Trump controls the economy’s key levers, from oil to the Fed

Japanese Prime Minister Sanae Takaichi embraced President Donald Trump on Thursday, and not just on policy grounds. The newly elected Japanese leader threw herself into the arms of the U.S. president when he greeted her at the White House.

“It is only you, Donald, who can achieve peace across the world,” Takaichi said later as the two met in front of reporters in the Oval Office.

Beneath the flattery is an important truth. Trump is singlehandedly shaping the course of global events to a degree that far outstrips even the power he wielded in his first presidency. With his presidency unshackled, his military and other policy decisions are reshaping the economy in real time — and clouding the economic outlook.

Trump’s predecessors weren’t willing to make the choice he did in Iran. President Barack Obama‘s response to the risk that Iran could develop a nuclear weapon was to negotiate a multilateral arms deal. Trump scrapped it in his first term. President Joe Biden attempted to revive it, opting for negotiations and sanctions pressure even after Iran-backed Hamas massacred Israelis on Oct. 7, 2023.

Trump’s decision to use his authority as the military’s commander-in-chief has essentially made him the lever that moves global energy prices up or down. Iran’s forces have attacked cargo ships and assailed its neighbors’ energy facilities. 

Traffic has stalled through the vital Strait of Hormuz. In normal times it carries 20% of the world’s crude oil. 

Gas prices in the U.S. have spiked by nearly a dollar, or 33%, over the past month, according to AAA. More economic turmoil is brewing. The strait is also a channel for fertilizer components that are rapidly becoming scarce. The possibility of fertilizer shortages has put U.S agriculture “in uncharted territory,” a Michigan farmer told CNBC this week.

Trump says he predicted gas prices would rise when he went to war, and sees it as a necessary price for neutering the threat of further Iranian aggression, nuclear and otherwise. The White House says prices will fall sharply when hostilities end. At the war’s outset, Trump said it would last days. Then weeks. On Friday, he said he is not interested in a ceasefire.

Prices may indeed fall after the war ends, but for now markets are pricing in a costly war. Futures markets show traders expecting the price of oil to stay above $80 a barrel through July 2027, according to FactSet data. 

The markets’ worry reflects the risk that for all his individual power Trump may no longer be able to quickly end the war. Iran can use cheap drones, boats and mines to threaten shipping in the Strait of Hormuz. It may take a ground invasion to stamp out that threat. Trump on Thursday said he wasn’t considering ground forces, but…