The key question for investors is whether de-escalation requires initial escalation. The Strait of Hormuz reopening is central to markets, but PIMCO's commodities team expects weeks to months for the oil industry to normalize due to supply shut-ins.

Oil is the key read-through for markets and U.S. politics, impacting presidential approval and voter perceptions of affordability. Political incentives are to wrap up the conflict.

Confirms waivers on Russian and Iranian oil sanctions were allowed to expire, representing a 'maximalist economic pressure' strategy on Iran and a nod to political pressure from Capitol Hill.

The conventional wisdom was the Russian waiver would be renewed due to domestic gas price pressures, but its expiration signals a policy shift.

From a macro perspective, history shows supply-side inflation shocks can translate into growth shocks. If the economy slows, policymakers might respond with countercyclical stimulus, especially in an election year.

The size of additional funding for Iran ($100-$200B) will weigh on the deficit. A 'skinnier' bill with less deficit impact might be good for Treasuries, but slower growth would not be good for the economic environment before the midterms.

PIMCO's consistent view since the 2024 election is that the deficit is the biggest loser, tracking at 6-7% of GDP. Adding tariff refunds (~$160B), defense spending, and potential stimulus means the U.S. is running very high deficits.

This is a bipartisan problem. The view is there's no immediate reckoning in the bond market, but it probably means a steeper yield curve for the foreseeable future.