The war in the Middle East has been claiming centre stage for over two weeks. Doubts around Hormuz and the reported strike on Kharg Island have not materially changed the risk landscape as of late, but risk appetite remains fragile all the same. 

Diplomacy looks messy

The EU is pressing the White House for an endgame, Tehran denies ceasefire talks, and even a planned Trump-Xi summit is being used as leverage around shipping security. Markets read this the usual way, i.e. as an inflation impulse and a growth tax. While we stick to our scenario of a swift and intense spike as the most likely playbook, we have to acknowledge some more lasting impacts. That is why we have nudged our 2026 inflation forecasts higher and assume a more cautious monetary policy reaction than markets would like. 

The good news is that the economy entered this shock on a firmer footing. US consumer spending is improving, and Chinese early 2026 data points to a rebound in domestic consumption and investment after a tedious soft patch. That resilience matters if the geo-political episode stays contained. 

Central banks to take centre stage amid uncertainty

This makes this week’s policy calendar unusually important. Eight of ten G10 central banks will deliver decisions, with a ‘super Thursday’ when five weigh in. The US Federal Reserve, the European Central Bank, the Swiss National Bank, and the Bank of England are expected to hold, but guidance will matter all the more, and the technical factors add urgency. Many risk assets are already in oversold territory, setting up either a sizeable relief rally if the news flow stabilises or one more leg of pain if it does not. 

Stress levels remain high on energy markets

Oil seems more nervous than natural gas, with prices trading back up above USD 100, while natural gas remains at EUR 50. That said, there was no news over the weekend 14-15 March about significant energy infrastructure damage. Oil production seems close to maximum shut-ins (i.e., the highest volume of production that can be deliberately taken offline), which we roughly estimate at around 10 million barrels per day – or 10% of global supplies, as alternative trade routes ramp up and some oil still finds its way past the Hormuz choke point. Safe passage by ‘Iran-friendly’ ships remains a development to watch. With major energy infrastructure damage absent, Iran’s military threat softening, and activism towards safe-guarding trade around Hormuz picking up, our base case is still that of a short-lived, intense energy price spike. We assign an unchanged probability of >60% to this scenario. 

While political activism is increasing, neither oil nor natural gas prices have climbed to exceptional and growth-damaging levels. The broader story on energy markets until the conflict escalated focused on surplus supplies, and burning through this ‘winter fat’ so far is absorbing the supply shock’s tremors. The Hormuz trade impasse would need to last well beyond March to fully eradicate oil’s surplus buffer, even without accounting for the strategic storage releases. 

That said, some emerging markets are experiencing fuel supply shortages due to a lack of storage or lack of diversified sourcing. Europe remains anxious, but both natural gas and power prices remain below the early 2025 spike’s levels, and far away from 2022 market conditions. Rising overseas supplies, more coal being used instead of gas in Asia, lower carbon costs, and strong renewables generation keep a lid on natural gas prices and dampen the impact of gas prices on power markets.