(UBS)
Precarious Ceasefire
President Trump would like to have momentum toward some sort of resolution before his visit with China’s leader Xi Jinping in mid-May (he rescheduled the late March summit due to the Iran conflict). Another motivation is political. The current dynamics mean higher gas prices well into the summer, which could make the economic impact of the war in Iran a central issue in the midterm elections. However, negotiations remain stalled with an even more hardline Iran that has newfound leverage in its ability to choke traffic in the Strait. Hence, the current uneasy truce offers as much opportunity for escalation as a diplomatic breakthrough. And even progress on reopening the Strait of Hormuz would be subject to backsliding and implementational challenges, as last week’s false dawn showed. Finally, as challenging as it will be to address the current top priority (a durable reopening of the Strait of Hormuz), addressing concerns about Iran’s nuclear capabilities (the original justification for the war) will be even more difficult and time-consuming.
DHS Funding and Reconciliation
The shutdown for the Department of Homeland Security (DHS) is now on its 69 th day. After a lengthy voting session that extended into the early morning hours on Thursday, the Senate passed a budget resolution, a procedural step in allowing Republicans to use the party-line reconciliation process to fund Immigration and Customs Enforcement (ICE) and Customs and Border Protection (CBP). The resolution, which would provide $70 billion in funding for ICE and CBP over three years, now moves to the House. House Republican leadership is aiming for a vote on the resolution next week. With only a two-vote majority, passing it will not be an easy task. Some House Republicans are interested in expanding the scope of the reconciliation bill beyond ICE and CBP funding. Republican leadership has promised a third reconciliation bill that can focus on other Republican priorities, including more tax policy changes, defense funding, additional funding for the Iran war, and spending cuts across social programs. However, it will be very hard to develop sufficient consensus on any such effort. If the House is able to pass the Senate-passed budget resolution next week, the Senate plans on voting on the immigration enforcement funding bill the week of May 11. The House also needs to pass the Senate-passed bill to fund the rest of DHS (House Speaker Mike Johnson (R-LA) made the reconciliation effort a precondition of passing this bill). Congress has a deadline of June 1 when the Trump administration has said DHS will have run out of its emergency funds to pay for TSA employees.
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