<p>In recent weeks, market focus has rapidly shifted from US tariffs to the Middle East oil price crisis.</p>
<p>Nomura connects these two threads: <strong>The US Supreme Court ruled &#34;reciprocal tariffs&#34; illegal, causing the core policy of the Trump administration's first year to suddenly collapse; the military action against Iran, which broke out just days later, forcibly moved the brewing tariff refund and accountability controversy out of the news center, but at the cost of pushing the world toward a more typical supply shock.</strong></p>
<p>According to Chase Wind Trading Desk, Richard Koo, Chief Economist of Nomura Research Institute, stated bluntly in a research report on the 24th that the Trump administration still intends to switch legal bases to launch another tariff offensive after the Supreme Court ruling—&#34;This approach, far from reducing uncertainty, will instead amplify it, representing the most undesirable outcome for businesses and the economy as a whole.&#34;</p>
<p>In Koo's framework, &#34;uncertainty&#34; is not an abstract term: it has already translated into hiring and growth. The Federal Reserve's Beige Book described &#34;extremely weak&#34; recruitment in many regions; the February jobs report showed a month-on-month decrease of 92,000 in payrolls; and the US GDP growth for Q4 2025 was revised down from an initial 1.4% to 0.7% (seasonally adjusted annual rate). With the tariff legal battle unresolved and negotiations set to restart, businesses find it harder to commit to expansion.</p>
<p>Then came Iran and the Strait of Hormuz. Koo juxtaposed the timing of the war with the tariff setback: after the war began, reports regarding the Supreme Court ruling and tariff refunds almost disappeared; meanwhile, the closure of the Strait blocked the supply of oil, LNG, and fertilizers simultaneously, meaning Asia faced not just &#34;more expensive oil,&#34; but the reality that &#34;goods cannot arrive.&#34; He concluded with a pessimistic combination: <strong>The unresolved tariff situation, coupled with the supply contraction of oil, gas, and agricultural inputs, makes a continued decline in global economic momentum almost unavoidable.</strong></p>
<h2>Supreme Court Ruling Wipes Out Tariff Effects, Leaves a $300 Billion Refund Hole</h2>
<p>Koo believes the Supreme Court's February 20 ruling was a &#34;fatal blow&#34; to the Trump administration: the ruling that reciprocal tariffs were illegal meant that the policy into which the president invested the most political capital in his first year has &#34;completely collapsed.&#34; <strong>Even more troublesome is the aftermath—the government may need to return approximately $300 billion in tariff revenue collected to date, which in itself is enough to trigger fiscal and political instability.</strong></p>
<p>Even if the administration intends to &#34;re-legislate and fight again,&#34; Koo is not optimistic about the efficiency. Treasury Secretary Scott Bessent previously hinted at seeking new legal grounds, but new statutes would either have time limits or require detailed investigations into every industry/product, a process destined to be slower and more labor-intensive. Koo particularly emphasized an easily overlooked variable: <strong>Officials executing tariff negotiations will suffer a blow to morale after experiencing a defeat where their &#34;legality was denied,&#34; making it difficult to regain previous momentum when restarting talks.</strong></p>
<h2>&#34;Distrust&#34; is Accumulating Among Negotiation Partners; Previously Agreed Terms Become Unclear</h2>
<p>Koo shifts the perspective to the US's negotiation counterparts: leaders and negotiators of various countries invested significant political capital over the past year to accept the Trump administration's demands; now, suddenly learning that these demands lacked legality, it is hard to avoid resentment and suspicion.</p>
<p>A more practical challenge is: among the &#34;matters already agreed upon&#34; in past negotiations, which will remain valid and which will be overturned in a new round? <strong>Koo's judgment is that the legacy of the Trump administration's first year is not a &#34;new order,&#34; but rather heightened uncertainty.</strong> For businesses, this is harder to digest than the tariffs themselves because it removes the stable anchors for pricing, investment, and hiring.</p>
<h2>Employment Data Tells the Same Story: Businesses Choose &#34;Not to Hire&#34; in the Face of Uncertainty</h2>
<p><strong>Koo pins the evidence of an &#34;economic slowdown&#34; on employment rather than GDP:</strong> The Beige Book stated that except for a few regions, employment has been basically flat over the past few months, with some areas even declining; the 92,000 month-on-month decrease in February payrolls is consistent with this. Regarding GDP, the downward revision of Q4 2025 growth to 0.7% (seasonally adjusted annual rate) corroborates the weakness in employment.</p>
<p>He also cited Jerome Powell's remarks at the post-FOMC press conference on January 28: employment often reflects the true temperature of the economy better than GDP, which undergoes complex statistical processing. Koo thus infers that the likelihood of a &#34;significant slowdown&#34; in the US economy is high, and one reason specifically named by the Beige Book is the uncertainty brought by tariff policy; the Supreme Court ruling, combined with the White House choosing to &#34;fight again,&#34; will only cause this uncertainty to continue rising.</p>
<h2>Koo's Key Speculation: The Timing of the Iran War May Serve to &#34;Shift from Defense to Offense&#34;</h2>
<p>Against the backdrop of &#34;tariffs being ruled illegal and refunds being required,&#34; Koo proposed a clear personal speculation: the war broke out on February 28, only a few days after the Supreme Court ruling, making it difficult to believe it was entirely coincidental. For Trump, the refunds and accountability would put him in a passive position; he is more adept at using sudden actions to regain control of the agenda.</p>
<p>Koo provided three clues to support his suspicion:</p>
<ul>
<li><strong>Negotiations were still ongoing</strong>: The US was still negotiating with Iran up until the day the war began, with almost no signs of an imminent &#34;breakdown in talks&#34;; resorting to force when negotiations had not failed would severely damage US national credibility and looks more like &#34;rushing to a deadline.&#34;</li>
<li><strong>Secretary of State Rubio's explanation backfired</strong>: Rubio stated the US learned Israel was going to act first and feared US facilities would face retaliation, so it chose to join the preemptive strike. Koo believes this is equivalent to admitting the US was following Israel's lead, sparking domestic backlash in the US, with even Netanyahu publicly calling the claim &#34;absurd.&#34; Koo speculates that for a Trump eager for war, the Israeli plan instead became a &#34;window.&#34;</li>
<li><strong>Signs of insufficient preparation</strong>: After the killing of Supreme Leader Khamenei, Trump spoke of &#34;pro-American individuals also being killed in the airstrikes.&#34; Koo inferred that if the US had truly been betting on these people for a long time, it would typically find ways to avoid them being at the strike locations; the total lack of such arrangements looks more like a hasty decision. Koo also mentioned that Joe Kent, the director of the National Counterterrorism Center who resigned in protest on March 17, stated there seemed to be contact from the Israeli side demanding US participation in the war.</li>
</ul>
<h2>Hormuz is Not a Problem Solved by &#34;Dispatching Escort Fleets&#34;: Cheap Drones Have Inverted the Cost Structure</h2>
<p>In Koo's narrative, <strong>one of Trump's miscalculations regarding Iran was underestimating the possibility of Iran blockading the Strait of Hormuz.</strong> <em>The Wall Street Journal</em> reported that senior US military officials had warned about the problems of a blockade, but Trump pushed ahead with the war regardless. After the blockade occurred, his attitude also changed: from claiming he &#34;doesn't need allies like the UK&#34; to welcoming the support of a British carrier strike group and demanding that Japan, South Korea, and Europe send warships to escort tankers.</p>
<p>Koo believes the core difficulty is not a &#34;lack of ships&#34; but the asymmetry of technology and cost: Iran could use cheap, mass-producible drones; if launched on a large scale simultaneously, the expensive interceptor missiles on escort vessels might be insufficient in number. More critically, drone engines can be modified from motorcycle engines, and they emit almost none of the strong heat signals of traditional rockets upon launch, making it difficult for reconnaissance satellites to lock onto launch sites in time. This type of risk is exactly what senior military officials likely tried to warn Trump about.</p>
<h2>Supply Shock Has Spread to Shipping Fuel, Fisheries, and Fertilizers: More Like a &#34;Stagflation Puzzle&#34;</h2>
<p>Koo's description of the economic consequences of the Strait's blockade is very specific: crude oil transit through the Strait of Hormuz is said to account for about 20% of the global total, and because energy demand has low price elasticity, this alone could drive prices higher and amplify volatility.</p>
<p>He provided several spillover phenomena that have already appeared: in Singapore, a major shipping hub, the price of marine fuel oil nearly doubled at one point and remains volatile at high levels; Bangkok Port in Thailand has banned refueling for foreign vessels due to a lack of stable fuel oil supply; the doubling of fuel costs has also made many fishing boats unprofitable, with some fishing companies already suspending operations of underperforming vessels.</p>
<p>More pointedly on the agricultural front: Koo noted that one-quarter of the world's fertilizer used in agriculture is produced in this region, and the blockade has halted supplies. If this continues, global food output could be severely hit, driving up inflationary pressure. He stated frankly that compared to the grain price surge at the start of the Russia-Ukraine conflict, if this drags on, the world may face a more severe food crisis, ultimately moving toward a stagflationary pattern of &#34;declining supply and accelerating inflation.&#34;</p>
<h2>Trump Uses &#34;Buying Russian Oil&#34; to Suppress Gasoline Prices; Europe Sees a Reversal of Value Prioritization</h2>
<p>When the blockade pushed up US gasoline prices, Trump quickly lifted the energy ban on Russia and allowed the purchase of Russian crude. For Europe, this was a shock: Europe stopped buying Russian oil and gas immediately after the Russia-Ukraine conflict, enduring surging energy prices and economic losses, yet still prioritized supporting Ukraine and so-called Western values; Trump's move sent the opposite signal—preventing a rise in US gasoline prices took precedence over geopolitical principles.</p>
<p>Koo also compared the psychological thresholds for gasoline prices across two periods: in 2022 under Biden, US gasoline rose from about $2/gallon to peak at about $4; this time, Trump chose to buy Russian oil once gasoline exceeded $3/gallon. Based on this, Koo judges that <strong>Trump's tolerance for economic pain may be lower than the outside world imagines, and he finds it harder to endure the &#34;re-inflation brought by a war he initiated.&#34;</strong></p>
<h2>The Most Likely Path is a &#34;Quagmire&#34;: Trump Only Has Eight Months, and Iran Will Fight a War of Attrition</h2>
<p>Regarding the subsequent military process, Koo believes the most likely outcome is not a swift victory, but falling into a quagmire similar to the Iraq War during the George W. Bush era: Iran is a larger country with a longer history and is a multi-ethnic nation; air strikes alone are unlikely to reshape the regime. To push for regime change, one must coordinate effectively with domestic reformists or anti-regime forces, but Trump's related statements imply that the &#34;pro-American figures&#34; the US originally bet on have already died in airstrikes, further raising the difficulty. Even if ground troops are deployed, it could lead to long-term entanglements like those in Iraq and Afghanistan.</p>
<p><strong>Time is not on Trump's side: there are only eight months until the midterm elections, and some of his supporters were originally opposed to long-term involvement in foreign governance.</strong> Koo believes Trump effectively faces two paths—either to go all-in for a military victory within eight months (which would require mobilizing large-scale ground forces and occupying vast territory, for which time is likely insufficient); or to quickly declare that the &#34;initial goals have been achieved&#34; and withdraw. However, Iran is aware of this time constraint and is very likely to choose a war of attrition to drag out the victory window.</p>
<h2>Even if a &#34;Victorious Withdrawal&#34; is Announced, the Strait May Not Reopen; The Dual Impact of Tariffs and Oil Prices Persists</h2>
<p>Koo does not believe that the policy U-turns Trump is known for will necessarily clean up the mess. He mentioned that the market has even given Trump the nickname &#34;TACO&#34; (Trump Always Chickens Out): after proposing high reciprocal tariffs on April 2, 2025, US stocks, bonds, and the dollar suffered a &#34;triple kill,&#34; and wealthy Republican donors called to threaten a halt to donations; Trump then quickly reversed course, announcing a 90-day truce, and the market immediately recovered.</p>
<p><strong>But the Iran situation is different: a withdrawal does not mean Iran will reopen Hormuz.</strong> Koo wrote that Iran might demand that damaged facilities like Kharg Island and domestic infrastructure be repaired before agreeing to reopen. Consequently, Trump is on one hand asking Israel not to strike Iranian energy facilities (otherwise Iran would have even less incentive to reopen), and on the other hand issuing an ultimatum to Iran: demanding a reopening within 48 hours, later extended to five days, or the US will destroy Iran's power infrastructure. This is equivalent to raising the stakes even higher: if Iran does not yield, the US military will be forced to strike facilities vital to the lives of ordinary citizens, further deteriorating bilateral relations and making a long-term closure of the Strait more probable.</p>
<p>In closing, Koo juxtaposed &#34;external war&#34; with &#34;internal constraints&#34;: Fed Chair Jerome Powell announced that he would remain a member of the Board of Governors even after stepping down as Chairman amidst the legal dispute with the Trump administration; the most recent FOMC chose to hold steady due to inflation risks, with only one member dissenting and the two other Trump appointees siding with Powell; some Republican senators even stated that if Trump does not withdraw his lawsuit, they will not proceed with the confirmation hearing for his successor, Kevin Warsh. Koo's conclusion thus sounds more like an alarm: with the tariff case unresolved and a new oil and gas crisis arising, the Trump administration's &#34;momentum&#34; is declining, and the global economy—including the US—is very likely to slow down further as a result.</p>

<p>Nomura's Richard Koo believes that the timing of the Trump administration's initiation of the Iran war—only days after "reciprocal tariffs" were ruled illegal by the Supreme Court and the administration faced pressure for a $300 billion refund—was not coincidental. It was intended to divert attention from domestic political and financial crises through sudden military action. However, Iran's drone tactics have trapped the US military in an escort dilemma, causing global energy, fertilizer, and shipping costs to surge. The unresolved tariff issue, combined with geopolitical risks, is pushing the global economy toward a stagflationary quagmire of slowing growth and rising inflation</p>

Nomura's Richard Koo: "Iran War" Occurred Days After Trump Lost "Supreme Court Tariff War," This is Not a Coincidence