But the paper market still appears to be overly optimistic about the duration of the energy shock. Given the reality on the ground, it appears more likely that Brent crude will hit $200 a barrel – something Tehran has threatened – than tumble back to pre-war levels as the U.S. president has predicted.
What's clear is that the part of the energy market currently feeling the most pain is refined products like gasoline and diesel fuel, particularly in Asia. China currently has the largest crude stockpile – an estimated 1.2 billion barrels – and the biggest refining capacity, meaning it could supply more to neighbouring markets. But Beijing has decided to prioritise domestic energy security instead.
Meanwhile, in Europe, electricity prices are climbing fastest in Eastern Europe and Italy, the most gas-dependent economies.
While the U.S. – as the world's largest oil producer – is somewhat insulated from skyrocketing prices, it is rapidly running out of shock absorbers to cushion the blow – and average gasoline prices are creeping up toward $4 a gallon.
For more on how the U.S., China and Europe stack up energy security-wise, check out this deep dive by Energy Transition Columnist Gavin Maguire.
The energy crisis was obviously a major point of discussion at the flurry of central bank meetings this week – only the second time ever that the Federal Reserve, Bank of England, European Central Bank and Bank of Japan have met in the same week. The implications of the crisis on policy trajectories differ meaningfully among the four.
The Federal Reserve kept rates on hold, as expected, on Wednesday – though that might not be the case for long. Before the meeting, markets learned that the Producer Price Index (PPI) rose 3.4% on an annual basis in February, well above consensus forecasts.
While near-term tightening might not be the base-case scenario for the Fed, the central bank's communications on Wednesday suggest it's increasingly possible that Fed Chair nominee Kevin Warsh's first move, if confirmed, could be overseeing a rate hike.
The only move among banks reporting this week was the well-telegraphed 25-basis-point hike by the Reserve Bank of Australia. But rates futures markets are now pricing in more hawkish trajectories for most major central banks, causing a rout in global bonds on Thursday.
The broad hawkish shift caused the euro, yen, sterling, Swiss franc and Australian dollar to strengthen against the U.S. dollar – though the greenback is still near multi-month highs.
With much of the world transfixed on the Middle East and President Donald Trump's other foreign adventures this year, many may have missed China's quiet – but significant – economic renaissance in recent months.
The U.S. president and his Chinese counterpart Xi Jinping were supposed to meet for a summit in Beijing on March 31–April 2, but Trump on Monday confirmed that he had requested a delay of around a month given the ongoing war. When the two leaders do eventually meet, Trump may find that Xi's position has strengthened considerably since the start of the year.
Finally, President Trump met with Japanese Prime Minister Sanae Takaichi in Washington on Thursday. He pressed Japan and NATO to "step up" on helping to get energy flowing again in the Gulf. With supply disruptions growing, that task is getting more urgent by the minute.
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