Good morning. Andrew here. The past few days have been head-spinning. We break down the global economic implications of the attack on Iran: what it means for oil prices and trade, and what instability in the region could mean. We’re also still trying to make sense of the Pentagon’s decision to end its contract with Anthropic — while declaring the company a supply chain threat — and how OpenAI swooped in to make its own deal with the government. (Was this newsletter forwarded to you? Sign up here.)
Global falloutU.S. and Israeli strikes on Iran continued for a third day as President Trump told The Times that the military campaign could last up to five weeks. The prospect of a prolonged war is spooking global markets. The latest:
Other fallout: Since Saturday, Iranian military forces have taken aim at commercial ships in the Persian Gulf, plus oil infrastructure and hotels, including the luxury Fairmont Dubai. Maersk, the shipping giant, is rerouting some ships away from the Red Sea, and Amazon temporarily shuttered a data center in the United Arab Emirates. The volatility is forcing banks and hedge funds to rethink staffing in a region that has become a magnet for Western capital. Analysts are gaming out the costs. Investors largely took last year’s attacks on Iran, which lasted 12 days, in stride. But if Washington is intent on regime change in Iran, this campaign could carry a higher toll. (Three American F-15E fighter jets were shot down by Kuwaiti air defenses today in an apparent friendly-fire incident, U.S. officials said.) Trump said yesterday that strikes “will continue until all of our objectives are achieved.” Several oil analysts, including those at WoodMackenzie and RBC Capital Markets, see Brent crude trading at or above $100 per barrel if the war drags on. That could slam households and businesses. U.S. energy prices have been subdued for some time. But for every $10 a barrel increase in the cost of oil, the price at the pump could rise by up to 30 cents a gallon, Amy Myers Jaffe, director of the Energy, Climate Justice and Sustainability Lab at New York University, told The Times. Such a prospect could tie the Fed’s hand. Several central bank officials have already warned that inflation remains uncomfortably high. Investors now predict that the Fed will next cut interest rate cuts in July, not June. Could inflation force Trump to recalibrate? The affordability crunch looks set to be a pivotal issue ahead of midterm elections. “I would expect Trump to go to great lengths to prevent a lasting surge in energy prices that could hurt him at home,” Holger Schmieding, an economist at Berenberg, wrote in a note to investors this morning.
The Trump administration tries to slow down tariff refunds. The Justice Department asked a federal appeals court late on Friday to wait at least 90 days before ruling on a wave of refund requests filed by businesses after the Supreme Court ruled many of the Trump administration’s levies invalid. The request came hours after President Trump wrote on social media about his aversion to refunding that money, and asked about a “rehearing” of the case. Retail investors pull back from private credit. New investments in funds aimed at individuals dropped 40 percent in January compared with December, to $3.2 billion, The Financial Times reports. The drop in fund-raising and increase in withdrawals has come amid concern about the health of the industry, particularly its significant exposure to software companies at risk of being disrupted by artificial intelligence. Sales of BYD vehicles plunge in February. The Chinese electric vehicle maker reported that it sold just over 190,000 cars in the month, down 41 percent year-on-year and the steepest drop since the Covid-19 pandemic, in large part because of sliding domestic sales. It underscores the need for BYD and other Chinese E.V. giants to expand overseas as demand in their home market falls; some in the U.S., like Ford, would like to partner with them. Greg Abel suggests Berkshire Hathaway might do more deals. In his first letter to shareholders as C.E.O. of the conglomerate, Abel noted that Berkshire had more than $370 billion in cash and hinted that some of it may go toward M.&A.: “We will always aim for ownership of productive businesses over U.S. Treasuries.” Berkshire reported nearly $67 billion in profit for 2025, the last year in which Warren Buffett was C.E.O., representing a 25 percent year-on-year drop. Anthropic vs. the PentagonThe fallout from the Pentagon’s all-but-declaring war on Anthropic — while signing a deal with OpenAI, the artificial intelligence giant’s archrival — hasn’t fully settled just yet. Anthropic now finds itself potentially battling the Trump administration to preserve a huge part of its business. And more broadly, the future of the government’s relationship with the A.I. industry has grown fuzzier. The latest: Anthropic said it would sue over the Pentagon’s designating it a supply chain risk, meaning that other companies cannot use its software for their military work. Adding extra urgency was President Trump’s order to all federal agencies to stop using Anthropic’s Claude software — and then Defense Secretary Pete Hegseth declaring that no government contractor can do any business with the company. Dean Ball, a former A.I. adviser to the Trump administration, called it “simply attempted corporate murder.” But some legal experts said that Hegseth’s legal authority only extends to contractors’ military work. Meanwhile, OpenAI has defended its willingness to sign a deal with the Pentagon, saying technical safeguards it would put in place will achieve much of what Anthropic had sought. Of note: Despite Trump and Hegseth’s attacks on Anthropic, the military used Claude-based A.I. tools to help carry out the strikes on Iran, according to The Wall Street Journal. The back story: Anthropic officials believed on Friday that they were close to a compromise with the Pentagon ahead of a 5:01 p.m. Eastern deadline, The Times reports. One remaining issue was a request that the department give a legally binding promise that it wouldn’t use A.I. tools on unclassified commercial data. But Emil Michael, the Pentagon official leading negotiations, was irked by Dario Amodei, Anthropic’s C.E.O., not being immediately available to speak — and had already largely negotiated an agreement with OpenAI. Several big questions now hang over the A.I. industry:
What lies ahead for Anthropic? The company has sought to reassure customers following Hegseth’s threat. The A.I. developer, which had single-handedly driven billion-dollar volatility in the stock market, had planned on going public this year, potentially leapfrogging OpenAI. Have those plans — which could help bolster its financial strength — been rocked by the latest fight? “There are easier ways to make $2.8 billion.”— Ted Sarandos, the co-C.E.O. of Netflix, on speculation that the streaming giant’s aim in bidding for Warner Bros. Discovery was to drive up the price for its rival, Paramount, and then walk away with a breakup fee. Sarandos also estimated that Paramount would need to cut more than $16 billion in costs to handle the debt it will borrow to finance the deal. The new earnings buzz phrase: ‘K-shaped’ economyCorporate earnings calls have a lingo of their own. It’s standard for executives to talk about top-line growth, reveal their learnings, and bemoan headwinds. But in recent months, a buzzy new phrase has suddenly taken hold: the “K-shaped” economy. It describes a sharp divide between prosperous high-income U.S. consumers, and everyone else. For most of last year, “K-shaped” came up on earnings calls less than once per month on average, according to data from the market intelligence platform AlphaSense. But starting in October, it began to spike in frequency. “K-shaped” has already been mentioned on 59 earnings calls in the first two months of 2026, Niko Gallogly reports.
What’s behind the K-shaped trend? The top 10 percent of U.S. households now account for nearly half of all spending, according to Moody’s Analytics. That spending power is driven in part by soaring stock market returns, which makes its way back into the pockets of wealthier households. At the same time, inflation and wage stagnation is putting a “massive squeeze” on middle- and lower-income earners, Ben Harris, the vice president and director of Economic Studies at Brookings, told DealBook. That has been driving the political conversation as Democrats and Republicans try to paint themselves as the party with solutions for America’s affordability crunch. Recently, some economists have splashed cold water on the K-shaped narrative, citing data that consumption levels are stable across income groups. But, that hasn’t stopped executives from name-checking the phenomenon:
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