The Middle East ceasefire is dead. Rates are likely to stay higher for longer.

The deadline came and went.

On 17 August 2026, the Memorandum of Understanding (MoU) between the US and Iran expired amidst faltering talks between the two sides — and nobody extended it. President Trump made his position plain on Truth Social: 'There are no talks or conversations going on, or scheduled.' Two days later, he escalated further, vowing the harshest economic campaign the US has ever waged against Iran.

Iran's response tells you the deadlock runs both ways. Parliament speaker Mohammad Bagher Ghalibaf has laid out four conditions before Iran will even discuss reopening the strait: lift the naval blockade, release Iran's frozen assets abroad, drop oil sanctions, and end military threats. Washington has agreed to none of them — the naval blockade Iran wants lifted first is the very tool the US says it can maintain indefinitely.

The war has now ground to a stalemate with no visible exit.

Markets have noticed. Brent crude touched a fresh multi-week high above USD 93 a barrel on 20 August 2026. Three China-linked supertankers turned back mid-transit through the Strait of Hormuz, and a vessel was reportedly struck by a projectile nearby. Bond yields are moving too — the 30-year US Treasury yield touched its highest level in 19 years this week.

With every passing week, the case for higher-for-longer interest rates keeps getting stronger. Here's how to position your portfolio for it.

The war has reached a point of no return

What began as a disagreement over shipping lanes and transit fees has hardened into something with no room left to negotiate. Defence Secretary Pete Hegseth has said the US can sustain its blockade against Iran "indefinitely"; Iran's stated condition for lifting the strait closure is that the blockade comes down first. Each side is waiting on the other to move.

Suppose they did — suppose Washington and Tehran struck a deal tomorrow. Here's what that would fix: crude oil prices would drop, the Strait of Hormuz would reopen, ships in the Gulf would move freely again, and shipping insurance costs would fall sharply. There's one thing it wouldn't fix, though — fuel prices. Fuel prices wouldn't fall even if crude oil prices did, because the bottleneck is now refining, not oil. 

US diesel refining margins have hit records across every regional benchmark. The NY Harbor benchmark touched USD 102.20 a barrel on 17 August 2026. The Gulf Coast crack spread — the premium refiners earn selling diesel over the crude oil that goes into it — followed with its own all-time high of USD 94.73 the next day (Chart 1). Normally, that would entice refiners to increase supply. But they're hitting a hard ceiling: they want to produce more, but they can't. They're already running at full capacity.

Chart 1: US Gulf Coast diesel margins just hit an all-time high

This has been made worse by a conflict on another continent entirely: the Russia-Ukraine war. Ukraine has been running a campaign of long-range strikes on targets far from the frontline, specifically targeting Russian oil refineries — including a recent hit on the Taneco plant, one of Russia's largest and most advanced.

Russia — one of the world's three largest refiners — is now rationing petrol in its own capital. Rosneft has capped purchases at 30 litres per vehicle at every station it runs nationwide, Gazprom Neft has imposed limits across Moscow, and Tatneft and Lukoil have followed with their own. Russia has extended its own fuel export ban to the end of January 2027 — and started importing petrol from Morocco and diesel from South Korea to plug the gap at home. A refining superpower is now buying fuel from abroad to supply its own citizens.

A ceasefire in the Middle East wouldn't change any of that — which is exactly why the case for staying defensive on rate-sensitive assets doesn't hinge on how the negotiation ends.

The war isn't the only thing driving up your costs

Fuel isn't the only thing pushing costs higher. Cost pressures are showing up in places that have nothing to do with the war in the Middle East: food and memory chip prices are climbing too.

The UN Food and Agriculture Organization's own food price index hit a three-year high of 131.1 in July. That's still well below the 160 peak reached during the 2022 food crisis, but it's climbing again after two years of relative calm (Chart 2). Escalating attacks on grain infrastructure and cargo ships have effectively shut down the primary shipping routes for Russia and Ukraine, which together account for around a quarter of global wheat exports. The result: cereals up nearly 7% from a year ago, and vegetable oils up even more — 17%, the index's biggest mover.

Chart 2: Food prices just hit a three-year high

FAO chief economist Maximo Torero says that's only the start. Wars in Iran and Ukraine, layered on top of a severe El Niño, are creating what he calls a 'perfect storm' — with the real pressure expected to show up in 2027, not this year. You can already see it coming in planting decisions, even if the full price impact hasn't landed yet — global wheat and corn planting was cut in the first three months of the war. Now Australia, one of the world's largest wheat exporters, is feeling it too — winter crop production is expected to fall 21% this year, largely on higher fuel and fertiliser costs. "Tight margins are putting stress on planting decisions," Torero says.

Memory chip prices are pushing up the cost of everyday electronics too, as surging AI infrastructure demand triggers a supply squeeze that manufacturers are starting to pass on. Nintendo has raised the US price of the Switch 2 by 11%, to USD 499.99 — an increase the company has tied directly to the cost of memory chips. Apple raised MacBook prices by around 18% in June for the same reason, and Dell, HP, and Lenovo have all lifted PC prices by 15% to 20% since late last year, according to research firm TrendForce.

The same input cost is now working its way through more than a dozen companies spanning networking equipment, cloud computing, and e-commerce, all citing the same culprit. None of this depends on a ceasefire either — it's a second, independent reason costs stay elevated regardless of what happens in the Middle East.

Interest rates are heading higher for longer

Make no mistake, interest rates are heading higher for longer.

The Federal Reserve's own July meeting minutes, released this week, showed several policymakers ready to raise rates immediately, and many more saying a hike would be needed if inflation doesn't fall back toward target. Three regional Fed presidents already dissented in favour of an immediate hike at that same meeting. The Fed's own preferred inflation gauge, tracked in real time by the Cleveland Fed, is still running at 3.7% on a headline basis and 3.3% on a core basis — above the Fed’s 2% inflation target.

And even if the Fed doesn’t hike rates, the bond markets have already taken things into their own hands. The 30-year US Treasury yield climbed to 5.31% on 17 August 2026 — its highest level in nearly 19 years — before easing to 5.19% by the end of the week. The New York Fed's own model puts the 'term premium' — the extra compensation investors demand for holding long-dated government debt — at 0.89% as of 17 August, its highest sustained level since 2014 (Chart 3).

Chart 3: The term premium just hit its highest sustained level since 2014

The US Treasury has doubled the size of its bond-buyback programme, hoping to drive down borrowing costs. But a series of USD 4 billion buyback barely registers against two much bigger forces working the other way: US government borrowing, which just crossed USD 40 trillion, and a new competitor for the same pool of savings. Economist Carl Weinberg estimates AI infrastructure spending alone has borrowed as much as USD 600 billion over the past year, competing directly with governments and ordinary businesses for the same pool of capital.

This isn't only an American story, either. Japanese 10-year bond yields touched 2.80% in late July, their highest level since 1997. German bond yields hit 3.26% on 20 August, their highest since May 2011 — and Germany's own finance ministry said so plainly, tying the rise directly to a wave of new defence spending. Even the European Central Bank looks likely to raise rates again next month.

Alphabet has become the first AI hyperscaler to borrow in Australian dollars — and the first big US tech name to issue a so-called "Kangaroo" bond since Apple did it back in 2016. It's part of a broader pattern: Alphabet has already raised debt in sterling, Swiss francs, Canadian dollars, Japanese yen and euros this year, and it's not alone. Some of the world's largest borrowers are increasingly issuing debt in local currencies rather than dollars, spreading their borrowing across multiple markets instead of leaning on the US bond market alone.

In other words, higher for longer is increasingly a global story.

How to position your portfolio in a higher-for-longer world

Reduce your portfolio's exposure to interest rates, and favour short-duration bonds over long-dated ones — they mature sooner, so your capital is exposed to fewer years of further rate swings before you get it back. And it isn't just about inflation. The pressure is coming from government borrowing and a genuine competition for capital that a single rate decision cannot fix on its own.

Within equities, valuations matter more than ever — and the reason comes down to the time value of money. A dollar of profit earned today is worth more than a dollar of profit earned in a decade's time. Rising interest rates only widen that gap — the further out the profit sits, the less it's worth in today's money. That's why a cheap, profitable company earning the bulk of its value in the next few years tends to hold up better than an expensive, unprofitable one betting on profits far in the future.

It's also exactly why we continue to favour Asia over the US. Asian equities trade at a meaningful discount to the S&P 500, for earnings growth that's comparable. You're not paying up for growth in Asia. You're getting it at a discount.

Within the region, Asian semiconductors remain our highest-conviction idea. Samsung and SK Hynix carry some of the strongest balance sheets in global technology, and their demand is locked in through multi-year contracts, not hope. Even so, the valuation gap to US chipmakers hasn't closed. The Global X Asia Semiconductor ETF (HKEX: 3119) remains our preferred way to access it.

China and Singapore also stand out. China offers two complementary trades. One is hardware: the GF CSI All-Share Information Technology ETF (SZSE: 159939), where AI demand is already showing up in earnings. The other is platforms: the iShares Hang Seng TECH ETF (HKEX: 3067), trading well below its long-term average as a price war fades. Singapore, meanwhile, offers attractive dividends — cold, hard cash handed to investors today rather than promised in the distant future, exactly the kind of near-term-earnings profile that holds up better as interest rates climb.

The one exception to our US caution: internet names. Despite this year's AI spending boom, most hyperscalers have actually underperformed the market, and valuations have compressed rather than inflated — well below their own historical averages, with earnings still intact underneath. That doesn't make them cheap outright, but it does mean less of their price depends on profits that are still years away. The Invesco NASDAQ Internet ETF (NASDAQ: PNQI) is one way to get that kind of exposure.

Declaration:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a NIL position in the abovementioned securities. The analyst who produced this report holds positions in iShares Hang Seng TECH ETF and Global X Asia Semiconductor ETF.