testing, certification, recycling and workforce skills to support local manufacturing and mineral beneficiation.
- South Africans are increasingly buying alcohol through delivery apps rather than making planned trips to liquor stores, with Checkers Sixty60 leading the shift as purchases become more spontaneous and occasion-driven, according to a report released on Wednesday. The trend is reducing in-store foot traffic and forcing suppliers to compete for digital visibility. South Africa’s off-trade liquor market grew 4.2% to R109 billion in 2025, led by corporate grocery retailers, with about 75% of supermarkets now having an adjacent liquor store.
- Three of South Africa’s largest banks, FNB, Absa and Nedbank, have joined Open Standard, a consortium backed by Visa, Mastercard, Stripe and BlackRock that is developing Open USD, a dollar-backed stablecoin designed to enable AI agents to make autonomous cross-border payments. The move positions the banks for growth in agentic commerce, with 56% of online shoppers in sub-Saharan Africa likely to allow AI to make shopping decisions or purchases on their behalf within five years.
- Patrice Motsepe’s African Rainbow Minerals plans to invest R15.2 billion over seven years to expand its Bokoni PGM operations, betting on tightening platinum supply as ageing mines, rising costs and years of underinvestment constrain global production. Mined platinum supply has declined for three consecutive years, supporting ARM’s expectation of stronger PGM prices. The group will also spend R753 million restarting Nkomati, South Africa’s only primary nickel mine, with production expected to resume in October.
- Pepkor will combine its Flash fintech business with payments platform Shop2Shop to create a R21.3 billion fintech group, it announced on Wednesday. Pepkor will invest R1.57 billion and own 57.1% of the combined business, which is expected to process more than R200 billion in transactions annually. The deal expands the retailer’s reach into South Africa’s largely cash-based informal economy ahead of the planned launch of its own bank in April 2027.
- Novo Nordisk will launch Extensior, a cheaper authorised copy of its Ozempic diabetes drug, in South Africa on 27 July, as competition intensifies following the expiry of semaglutide patent protection. The South African Health Products Regulatory Authority-approved medicine uses the same active ingredient and manufacturing process as Ozempic but will be priced lower. With a generic already approved and 12 more semaglutide applications under review, growing competition could drive down prices as regulators simultaneously crack down on unregistered compounded alternatives.
- As at the time of writing, the rand was 2.3% weaker against the dollar, and the ALSI was 0.3% down for the week.
Sources: Dynasty, New York Times, CNN, Bloomberg, TechCentral, Business Day, ITWeb, Reuters, BBC, etc.
