AI Pledge Allegiance To The Flag

By Bas van Geffen, senior macro strategist at Rabobank

As Bloomberg recounts that “the ceasefire is set to expire today,” there is little left of that truce to begin with. Negotiations have broken down. And over the weekend, Israel conducted new strikes in Lebanon, a bulk carrier that tried to leave the Strait of Hormuz was hit by a projectile, and Yemen’s port suspended operations after Houthi missile attacks.

Both sides are evaluating their options in the current stalemate. Iran’s hardline leadership is reportedly planning to widen the war, as they seek to raise the costs for the US and regional leaders. It may be their counterstrategy to the “unprecedented” economic sanctions that the US is threatening to impose on Iran.

Those sanctions could already be costly for the US. Bloomberg explored what this “economic isolation” of the country could look like, given that Iran is already the subject of a plethora of sanctions and a naval blockade. And most of them have some repercussions for the US too. The US’ strongest move might be to sanction Chinese banks that finance the trade in Iranian oil, but this will surely worsen US-China relations ahead of a scheduled Trump-Xi meeting.

And just by the conflict dragging on, the cost for the US increases. The Financial Times reports that US voters disapprove of most of Trump’s economic issues. The US president scores particularly bad on the cost of living, as most voters feel worse off due to higher inflation.

Washington has been trying to manage these costs through its strategic petroleum reserve, but that hasn’t stopped prices from going up. And, crucially, these reserves are finite. The SPR has fallen below 300 million barrels for the first time since it was filled in the 1980s. This adds to concerns about the integrity of the caverns – as experts are divided over the amount of oil that needs to remain to prevent structural damage to the storage sites.

Perhaps feeling that pressure, President Trump maintains that the war will be over soon, and that Iran will be “badly defeated.” Traders are not convinced: markets are dragging their feet at the open. This weekend, Trump added that he would declare the Strait of Hormuz United States territory “pretty soon.” Because “essentially, that’s what it is. We have the blockade. No ships get through unless we want them to.” The Guardian concludes that the “seriousness of [the] remark made in New York on Friday, and whether it signaled a new policy position, [is] not clear.”

That may be the case with many of his off-the-cuff comments, but their consequences can be severe. President Trump has previously threatened to withdraw military support for countries that do not invest in their own defense, or that do not align with the US on geopolitical or geoeconomic matters like trade.

As a case in point, President Trump expressed his discontent with South Korea’s lack of help in the Iran war. And on that basis, Trump ordered the Pentagon to “substantially reduce” the joint military drills with South Korea. He even indicated that he would have cancelled the exercise entirely if it hadn’t been too late for that – despite repeated warnings from US military intelligence that North Korea is gaining valuable experience by aiding Russia in its war against Ukraine.

Washington is preparing a similar carrot-and-stick approach in the field of artificial intelligence. The US wants to force countries to pick a side in the AI-race with China. Any country that signs a deal with Beijing could be cut off from the US’ AI coalition. The draft policy is an extension of the Pax Silica agreement, which was designed to improve the US’ access to critical resources and to strengthen supply lines for semiconductors.

Various countries have already joined the US agreement, which is not binding. China has since launched a rival alliance, causing Kazakhstan to effectively be a signatory to both frameworks. That’s a concern for the US, primarily because the country has a cache of critical minerals. But Washington also wants to prevent that its rivals get access to its frontier AI models and research.

So, the Trump administration may soon send out letters telling its allies to pledge allegiance to the flag – or be cut off from US technologies. It’s a reminder that gross domestic compute is becoming an increasingly important element of strategic autonomy and the power a country can project on the global stage.

The EU, positioned right on the US-China fault line, is still trying to navigate the increasing rupture between the two blocs. Last year, Brussels reluctantly signed a trade deal with the US, to prevent worse. Part of that deal includes a pledge to increase investments in American production facilities. However, whether that materialises is up to private companies, The German economic institute IW calculated that companies cut their US-bound FDI by two thirds in the first half of 2026, to the lowest level since 2023. This reluctance to invest may be entirely due to the uncertainty about US-EU trade relations and the overall economic outlook. Yet, it may put Europe in Trump’s crosshairs again.