AI remains all the rage in markets.
But there are still two wars going on.
On the Iran conflict, Tehran has made it clear it will only negotiate with the US on the basis of the MOU signed by Donald Trump on 17 June.
This means that Tehran will likely want to receive some of its long-frozen assets back and sanctions ended, or at least diluted to a significant extent.
Still, Trump’s frustration remains that any such deal will alienate Israel and will be hard even for the Donald, the master of spin, to project it as a “win”.
It becomes ever more obvious that the American president is very much looking to extricate himself from Iran but cannot find, as yet, a politically acceptable exit.
For such reasons he remains in a trap of his own making.
Houthi Attacks Putting Even More Pressure on Oil Markets
Meanwhile, a notable development recently was the Houthis capture of the port of Mokha and two islands in the Red Sea since 11 September and the damage inflicted on the 750-mile-long East-West oil pipeline which runs from the Persian Gulf to Yanbu, a port on the Red Sea where two Saudi refineries are located.
It remains bizarre in the extreme to this writer that Saudi Arabia should have reactivated its conflict with Yemen when the Red Sea route was its way of reducing its vulnerability to events in the Strait of Hormuz, as previously discussed here (see The Memorandum of Misunderstanding, 27 July 2026).
But this is what has now happened.
The result is that Iran now controls the flow of oil out of the Strait of Hormuz and the Houthis the flow out of the Strait of Bab al-Mandeb.
This is on the face of it a nightmare scenario for markets, which also has potentially hugely significant geopolitical implications.
The need to have energy exposure in a portfolio as the only viable hedge is more obvious than ever with the only surprise that Brent crude oil at a recent high of US$109/bbl last week has not moved much higher.
But the diesel crack spread, which measures the price difference between diesel futures and WTI crude oil futures, continues to highlight the growing stresses in the system.
The spread has risen from US$53/bbl in mid-June to US$110/bbl.
Don’t Forget about Ukraine
As for Ukraine, the intensifying Russian attacks on Kyiv in recent weeks follow Russian Foreign Minister Sergey Lavrov’s warning to G7 governments in late May to remove their personnel, such as diplomats, from the Ukrainian capital.
This came after increasing attacks on internal Russian targets, including energy facilities, by Ukraine, helped by its increasingly impressive drone technology.
But Russia has drones too.
On this point, Russia has appeared to have taken the gloves off in recent weeks in terms of stepped-up attacks particularly on ports in the Black Sea of which the most important is Odesa. For such reasons there are growing reports that Ukraine is effectively landlocked.
All of this is why investors should not completely forget about Ukraine, however much they may want to, just as they cannot forget about Iran.
The practical consequences of these conflicts can be seen in rising diesel prices and rising grain prices.
The US average retail diesel price has risen by 37% since early July and is now up 83% year-to-date.
While the Bloomberg Commodity Grains subindex has risen by 23% from a recent low in late June.
Meanwhile, the energy hedge has worked this year.
The S&P500 Energy Index has risen by 39% year-to-date, compared with a 13% gain in the S&P500.
Judging a Market Top
The successful US$85.7bn IPO of SpaceX in June raises the obvious question of whether future historians will view that event as marking the peak of AI euphoria. It could well do.
The almost infantile glee with which some grown adults rave about their experiences playing with AI models clearly raises that possibility, as does the reaction against “tokenmaxxing” in recent months in terms of corporates’ focus on cutting the cost of token consumption.
Tokenmaxxing is a practice of corporates encouraging their employees to engage in unlimited experimenting with AI.
Google’s announcement in early June of a subsequently successful US$84.75bn secondary offering, a record for such a form of financing, is also another potential sign of peak euphoria.
The equity raising came after the company raised more than US$85bn of debt over the past year and stopped share buyback in 1Q26.
The stated use of these funds will go, like so much of the AI capex, to fund data centers.
Yet there have been estimates that about 60% of announced data center projects in the US are at risk of not being completed, driven by power, permitting and execution constraints.
To be more specific, out of 102.3GW of announced capacity through 2030, only 40.8GW is assessed as likely to materialise, according to Sightline Climate (now Currence) (see Sightline Climate report: “Q2 Data Center Outlook”, May 2026).
Ordinary Americans Are Pushing Back Against Datacenters
Meanwhile, Social Capital CEO Chamath Palihapitiya noted earlier this year that the negative public perception around AI is now worse than towards the US Immigration and Customs Enforcement (ICE) among registered voters in America, which is saying something.
The negative sentiment towards data centers among ordinary Americans is driven, among other things, by rising electricity prices.
Average electricity prices in America have increased by 38% since the start of 2022.
Lawmakers in 16 states are currently considering temporary moratoriums or local municipal bans on data center developments, according to the National Conference of State Legislatures.
Still, American consumers remain much better off than European ones where courtesy of the wars German and British consumers currently face natural gas prices about nine times the level of the US.
German and British natural gas prices have risen by 141% and 147% respectively in US dollar terms year-to-date, compared with a 23% decline in US natural gas prices.
As a result, the ratio of German and British gas prices to US gas prices has surged from 2.8x and 2.7x at the end of last year to 8.8x and 8.6x.
This is a reminder that wars are inflationary.
But so is AI’s current impact.
For while the long-term impact of AI should be disinflationary, the escalating AI capex cycle, with the four hyperscalers estimated to spend about US$990bn next year, is inflationary.
The AI Pause No One Asked For
Meanwhile, there was a bizarre development over the past week.
That was the spectacle of Messieurs Amodei, Altman and Musk all publicly agreeing to hit the brakes as regards the development of AI at the so-called “frontier”.
What is the rationale for such a move, most particularly in the case of Anthropic in the lead-up to an anticipated IPO? This writer’s cynical advice is to look at the incentives.
A coordinated pause sold as “safety” driven could be viewed as a way to build a regulatory moat, most particularly if there is a subsequent plan to ban open-source models, most particularly from China.
The other possibility, and it is not mutually exclusive, is that they are realising that the cost of compute is becoming unsustainable and/or that the models are starting to plateau.
If that is the case, why not attempt to lock in a cartel now?
This writer has no inside track.
But offers the above thoughts as plausible explanations for what is undoubtedly a strange development.
Meanwhile, China will not be slowing its development of AI at all. But the focus in the mainland has always been about developing cost effective applications in AI as opposed to the Silicon Valley obsession with reaching so-called AGI.
The views expressed in Chris Wood’s column on Grizzle reflect Chris Wood’s personal opinion only, and they have not been reviewed or endorsed by Jefferies. The information in the column has not been reviewed or verified by Jefferies. None of Jefferies, its affiliates or employees, directors or officers shall have any liability whatsoever in connection with the content published on this website.
The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.