Them's Fightin' Words

The threat of more financial war... Iran's neighbors want a deal... The market says 'all good'... We're still tapping those oil reserves... Fightin' words from Stanley Druckenmiller... Subsidizing procrastination...

'Economic D-Day' didn't quite arrive yesterday...

The White House has been using the "D-Day" label to describe coming sanctions to limit Iran's ties to the global economy.

But we'd say Treasury Secretary Scott Bessent delivered more of a warning shot yesterday.

In lieu of more bombs, missiles, and military presence in the Persian Gulf, he announced that the U.S. is pivoting to cutting off the Iranian government's financing. The U.S. plans to impose sanctions against nations that are involved in trade with Iran – be it in oil, gold, digital currency, or anything else.

The goal is to mount a pressure campaign on Iranian leaders, and presumably encourage internal unrest, to make progress toward limiting Iran's nuclear program (the White House's stated goal for the whole conflict).

We're a ways off from that, though. In his press conference, Bessent didn't say which financial instructions and countries would be targeted. He mostly introduced the White House's plan, dubbed "Operation Economic Outcast."

"Let there be no ambiguity as to the position of the United States," Bessent said. "An economic engagement of any kind with this murderous regime will expose those responsible to the full reach of American power."

China is by far the biggest buyer of Iranian oil and other products, purchasing more than 25% of all Iranian goods exported in 2025.

Bessent didn't put a timeline on anything, but added, "It is now a time for world leaders to make a decision between... America and Iran."

At the same time, there's more desire for a 'deal' from Iran's neighbors...

Overnight, reports citing Pakistani officials say that "significant progress during high-level talks" has been made toward ending the U.S.-Iran conflict. Specifically, Pakistani and Iranian negotiators are focused on reopening the Strait of Hormuz and avoiding further military escalation.

Today, Oman's state news agency reported that Oman and Iran have discussed establishing a temporary joint shipping corridor and mine-clearing project in an effort to restore safe navigation.

And Qatar's Foreign Ministry spokesperson, Majed al-Ansari, said in a briefing that the U.S. sanctions on Iran are "unilateral – they are not UN sanctions, they are not multilateral sanctions." He urged mediation efforts in "good faith" to resolve the war. "We find that to be the only way out of this crisis," he said.

That has proved elusive, though.

Iran's Foreign Ministry spokesman posted on social media platform X today that the White House's new approach amounts to "systemic bullying."

True. The Biden administration used a similar tactic with sanctions when Russia invaded Ukraine in 2022. However, that hasn't proved to be a quick solution.

If nothing else, the Trump administration's approach may get negotiations moving again... or inch the war closer to a resolution. The Iran issue could even be wrapped into other talks that are planned between President Donald Trump and Chinese President Xi Jinping next month.

While we're not putting too much faith into any renewed "deal" headlines, the market reacted with optimism and expectations for that eventual outcome.

Over the past day, oil futures have fallen, with Brent crude, the international benchmark, and West Texas Intermediate crude down roughly 5% – to their lowest levels in almost two weeks. Bond yields were also lower, and the major U.S. stock indexes were up slightly.

We're still tapping reserves...

Hope for an end to the conflict isn't the only thing pushing oil prices lower.

As we've written in these pages, the U.S. has been flooding the oil market with supply from the Strategic Petroleum Reserve ("SPR") to offset the disruption from the Strait of Hormuz closure.

You see, while the U.S. exports record volumes of light, sweet crude around the world, it continues to import cheaper, heavy sour barrels from the Middle East. It's the crude that many Gulf Coast refineries – built decades ago – are designed to process.

So tapping the reserves can "help" with prices.

As we wrote in the August 17 edition, the drawdown has pushed reserves below 300 million barrels – the SPR's lowest weekly level since January 1983 and well under half of its capacity. We warned about things getting more concerning.

The latest report from Uncle Sam last week showed another 5 million barrels were tapped in the week ending August 14, dropping the total to 293.4 million.

Our colleague Gabe Marshank wrote more about this, explaining in last night's issue of Market Maven...

The problem is, the SPR was already depleted from the previous releases just four years prior...

And now we are at a tipping point.

The administration is releasing oil at the fastest pace ever... and from already-depleted levels.

Two of the SPR sites that hold this oil are almost empty. The West Hackberry site in Louisiana only held about 30 million barrels of crude as of August 20. That's about 13% of its total capacity.

Not only does that mean we're running out of oil to release, but it also comes with problems for the SPR itself. As the Department of Energy explained in a criticism of the previous administration, low levels delay maintenance and can even "put unprecedented wear and tear on storage and injection facilities."

That's not reason enough to stop now, though...

As Gabe went on to explain, the government has another 50 million barrels of crude ready to go in its authorized SPR release. That will continue to put a ceiling on oil prices, as long as the conflict doesn't escalate again.

But draining U.S. reserves is not a long-term solution. More from Gabe...

The conflict in the Middle East has cut oil supplies, which the administration has countered with the SPR release. This can continue for a few more months... but eventually, one of three things will happen.

1. The U.S. will negotiate a ceasefire with Iran before Election Day that leaves both sides happy.
2. The conflict will remain unresolved, and the U.S. will stop releasing the SPR. Oil prices will go up.
3. The conflict will remain unresolved, and the U.S. will continue to release the SPR until nothing is left. By next summer, the reserves will run dry and prices will go crazy.

Now, I'm not ready to gamble on what direction the administration will go here – there are too many variables.

No matter which of those three situations plays out, the SPR will eventually need to be refilled. As recently as October, Congress approved more than $170 million for that purpose.

But it'll cost a lot more than that to get back to normal levels. To refill the SPR from 293 million barrels today to 593 million barrels (its level at the end of 2021, just before the Russia-Ukraine war kicked off) will cost more than $24 billion at today's oil prices.

When that happens, the SPR will change from setting the ceiling for oil prices to setting the floor.

In last night's issue, Gabe recommended an undervalued company with a "call option" for higher energy prices. While we can't share any more information in the Digest, paid-up Market Maven subscribers and Alliance members can read Gabe's full report here.

Lastly today, we're not the only ones skeptical of the Treasury's bond-buying plans...

Here's billionaire hedge-fund manager Stanley Druckenmiller in an op-ed for the Wall Street Journal published after yesterday's close, writing (aided by AI, he admitted today) that the intervention is a mistake... and that the market's reaction last week only signaled concerns of deeper-rooted problems...

The market's verdict was swift and correct: This wasn't liquidity management, it was price management – and a mistake far larger than $4 billion suggests...

Governments defending prices against fundamentals always lose. The only variable is how much they spend before conceding. The U.S. shouldn't put itself on the wrong side of that trade, not with the most important price in the world, and not when that price is trying to say the one thing Washington most needs to hear: Let the bond market speak.

As we said last week, before Bessent's announcement, the bond market has been speaking – and it's saying that more inflation and a debt crisis lie ahead. More from Druckenmiller...

You can't buy your way out of a solvency conversation with liquidity tools. You can only postpone the conversation and raise the eventual price.

What should happen instead is straightforward. Return buybacks to their stated purpose: small, scheduled, off-the-run liquidity operations announced at quarterly refundings, never off-cycle responses to yield levels. Term out the debt honestly and pay the price the market sets. If the 30-year must trade at 5.5% to clear, that isn't a crisis. It is an invoice. Then do the only thing that durably lowers long-term yields: address the primary deficit. Reform entitlements gradually and honestly, through means testing, indexing changes, eligibility adjustments phased in over decades – so that the burden is shared across generations instead of dumped on the youngest.

The reward is enormous: A credible fiscal package would do more for the long end of the curve than a buyback program 1,000 times this size.

Them's fightin' words, as the saying goes, from Druckenmiller, who was once an early boss and mentor of Bessent on Wall Street. And here's one more quote from Druckenmiller's op-ed for posterity... and to print out for your home or office...

Markets aggregate information no committee possesses, and prices are how that information reaches decision makers. The long-term Treasury yield is the most important price in the world. It is also the only fiscal disciplinarian the U.S. has left... Every basis point of artificial yield suppression is a subsidy to procrastination.

You know Bessent read these words, too. But whether he listens to what his old mentor and the bond market are saying is another matter. Our bet is against it.

New 52-week highs (as of 8/24/26): Amgen (AMGN), BHP Group (BHP), Maplebear (CART), Pacer U.S. Cash Cows 100 Fund (COWZ), Dorchester Minerals (DMLP), iShares MSCI Spain Fund (EWP), FirstCash (FCFS), Freeport-McMoRan (FCX), Global X MSCI Greece Fund (GREK), Illumina (ILMN), IQVIA (IQV), Coca-Cola (KO), VanEck Morningstar Wide Moat Fund (MOAT), Match Group (MTCH), Plains All American Pipeline (PAA), SSR Mining (SSRM), Union Pacific (UNP), and Visa (V).

In today's mailbag, another thought on the Treasury's plans and what to do instead... plus feedback on AI spending... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"The Treasury's expanding bond-buyback program confirms that America's immediate challenge is liquidity, duration, and market structure. The GENIUS Act [cryptocurrency and stablecoin regulation] can create new demand for short-term Treasury securities, but stablecoins alone cannot retire the national debt. The permanent solution is to connect dollar liquidity to transparent reserves, tokenized productive assets, economic growth, and a Zero-Trust financial operating system." – Subscriber John G.

"Hi, Corey and All, The part of AI development that worries me is that in bubbles like this, the players always overbuild. If all the proposed data centers get built, 30% (to choose a figure) will be standing idle in five years. There has to be a better place to put our money." – Subscriber Stephen C.

All the best,

Corey McLaughlin with Nick Koziol
Baltimore, Maryland
August 25, 2026