Summary of the Chinese Analysis in Plain Language
This article essentially connects a series of recent financial and geopolitical events that were previously difficult to understand into a clear logical thread: Why have the Houthi rebels seized key points in the Red Sea, causing oil prices to soar by 8% to over $109 per barrel? Why are U.S. Treasury bond interest rates rising rapidly, despite the U.S. seemingly having no urgency to mediate the conflicts in the Middle East? It’s not about sudden outbreaks of terrorism or geopolitical tensions; rather, there are two major interest groups within the U.S. each pursuing their own “national salvation” agendas. Both groups aim to address the chronic trade deficit problem, where the U.S. spends more on imports than it earns on exports. These two agendas have collided, with even the Federal Reserve’s interest rate policy becoming a tool in their rivalry. With the mid-term elections approaching, the U.S. will have to make a choice, and until that decision is made, global oil prices, stock markets, and supply chains will be in flux.
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Detailed Explanation in Plain Language
1. The Middle East chaos is not an accident: It’s a strategic move by traditional U.S. powers
Many people think the U.S. is involved in the Middle East conflicts to control oil and sell it at high prices, but their plans are more ambitious:
The U.S.’s military-industrial complex, traditional energy giants, and manufacturing leaders from the Rust Belt have devised a straightforward strategy: they use wars to disrupt existing energy transportation routes. For example, the Russia-Ukraine war cut off Russia’s oil supply to Europe, and now the Houthi rebels have blocked the Red Sea, disrupting oil shipments to Europe, Japan, and South Korea. This drives up energy costs in those regions, making it uncompetitive for local factories to operate there. As a result, factories are forced to relocate to the U.S., where energy prices are lower and supply is more stable. This move aims to bring the energy and manufacturing centers back to the U.S., creating numerous jobs for the lower-income population and addressing the chronic trade deficit. In essence, the U.S. is essentially taking over other countries’ manufacturing industries by force.
2. Another U.S. strategy is to “win without fighting” through AI
In addition to the more aggressive approach, Silicon Valley tech giants have a more passive strategy:
They focus on the AI revolution, investing heavily in technology to significantly increase productivity. Once AI makes U.S. products cheaper and more competitive, the trade deficit can be reduced by selling high-value AI-related products and services. In 2025, the White House hosted a meeting with tech leaders, indicating that the Trump administration was willing to support their efforts by providing them with substantial funding for research and development. However, these two strategies are inherently contradictory: the traditionalists want to drive oil prices above $100 per barrel, while the tech advocates need to borrow large amounts of money for AI development. Both approaches require significant spending, which will inevitably lead to inflation and higher interest rates. There simply isn’t enough money in the market to support both simultaneously.
3. The Federal Reserve’s interest rate hikes are ineffective in controlling inflation
In the past, when the Fed raised interest rates, it would reduce borrowing and lower demand, thus curbing inflation. But this logic no longer applies:
Rising interest rates won’t restore control of the Red Sea routes; high oil prices are due to disrupted supply, not demand. Tech companies, on the other hand, are indifferent to small increases in interest rates because the potential returns from AI investments are enormous. The only role of interest rate hikes is to determine who will bear the costs of higher borrowing: if the Fed raises rates quickly, short-term borrowing costs will increase, easing pressure on tech companies in the stock market. Conversely, if the Fed delays rate hikes, long-term borrowing costs will rise, putting more pressure on businesses and the housing market, potentially leading to a financial bubble burst. Wall Street is urging the Fed to act, but Fed Chairman Powell is hesitant, fearing that the current stock and credit bubbles need to be deflated.
4. The Fed’s September rate hike is more of a symbolic gesture than a tool to control inflation
Many investors focus on the September 16 meeting, thinking that the decision will significantly impact the market. However, short-term U.S. Treasury bond rates have already risen to over 4.5%, effectively implementing a rate hike. The official announcement of a 0.25% increase will have little real impact on the economy. This rate hike is more like a ceremony: it’s a show for outsiders to see that the Fed is committed to controlling inflation. The market already expects a rate hike, and if it doesn’t happen, it would be a major disappointment.
5. The U.S. is about to make a crucial choice, and the world will follow
The yield on 30-year U.S. Treasury bonds has reached its highest level since the 2008 financial crisis, indicating that there’s not enough money to support both traditional and tech strategies simultaneously. The mid-term elections will clarify which path the U.S. will choose: either to support the traditionalists and continue to disrupt the Middle East, keeping oil prices high, or to prioritize the tech industry and shift resources to AI. Regardless of the choice, global oil prices, supply chains, and stock markets will undergo significant changes.