On March 9, President Donald Trump picked up a phone call from CBS at his golf course in Doral, Fla., and said: “I think the war is very complete, pretty much.
“Iran has no navy, no communications, they’ve got no air force. Their missiles are down to a scatter. Their drones are being blown up all over the place, including their manufacturing of drones,” the president told the correspondent.
That was one week after the war began, when only 3,000 targets were destroyed, and markets took Trump at his word, causing the price of oil to drop a whopping $13, all the way down to $91.
A 50% surge in one month
Three weeks later, the war has no end in sight, and markets are so numb to the president’s Sunday evening/Monday morning habit of insisting peace talks are happening or walking back previous threats to Iran in order to calm markets that they barely react to what he says anymore. Brent crude futures for May delivery climbed to their near peak in the futures market Sunday evening, before drifting down to $113 on Monday.
West Texas Intermediate, the benchmark for American oil prices, rose to roughly $101 a barrel, as signs show that the gas crisis that has been roiling Asia—causing South Koreans to be told to take shorter showers; Thais to wear shorter sleeves to conserve energy; and the Philippines to distribute cash aid to motorcyclists slammed by higher fuel costs—is far from contained. The same supply disruptions driving those Asian measures are now pushing American gas prices to three-year highs. Brent has now soared more than 50% in March, putting it on track for the steepest monthly gain since the 1990 Gulf War.
The war is widening, not winding down
Meanwhile, all signs point to the war escalating on multiple fronts. Yemen’s Iran-backed Houthi rebels entered the war over the weekend after weeks of silence, launching cruise missiles and drones at Israel. The Pentagon is reportedly preparing for weeks of ground operations inside Iran, according to the Wall Street Journal, including a potentially devastating and dangerous mission to excavate uranium from the country. And in an early Monday post on Truth Social, Trump threatened “blowing up and completely obliterating” Iran’s power plants, oil wells, and Kharg Island export hub if a deal isn’t reached and the Strait of Hormuz isn’t immediately reopened. He told the Financial Times on Sunday that his preferred option would be to “take the oil.”
The consequences are already slamming American consumers. The national average gas price hit $3.99 on Monday, up from $2.98 in February, according to AAA—the highest since the crisis caused by Russia’s invasion of Ukraine in 2022. The International Energy Agency has released 400 million barrels from strategic reserves to ease the shock, but prices have continued to climb.
Wall Street is now bracing for the inevitable second-order effects. Société Générale analysts wrote Monday that they expect “higher for longer” Brent prices, forecasting a base case of $125 on average in April, with “credible spikes” toward $150 if the Bab el-Mandeb Strait at the southern end of the Red Sea is shut down by the now entering Houthi forces.
Wall Street’s stagflation fears are growing
Analysts are currently agonizing over whether or not to “look through” the potential inflation shock from higher oil prices, as many cling to hopes that the Fed will cut rates. Inflation has “flatlined” at 3% for the past couple of years, Jim McCormick, chief global macro strategist at Citi, told Bloomberg TV, and now with the added risks from higher commodity prices, it’s looking like inflation could be “significantly higher in the coming months.”
Chair of the Federal Reserve Jerome Powell said during a Q&A at Harvard University on Monday that the Fed hadn’t lost sight of its 2% inflation target, but that the Fed’s tools have “no meaningful effect on supply shocks.” Meaning the Fed can’t rescue markets or consumers from rising gas prices or the resulting price hikes in groceries and other items. McCormick was clear that this was not an environment for investors to take on more risk.
“The mix we’re looking at, which seems quite obvious now, is more stagflation,” he added. “Growth is going to be marked down as a result of this conflict; inflation is going to be marked up. It’s not great for bonds. It’s not great for equities. It’s a pretty bad mix for markets in general.”
In the sixth week of this conflict, there’s a bit of a “can’t do this anymore” sense among investors, exhausted by the volatile ups and downs and waiting for the doomsday $200 oil projections to set in. Economist Ed Yardeni told clients over the weekend that this “fetal position” investors are retreating into is a sign that Trump is at least not bluffing about escalating the conflict.
“The fog of war is getting thicker because of the likelihood of U.S. boots on the ground (the ‘bog of war’),” he wrote.
