Oil jumps 36% to US$90.90 as markets slash Fed rate‑cut bets and inflation fears resurface
Oil’s sprint toward US$100 a barrel has turned the Iran conflict into a real‑time stress test of how much inflation and rate risk portfolios can tolerate.
According to CNBC, West Texas Intermediate futures have just recorded their biggest weekly gain on record, soaring 35 percent to close at US$90.90, a level Bank of America economist Claudio Irigoyen says is close to where “non‑linear” effects could hit the US economy.
Irigoyen would “fade (oil induced) inflation concerns” if prices stay near current levels, but warns that a sustained move above US$100 would be “more concerning” and could shave more than 0.60 percentage points off US GDP growth.
If oil prices doubled, a recession would likely follow.
Markets are already repricing the path for interest‑rate cuts.
As per the Financial Times, traders in US futures now expect the US Federal Reserve to cut rates only once or twice this year, with the first move pushed back to September, after previously betting on two or three cuts starting in July.
The FT reports that the cost of a barrel of WTI has climbed 36 percent to US$90.90 since US and Israeli forces attacked Iran, marking the biggest weekly rise since 1983.
Petrol prices — one of the most visible forms of inflation — have risen more than 30 cents to US$3.32 a gallon, the highest level since the summer of 2024.
The growth backdrop is softening at the same time.
The US economy shed 92,000 jobs in February, unwinding recent signs of labour‑market stabilisation.
Joe Brusuelas, chief economist at RSM US, told the FT there is a “risk of stagflation” and that “all eyes will continue to be focused on the direction of energy prices and inflation.”
Energy is the main fault line running through global markets.
Reuters reports that oil has risen more than 20 percent in a week, its biggest weekly gain in four years.
In a separate piece, Brent crude has climbed to around US$83 a barrel from about US$60 at the start of the year.
South Korea’s KOSPI index fell 12 percent in a single day — its largest drop on record — as oil spiked.
The S&P 500 briefly touched a more than three‑month low, with all 11 sectors down in a broad sell‑off, while global government bonds weakened and the US 10‑year Treasury yield rose to about 4.08 percent.
Reuters also says the Cboe Volatility Index hit its highest level in more than three months.
Yet traditional stress indicators still suggest a functioning system.
Corporate bond spreads, junk‑bond indexes, cross‑currency basis swaps and swap spreads have been largely stable, even as the VIX sits just above 20 and the ICE BofA MOVE index rises to 75, both well below last year’s peaks.
Kit Juckes, head of FX strategy at Société Générale, told Reuters there is “nothing that gums up the works of the system,” describing the situation as “just a geopolitical shock” that has pushed the US dollar up, stocks down and oil higher.
Positioning is a key part of the story.
Reuters says the US dollar has become the “antidote of choice” for market angst and is on track for its strongest weekly performance since late 2024, up 1.7 percent.
The latest Bank of America global fund manager survey cited by Reuters found 50 percent of respondents calling gold — up 70 percent over the past year — the most crowded trade, followed by Big Tech, with more asset managers overweight emerging‑market equities than at any time in five years.
These crowded positions, along with bonds, have been “hammered” over the past week as inflation expectations rise and interest‑rate assumptions are upended.
The macro framework is more fragile than during previous oil shocks.
The Financial Times notes that public debt is at unprecedented peacetime levels, with the IMF projecting global sovereign debt will exceed 100 percent of GDP by the end of this decade.
Harvard economist Jeffrey Frankel says the US federal government now spends more on interest than on defence or non‑defence discretionary spending, with the bill estimated at 3.2 percent of GDP in 2026.
A survey by Johannes Marzian and Christoph Trebesch cited by the FT finds that when societies re‑arm, they tend to choose “guns and butter”, driving higher debt, public spending and taxes, and that large geopolitical shocks lead to lasting fiscal expansion.
At the household level, CNBC reports that higher‑income consumers are driving spending and are more likely to hold stocks, so an oil‑driven equity downturn could cool their demand.
Lower‑income households face the fastest three‑day rise in gasoline prices since 2008, based on Bespoke Investment Group’s analysis of AAA data quoted by CNBC, which shows the average US gasoline price jumping to US$3.25 a gallon, up 27 cents in a week.
Irigoyen told CNBC that these households are “already struggling,” warning that surging energy costs could trigger another “leg up in delinquencies” on credit cards, car loans and other fixed payments and constrain future access to credit.
Against that backdrop, market resilience may be as noteworthy as market risk.
Reuters reports that, despite recent declines, the S&P 500 remains only slightly more than 2 percent below its all‑time closing high, even as some investors fear that inflation, higher oil and constrained policy space could quickly change that picture.
