Oil prices have reached three digits, triggering a global sell-off in stocks and bonds, putting the Federal Reserve in a dilemma.
The ongoing conflict between the U.S. and Iran has led to soaring oil prices, weakening employment data, and reignited inflationary pressures, creating a triple threat that has caused investors' concerns about U.S. &#34;stagflation&#34; to rapidly evolve from theoretical speculation into a real threat.
On Monday, Brent crude oil prices surged past $100 per barrel, reaching the highest level since the outbreak of the Russia-Ukraine war. Meanwhile, U.S. gasoline retail prices have significantly risen to over $3 per gallon, with further increases expected. Trump stated on social media that the rise in oil prices is a &#34;minimal cost&#34; for winning the war, but whether this statement will resonate with voters remains uncertain.
Global markets are experiencing severe turbulence. Asian stock markets continued their downward trend, with the Nikkei index plunging over 5% in a single day, and the South Korean KOSPI index falling nearly 6%, having already dropped 5.5% and over 10% in the previous week. The bond market is also under pressure, with the yield on the UK two-year government bonds expected to record its largest single-day increase since 2022.
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<h2>Oil Prices in Three Digits: Energy Crisis Escalates</h2>
The energy crisis triggered by the Iran war is accelerating. Oil prices broke through $100 per barrel on Monday, marking the first time since the outbreak of the Russia-Ukraine war that this key psychological threshold has been reached.
Structural pressures on the supply side are driving this surge. Gulf oil-producing countries continue to cut production, coupled with Iran's ongoing threats to the Strait of Hormuz, a global oil shipping route, leaving concerns about supply disruptions lingering. On the geopolitical front, the appointment of Mojtaba Khamenei, the son of Iran's Supreme Leader Ali Khamenei, as the new Supreme Leader further narrows the space for easing tensions.
In the face of soaring oil prices, market attention is shifting to potential intervention measures by various countries. According to Reuters, G7 finance ministers are set to discuss a joint release of emergency oil reserves. Senate Democratic leader Schumer has called on Trump to utilize the Strategic Petroleum Reserve, but Trump has yet to make a clear statement. Analysts point out that even if the release of reserves is implemented, the effectiveness and duration of relief remain highly uncertain amid the deepening crisis.
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<h2>Stagflation Risk: Central Banks Face Worst-Case Scenario</h2>
The timing of this round of oil price increases is particularly tricky—coinciding with disappointing U.S. employment data. The non-farm payroll report for February released last Friday was unexpectedly weak, and although some analysts attribute this to adverse weather disturbances, the report overall lacks positive signals, showing signs of stagnation in the labor market.
The combination of these two sets of data has sharply raised the risk of &#34;stagflation.&#34; As economic growth slows or even contracts, inflationary pressures continue to rise, presenting the central bank with the most undesirable policy dilemma: raising interest rates will further suppress the weak economy, while lowering rates may exacerbate uncontrolled inflation.
Reuters analysis points out that the most likely response from the Federal Reserve and other major central banks is to remain inactive and extend their wait-and-see approach. However, this choice is unlikely to satisfy either side: market participants hoping for interest rate cuts to boost the economy will see the window for policy easing narrow; while investors concerned about inflation will also struggle to gain confidence from the central banks' silence.
<h2>Market Risk Aversion: Strong Dollar, Diminished Gold</h2>
Amid multiple uncertainties, investors' risk aversion logic is quietly evolving. The dollar continues its strong performance from last week, with liquidity advantages solidifying its status as the preferred safe haven.
It is noteworthy that gold, a traditional safe-haven asset, has once again lost its luster. The strong dollar combined with rising U.S. Treasury yields has created a dual pressure, preventing gold prices from rising despite the escalation of geopolitical risks.
On the political front, pressure from oil prices has begun to transmit within the Republican Party. According to Reuters analysis, the regions with the most significant increases in gasoline prices are concentrated in the Midwest and South of the United States, including several swing states that support Trump in the 2024 election. As the midterm elections in November approach, persistently high energy prices may become an important political variable for the Republican Party.
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The escalation of the US-Iran conflict has pushed Brent crude oil prices to surpass $100 per barrel, reaching a new high since the Russia-Ukraine war. The combination of production cuts by Gulf oil-producing countries and threats in the Strait of Hormuz has led to a continuous risk of supply disruptions. The surge in oil prices coincides with unexpectedly weak US employment data, raising concerns about stagflation and putting the Federal Reserve in a dilemma. The sharp rise in gasoline prices has already transmitted to swing states for the Republican Party, potentially becoming a political variable in the midterm elections. Global stocks and bonds are both suffering, while the strengthening dollar diminishes the appeal of gold

- Oil prices have surpassed $100 per barrel, causing a global sell-off in stocks and bonds as the Federal Reserve faces a dilemma amid rising inflation and weak employment data.  
- The ongoing conflict involving Iran has aggravated the energy crisis, with Brent crude reaching its highest level since the onset of the Russia-Ukraine war.  
- Investors are increasingly cautious, leading to a stronger dollar and decreased interest in gold, while concerns about rising energy prices become a significant political issue for the Republican Party ahead of the midterm elections.

Wallstreetcn

United States Oil Fund LP

VanEck Oil Services ETF

The "three-digit crisis" in oil prices is quietly approaching. Is the market underestimating the energy shock?