On September 16, 2026, the day the Federal Reserve raised interest rates, an Iranian politician posted a math equation on social media.
His name is Mohammad Bagher Ghalibaf. He is the speaker of Iran’s Parliament.
Millions of people saw the post, but most did not understand what they were looking at.
The math equation was a copy of the formula that American central bankers use to decide whether to raise or lower interest rates.
Ghalibaf had slightly altered the formula.
He added two new variables to the equation, both named after waterways that Iran and its allies control.
Although the post was clearly a cheeky jab at the US administration, it was not necessarily a joke.
It was a message - about who sets the price of money in America. The price of your mortgage, your car loan and the diesel in every truck that stocks your grocery store.
One week after Ghalibaf’s post, diesel hit $6.53 a gallon, the highest price ever recorded in the United States.
To understand his message, you first need to understand the formula he was mocking.
The formula
In 1993, Stanford economist John Taylor wrote a formula for central banks. It became known as the Taylor Rule, and central bankers and Wall Street have used it ever since.
The rule asks two questions. First, are prices rising faster than the central bank wants? Second, is the economy running hotter than normal? If the answer to either question is yes, the rule says to raise interest rates. If the answer is no, it says to lower them.
For reference, here it is.
i = r* + π + 0.5(π − π*) + 0.5(y − y*)
Now translated, in English:
Interest rate = Neutral rate + Inflation + ½ × (Inflation − Target) + ½ × (Economy’s gap)
Interest rate: the rate the central bank should charge.
Neutral rate: the "in-between" interest rate that neither pushes the economy forward nor holds it back.
Inflation: how fast prices are rising right now.
Target: how fast the central bank wants prices to rise, usually 2% a year.
Economy’s gap: whether the country is making and selling more than it comfortably can, or less. More means businesses are straining to keep up. Less means businesses are cutting back and people are losing jobs.
If that lost you, don’t worry - the logic is simple, and here is the outcome:
If prices are rising too fast, the Fed will raise interest rates, making borrowing more expensive. When borrowing costs more, people and companies borrow less, spend less, and prices cool down.
Now Ghalibaf kept all of that in his equation. But he added two more parts.
He labelled the first new piece “SOH,” which stands for the Strait of Hormuz. He labelled the second “BEM,” which stands for Bab el-Mandeb, the narrow strait at the southern end of the Red Sea.
He mockingly called it the “Straits Taylor Rule.”
Below the formula, he wrote, “You can’t 25bp a chokepoint.”
Ok. What does all this mean?
Part of today’s high oil price is driven by fear. Buyers pay extra for every barrel because they do not know whether the Strait of Hormuz will be open tomorrow. Iran controls that fear; therefore, Iran controls that extra cost.
This is the “SOH risk premium” he is referring to, and in his words, “We set it.”
So what is the connection between the SOH risk premium on oil prices and Ghalibaf’s claim that Iran now holds a hand on the direction of America’s interest rates?
Here it is: Higher oil prices = higher everything prices.
The Federal Reserve raises rates to tame rising prices, assuming those prices come from too much cheap money being lent into the economy. But if inflation is caused by high energy prices due to restricted oil supply, raising rates won’t help.
If the Fed raises rates every time oil prices jump (to combat rising prices, as per the Taylor Rule), then whoever controls oil prices controls the Fed.
And the cheapest way for Iran to move oil prices is to make oil harder to ship.
That’s what Ghalibaf meant when he said: “You can’t 25bp a chokepoint”.
He was claiming that because Iran influences the oil price, Iran influences the inflation rate and therefore takes the power out of the hands of the Federal Reserve.
The Fed is using a tool built for too much borrowing to fight a problem caused by too little oil.
Now let’s look at the track record.
Leading up to the Fed’s September 16 interest rate decision, tankers were attacked in and around the Strait of Hormuz, and a Saudi refinery at Jizan was hit. The Iran-backed Houthi militia seized the coast along Bab el-Mandeb, and drones launched from Iraq forced Saudi Arabia to shut its main oil pipeline. Oil climbed back above $100 a barrel that week. On September 15, the day before the decision, another tanker was attacked near the entrance to the strait.
The same thing happened before the Fed’s July meeting, when Houthi missiles struck two Saudi tankers, and oil touched $100.
The Fed’s next decision is due on October 28. Remember that date. I would not be surprised to see attacks spike again.
Can Iran Actually Influence the Federal Reserve’s Decisions?
Maybe.
Just for fun, let’s take Ghalibaf at his word and walk his plan all the way to the end. We will break it down into four steps.
Step one: expensive oil creates high prices
The United States and Israel struck Iran on February 28, 2026. Within days, Iran declared the Strait of Hormuz closed.
In September, the Iran-backed Houthi militia seized the island that sits in the middle of the Bab el-Mandeb strait, rendering it closed as well.
Those are the two waterways in Ghalibaf’s formula, and together they guard the Gulf’s way out and its main way around.
Hormuz is the only sea route out of the Persian Gulf. The biggest detour is a Saudi pipeline that carries oil across the desert to the Red Sea, and tankers taking that oil to Asia must then sail through Bab el-Mandeb. Whoever controls both straits can block the front door and the back door at the same time.
Now here is the point.
Oil is refined into diesel, and diesel fuels America. Diesel-powered trucks carry about 73% of all the freight in the United States. Before the war, diesel cost about $3.76 a gallon. By the week of September 21, it cost $6.53. That is an increase of roughly 74%.
Farmers feel it first. Tractors and combines run on diesel, and the fall harvest (right now) is the busiest time of the year.
The Gulf also makes much of the world’s fertilizer. The Middle East ships nearly a quarter of the world’s urea, the most common nitrogen fertilizer. Between February and April, urea prices jumped 80%.
Airplanes run on jet fuel, which comes from the same barrel. Jet fuel prices roughly doubled after the war began. By August, airfares were 23% higher than a year earlier.
Why does all of this matter?
Add it up, and you get the August inflation report.
Prices across the economy were 3.4% higher than a year earlier. Energy prices were 16% higher.
Step two: high prices create a rate hike
Now the Taylor Rule does exactly what it was built to do. Prices are rising faster than the Fed wants, so the rule says to raise interest rates.
On September 16, 2026, the Fed did that. It raised rates for the first time since 2023.
This is the trap Ghalibaf was pointing at.
A rate hike works by making people borrow less and spend less. But Americans aren't paying more for diesel because lending markets are too cheap. They are paying more because oil cannot get out of the Persian Gulf.
Once again: The Fed is using a tool built for too much borrowing to fight a problem caused by too little oil.
Step three: the rate hike hits your wallet
A rate hike does not fix the oil shortage, but it does reach every borrower in the country.
On February 26, 2026, two days before the war began, the average 30-year mortgage rate in America was 5.98%. It was the first time in three and a half years that rates had dipped below 6%. By September 24, the average rate was 7.03%.
Here is what that means for a real family. On a $400,000 mortgage, the monthly payment at 5.98% is about $2,393. At 7.03%, it is about $2,669. That is $276 more every month, or more than $3,300 a year, for the same house.
The same thing happens to car loans, business loans and credit cards. So the family already paying more for diesel, groceries, and flights is now also paying more to borrow.
Step four: the rate hike hits the government’s wallet
The biggest borrower in America is the American government.
When the government spends more than it collects in taxes, it borrows the difference. It borrows by selling IOUs called Treasury bonds. A bond is a promise: lend the government money today, and it will pay you back later with interest.
On September 21, 2026, America owed about $40.1 trillion. Every rate hike makes that borrowing more expensive.
The bill is already enormous. In the first eleven months of its 2026 budget year, the United States spent about $1.05 trillion on interest on its debt. It only spent $833 billion on its military over the same months. America now spends more on paying its lenders than on defending itself.
The historian Niall Ferguson has a name for this. He calls it Ferguson’s Law: spending more on debt than on defence signals a receding empire. Spain crossed it in the 1500s. France crossed it in the 1780s, just before its revolution. The Ottoman Empire crossed it in the 1870s. Britain crossed it between the two world wars. Each was a great power, and each lost that standing shortly after they began spending more money on debt servicing than on defending themself.
By Ferguson’s count, America crossed the same line in 2024.
Where the path ends
Follow the steps in a circle.
Iran makes oil harder to ship.
Expensive oil becomes expensive diesel
Expensive diesel becomes inflation.
Inflation pushes the Fed to raise rates.
Higher rates make the government’s debt more expensive, so the government has to borrow even more to pay its own interest.
At some point, the Fed has to choose how the circle ends.
It can keep raising rates until something breaks - the housing market, the stock market or the bond market itself. Or it can stop raising rates while prices keep climbing, and print money to fund itself when other countries stop buying its bonds. That path protects the bond market, but it makes the dollar worth less, and prices climb even faster.
That is Iran’s bet. It is a serious bet.
But Iran is not the only side with a plan.
What could prove Iran wrong
If we now understand Iran’s agenda, we should try to understand America’s.
Iran is trying to break America through its debt. America is trying to win through energy dominance.
In February 2025, President Trump created a National Energy Dominance Council. It tasked the secretaries of the Interior and Energy with pushing American oil, gas and power production as high as it can go (drill baby drill).
Washington never says the goal out loud, but I think it is plain: America does not want to be one supplier among many. It wants to be the supplier the world cannot do without.
Trump said as much before he took office. In December 2024, he told the European Union to fix its trade gap with America “by the large-scale purchase of our oil and gas,” or face tariffs.
In 2025, the United States produced a record 13.6 million barrels of crude oil a day. That’s more than Russia and the Saudi’s combined. America has also become the world’s biggest exporter of liquefied natural gas.
But look at what has happened to everyone else’s energy production in 2026...
On March 18, Israel struck Iran’s South Pars gas field. Iran answered by firing missiles at Ras Laffan in Qatar, one of the largest natural gas export sites on Earth. The strikes knocked out about 17% of Qatar’s export capacity, and repairs are expected to take years.
In September, drones launched from Iraq hit Saudi Arabia’s East-West pipeline, the main route for Saudi oil to avoid the Strait of Hormuz. Saudi Arabia shut it down.
In Russia, Ukrainian drones hit an oil refinery about once every three days during the first eight months of 2026, according to the International Energy Agency. By June, Russia’s refineries were running about 30% below a year earlier.
Iran’s own exports are being choked off on purpose. In September, America’s Energy Secretary, Chris Wright, said the biggest job of the U.S. military in the region right now is to “stop the export of any Iranian crude.”
That’s a lot of energy offline. Who is stepping in to fill the gap?
In April 2026, American crude oil exports hit a record 5.6 million barrels a day, up 21% from the previous record. In the first half of the year, American gas exports rose 23%, and exports to Asia more than doubled. Europe is expected to get about two-thirds of its imported gas from America this year.
The most striking change is in Qatar.
By the end of July, the state company QatarEnergy had bought 33 shiploads of American gas this year to fulfill contracts with its buyers in South Korea, Taiwan, Japan, India and Bangladesh. One of the world’s great gas sellers has become a customer of America.
Long-term contracts are being signed, too.
In July 2025, the European Union promised to buy $750 billion of American energy by 2028.
On September 1, 2026, following the capture of Venezuelan President Nicolas Maduro, the United States signed a deal with Venezuela’s interim government that gives an American-led company 100-year rights to 17 of the country’s oil fields - allegedly the biggest on earth.
Here is the theory in one sentence:
America does not need to win a bond war if it can make the whole world depend on American energy, priced in American dollars.
Important to note: America did not fire the missiles that destroyed the global energy infrastructure.
Iran hit Qatar. Ukraine hit Russia. Militias in Iraq hit Saudi Arabia.
In March, America bombed military targets on Iran’s Kharg Island, where about 90 percent of Iran’s oil is loaded, but deliberately left the oil terminal standing. Trump said he spared it “for reasons of decency.”
I think it gave America something more useful than a burning oil terminal. It gave America plausible deniability.
A strategy like this only works if America is never seen bombing the world’s energy supply itself. America only has to be the one country that gets stronger every time someone else’s energy burns.
So far, that is exactly what has happened.
Why each weapon feeds the other
This is where the two wars collide. It's a bit weird, and worth thinking about.
Iran’s attacks make oil expensive. Expensive oil drives customers away from the Gulf and into America’s arms.
So every tanker Iran threatens helps America’s energy war.
But America’s energy war keeps oil expensive, too.
Every rival supply that stays offline keeps energy prices high, and high prices keep inflation high. High inflation tells the Fed to raise rates, and higher rates make America’s debt more expensive to carry.
So every barrel America sells at a high price helps Iran’s bond war.
America will never say it wants expensive oil. It says the opposite. But expensive oil is what happens when the world’s other suppliers are knocked offline.
So…
Iran is creating expensive oil overtly. America is creating expensive oil covertly.
What’s really going on?
Both countries are creating expensive oil, but they want different things from it.
Iran needs oil to stay expensive for as long as possible. Every month of high prices is another month of high interest rates on America’s $40 trillion debt.
America only needs oil to stay expensive for a while. As long as rival suppliers are knocked offline, the world signs long contracts with Texas, Alaska and Venezuela (via America). Once those customers are locked in, America no longer needs expensive oil. It needs the opposite. Cheaper oil would cool inflation, let the Fed lower rates and shrink the interest bill.
That is what Treasury Secretary Scott Bessent was describing on August 8, when he said that over the next two years the Strait of Hormuz would become “just another body of water.” If most of the world’s energy flows around the strait instead of through it, the fear built into every barrel disappears, and Iran loses the price it claims to set.
So this is a race between two clocks. America’s clock is measured in energy contracts. Iran’s clock is measured in Fed meetings.
Back to the formula
Go back to Ghalibaf’s equation. His two additions, SOH and BEM, only matter as long as the world’s oil has to pass through those two straits. America’s whole plan is to make those straits worthless.
The Fed makes its next decision on October 28. Watch the Persian Gulf and the Red Sea in the weeks before it. If a tanker is hit or a pipeline goes quiet, and oil jumps just as the Fed sits down to vote, you will know Ghalibaf’s formula is still working.
Honest question - let me know in the comments: what am I missing?
That’s it for today,
Jay Martin
What you are missing?
Japan, for one thing.
The recent (last 5 or 10 years) increases to Social Security and Medicare and the payments on the debt..
The collapse of western europe.
The potential for collapse of the AI buildout.
Too many different factors going out of control all at the same time.....Iran has some serious help all around the globe, including inside the USA.....
As with a financially desperate individual who has been living far beyond their means DC is absolutely vulnerable fiscally and monetarily, the key difference being an individual can't log onto their bank account and add zeros but DC can legally default by debasing the US dollar. Fed independence will prove to be an academic fantasy in the face of systemic deflationary collapse.
All roads now lead to massive and accelerating debasement of the US dollar in due course, well beyond the consequences of attacking Iran. However, while we can anticipate what is going to happen ultimate timing will only be known in hindsight.
Durable tangible assets offer refuge for those who act before the masses panic in unison. Keep in mind that, tragically, there is no way to save them. Somebody, meaning most everybody, must hold all that financial paper all the way down (in inflation adjusted terms); there is no net selling in a market.