**Middle East oil shock intensifies with Hormuz closure** [developing]
Key Questions
What is driving the surge in oil prices?
The Iran war entering week 4+ with NATO risks at Hormuz and Kharg has intensified the Middle East oil shock, holding Brent at $111-112 and WTI above $105, with a peak at $119. This has led to a 20% cut in crude and LNG supplies for Q2 and gas prices up 30%.
How is the Hormuz closure impacting global energy markets?
The closure of Hormuz poses risks to crude and LNG flows, contributing to supply cuts and elevated oil prices. It heightens concerns for the petrodollar system amid ongoing geopolitical tensions.
What are current inflation expectations amid the oil shock?
Inflation expectations stand at 3.5%, with breakevens exceeding 5%. This week's CPI data is expected to show volatility due to the oil shock.
How might the oil shock influence Federal Reserve policy?
Powell, Waller, and Gerber have discussed oil pass-through effects leading to stagflation risks and potential rate hikes. Strong jobs data adds further pressure on the Fed to maintain or tighten policy.
Why is the traditional 60/40 portfolio struggling?
The 60/40 stock-bond portfolio is failing amid rising oil prices, inflation volatility, and stagflation risks. Both equities and bonds face headwinds from higher yields and energy shocks.
Iran war week 4+, NATO Hormuz/Kharg/LNG risks hold Brent $111-112/WTI $105+ (pk $119), 20% crude/LNG cut Q2, gas +30%, petrodollar at risk; CPI vol this week. Inf expecs 3.5%, breakevens >5%; Powell/Waller/Gerber pass-through/stagflation/hikes; strong jobs add pressure; 60/40 failing.