Update on the Iran War; solved, next please

Context

Each month I have taken the opportunity to reflect on the war in Iran and consider what might happen next. This is the fifth piece in that series, and the first written after the war it has been tracking formally ended.

It ended on 17 June, at Versailles, on the sidelines of the G7. Trump and Pezeshkian signed a memorandum of understanding declaring the war over, reopening the Strait of Hormuz, lifting the US naval blockade, issuing waivers for Iranian crude, releasing frozen assets, committing to a reconstruction package, and parking the nuclear question in a sixty-day negotiating window. "It's signed," Trump told reporters leaving the palace. "Signed in Versailles. Just signed it."

Weekly Energy Update

Terminal Gate Prices

Prices at the pump will rise this week as the fuel excise is partially restored. This will see a 16c/l increase at the pump. 

Weekly Energy Update

The Strait, Again

• MoU signed 17 June (the Islamabad Declaration); last week's "wait for a signature" call now settled.

• Question shifts from whether it's signed to whether it holds and whether oil flows through the strait of Hormuz again; the early signs are not good.

• Iran declared Hormuz closed again Saturday 20 June, citing Israeli strikes on Hezbollah (an Iranian proxy in Lebanon). Iran needn't enforce its closure, since the declaration alone most likely freezes marine insurance and uninsured tankers don't sail. 

Raw products (prices pre-date 20 June closure)

MMT in Three Layers

I often find myself in conversation with supporters of Modern Monetary Theory, and for a long time I was mystified by what they are saying. This is the MMT I meet in argument and online, not the academic literature, which is more careful and more divided than any single account allows.

Over time I have come to think of MMT as three layers: a small set of accounting identities, a set of mechanisms, and a set of normative principles. Some are uncontroversial. Others are either inconsistent with the rest of MMT or simply impractical. What is most evident is that the identities do not establish the mechanisms, and the mechanisms do not establish the principles. If anything the arrow runs the other way: the mechanisms flow from the principles, and the identities are recruited afterward to make the whole look derived.

Three of the identities are mainstream economics; nothing new there. MMT adds a fourth claim and presents it as though it too were an identity, but it is not. It is the first of the mechanisms, an institutional design proposal wearing accounting's clothes. Of the six mechanisms, four rest on a technically true core the mainstream accepts but add reasoning or consequences it does not accept; the other two are institutional proposals the mainstream rejects outright. None of the principles are mainstream at all.

MMT did get one thing right: a government that issues its own free-floating currency cannot be forced into nominal default on its own-currency debt, and even mainstream central banks now accept as much. The disagreement is about everything the theory builds on top of that one sound insight. I will take the layers in the order MMT usually presents them, from the arithmetic up to the politics, because that is the order you meet them in argument.

A Cruel Irony in the Housing Target

The Government wants 1.2 million new homes built in the five years to June 2029. It is not going to happen on current trends. The first five quarters delivered around 219,000 homes against a run rate that needs roughly 280,000 a year. The National Housing Supply and Affordability Council now expects the target to be met around September 2030, more than a year late, and that estimate predates the latest commodity-price shock.

Weekly Energy Update

We have heard it many times before: the United States is on the verge of a deal with Iran. Trump has announced breakthroughs that never materialised, and markets have learned to discount the rhetoric. This time appears different, and for one concrete reason. The progress is no longer just a presidential claim. On June 12, Pakistan, the mediator that brokered the ceasefire, publicly confirmed that both sides had agreed on the final text of the memorandum of understanding, the so-called Islamabad Declaration. A signing venue in Geneva is being arranged. Agreed text confirmed by a third-party government is a different animal from another "soon" on Truth Social, even if Tehran is still careful to stress that nothing is final until it is signed. My take: more believable this time, but let's see if it is actually signed.

Crude

Crude prices are reading it as optimism. Both benchmarks have rolled over from their May highs, with WTI settling at \$84.88 and Brent at \$87.33 to close the week. 

A tour of the microeconomics of housing

What this is

Home purchase prices in Australia have risen a long way, faster than incomes, for at least a generation. There is a great deal of argument about why, and what to do. This piece is a tour of that argument, drawn on a common set of axes so the competing views can be compared rather than shouted past each other.