Good morning. Andrew here. The fighting in the Middle East is growing as Iran continues to retaliate. “You’ve got to expect there’ll be cyberattacks or terrorist attacks, either here or around the world,” Jamie Dimon of JPMorgan Chase told CNBC, adding that banks might be targets. It is worth being mindful that even if the U.S.-Israel attack achieves its goals, it is likely to come with costs — economic and otherwise. Meanwhile, Big Law won a reprieve after the Trump administration essentially ended its effort to punish law firms that refused to capitulate to the president. What does this say about the judgment of law firms that settled with the administration, including the Wall Street giants Paul Weiss and Skadden? Those decisions now look like a mistake. (Was this newsletter forwarded to you? Sign up here.)
Rising repercussionsAttacks have intensified in the Middle East for a fourth day, and President Trump has raised the prospect of a prolonged conflict. “Whatever it takes,” he said yesterday, laying out his vision for the military campaign against Iran. He later wrote on social media that “wars can be fought ‘forever,’ and very successfully.” That has markets and businesses on edge, Bernhard Warner reports. The latest:
Wider repercussions may appear. Reports that some I.P.O.s are being delayed, while others are racing to the finish line, suggest companies are bracing for market volatility. More broadly, economists worry that a prolonged energy shock would probably drive up costs for businesses and households. That could influence the Fed’s interest rate policy: “I think the recent Iran situation puts the Fed even more on hold, more reluctant to cut rates,” Janet Yellen, a former Treasury secretary, said yesterday. The war could also wallop supply chains as Iran threatens to attack shipping lanes in the region. Some logistics companies are largely avoiding the normally busy Strait of Hormuz and even the farther-off Red Sea. Watch for a mess at ports worldwide if this persists beyond a few days, Lars Jensen told DealBook. He’s the C.E.O. of Vespucci Maritime, a Danish container-shipping consulting firm. “Everybody would be affected in terms of less capacity, and freight rates are going to escalate,” Jensen said. That said, some market watchers expect only temporary pain. With midterm elections in November, they predict, Trump won’t risk squandering his limited political capital on a war that’s unpopular with voters. “We expect that Donald Trump will look for an exit ramp pretty soon, and this ‘Trump put’ will limit the duration and depth of this market correction,” Joachim Klement, the head of strategy at Panmure Liberum, a London investment bank, wrote to investors this morning. Klement predicts markets might drop between 5 percent and 15 percent — which, he wrote, “statistically happens once or twice every year anyway.”
Blackstone’s big private-credit fund is hit by significant withdrawal requests. The financial giant is letting investors redeem about $3.8 billion from the fund, known as BCRED. (It currently has about $82 billion in assets.) The disclosure is the latest sign of anxiety about the private-credit industry, as investors worry that nonbank lenders have extended too many risky loans, including to software companies that might be disrupted by artificial intelligence. U.S. officials are said to be weighing strict limits of A.I. chip sales to China. The Trump administration has discussed capping Chinese companies to just 75,000 of these processors — including both Nvidia’s H200 and AMD’s MI325 — each, Bloomberg reports. That limit is less than half of what major businesses including Alibaba have requested, and reflects competing factions in Washington over whether to let U.S. companies sell advanced A.I. chips to China. An open-source A.I. start-up is reportedly in taks for a big new fund-raising round. Reflection AI is in talks with investors to raise at least $2 billion at a $20 billion valuation, according to The Financial Times, just months after collecting $2 billion at an $8 billion valuation. What’s notable is that Reflection AI’s models can be modified by anyone, an approach that differs from the closed-source approach favored by Google and OpenAI. Washington officials have encouraged development of open-source models to help counter Chinese offerings like DeepSeek. The oil conundrumOil prices are climbing again as analysts warn that turmoil in the Middle East could sock the global economy. These market swings may also test President Trump’s resolve for a prolonged conflict with Iran. Some energy experts predicted that oil prices would spike above $100 per barrel after the U.S. and Israeli strikes on Iran began. Yet this morning, Brent crude, the global benchmark, nearly touched $85 at its peak this morning — a big jump since Friday, but one that suggests some traders still think any disruption will be short-lived. That could be a miscalculation, according to Helima Croft, the global head of commodity strategy at RBC Capital Markets. “I think many market participants are having a case of recency bias,” she told DealBook’s Brian O’Keefe, adding that they may be counting on a brief conflict, similar to last year’s 12-day war in the region. Iran is reacting differently this time. Since Saturday, it has unleashed drone attacks on Qatar, Saudi Arabia and the United Arab Emirates, major energy-exporting countries aligned with the U.S. In targeting its neighbors’ energy installations, “their whole goal is to internationalize the cost of the Israeli and U.S. action,” said Croft, a former C.I.A. analyst. “I think that the Iranian playbook is to have these countries tell the United States that we need to stand down.” Pressure is growing. Qatar and the Emirates are reportedly lobbying allies to urge Trump to find a quick end to the war, according to Bloomberg. China, a major buyer of Iranian crude, is also calling for restraint. Today, a spokeswoman for China’s Foreign Ministry urged “all parties to immediately cease military operations, avoid escalating tensions and safeguard the safety of navigation in the Strait of Hormuz.” Expect the Iran conflict to loom large over a scheduled summit between Trump and President Xi Jinping of China this month. The end of Trump’s legal efforts against law firmsOne of President Trump’s earliest efforts to punish businesses in his second term has come to a quiet end. The Justice Department said it was dropping its defense of executive orders that sought to punish law firms for not submitting to Trump. It’s a win for the firms that had been in the administration’s cross hairs — and raises questions about the ones that struck settlements with the White House. What happened: Justice Department lawyers told the U.S. Court of Appeals for the District of Columbia that they would no longer try to fight lower-court rulings that struck down the executive orders. Trump had sought to punish several firms for working with perceived enemies including Democrats and Jack Smith, the special counsel who led investigations into him. “The government has capitulated, which is a fitting end to its plainly unconstitutional attack,” Susman Godfrey, one of the four firms that resisted the orders, said in a statement. The other firms were Jenner & Block, Perkins Coie and WilmerHale. The move casts a spotlight on the nine firms that didn’t fight. Chief among them was Paul Weiss, which some expected to resist: Its leader at the time, Brad Karp, had rallied the legal industry to stand up to Trump in his first term. Instead it settled, in part because some of its top corporate lawyers, like Scott Barshay, worried that opposing Trump could hurt business, The Times reports. Others that settled included Skadden Arps; Simpson Thacher & Bartlett; and Willkie Farr & Gallagher (which counts Doug Emhoff, the husband of Kamala Harris, as a partner.) Together, the nine firms pledged nearly $1 billion in pro bono legal work for causes Trump has favored. The firms that settled drew widespread criticism, especially Paul Weiss. Several Democratic lawyers left the firm after its settlement, including Damian Williams, the former U.S. attorney for the Southern District of New York. (He ended up at Jenner & Block.) “This affected the interest of big law firms doing what they normally do, to stand up for people without representation,” Scott Cummings, a law professor at the University of California, Los Angeles, told The Wall Street Journal. “In that sense, Trump achieved something important that will linger.” The Trump administration is still waging legal fights against companies, however, including Anthropic. (More below.) “I want to build the things that will scare the [expletive] out of our most dangerous enemies without bankrupting the United States in the process.”— Palmer Luckey, the founder of the defense-technology start-up Anduril. His company makes autonomous systems and weapons, futuristic warfare options that the Trump administration has embraced. ‘Opportunistic and sloppy’Just days after the artificial intelligence giant OpenAI announced a deal to work with the Pentagon on classified applications — an agreement it said addressed concerns raised by its archrival, Anthropic — OpenAI said it had amended that agreement. The news underscores the high stakes of Silicon Valley’s negotiations with the Trump administration when it comes to government use of A.I. It also calls into question what lies ahead for Anthropic, which the government has labeled a threat. OpenAI’s agreement includes stronger protections against mass domestic surveillance. Among them is a new provision saying that its A.I. tools “shall not be intentionally used for domestic surveillance of U.S. persons and nationals,” in line with relevant federal laws. It also bars “deliberate tracking, surveillance or monitoring of U.S. persons or nationals” through the use of commercially available information. “We shouldn’t have rushed to get this out on Friday,” Sam Altman, OpenAI’s C.E.O., wrote in a social media post. He had drawn criticism for striking that deal — and for announcing it soon after the Pentagon ended talks with Anthropic and President Trump ordered federal agencies to stop using Anthropic’s Claude software. (Several, including the State and Treasury Departments, said they would do so.) Altman had initially suggested that provisions in OpenAI’s first deal resolved concerns that its software would be used for mass domestic surveillance and autonomous lethal weapons. But skeptics said that the deal relied too heavily on legal language that gave the Pentagon loopholes. Where does this leave Anthropic? OpenAI’s latest move seems to validate some of the company’s concerns about how its A.I. software might be used. Anthropic has also gotten a boost in popularity, with its Claude app climbing the ranks of Apple’s App Store rankings. (OpenAI’s ChatGPT has tumbled.) But Defense Secretary Pete Hegseth has declared that no government contractor can do business with Anthropic, a threat that appears to exceed the legal authority he is relying on. The company plans to challenge it in court. We hope you’ve enjoyed this newsletter, which is made possible through subscriber support. Subscribe to The New York Times.
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