Global Economy & Markets, Weekly Roundup 10/03/26
The conflict in the Middle East persists, driving heightened volatility across global commodity prices as well as European equity and bond markets
With President Trump declaring the Middle East war could be “over soon”, crude oil prices retreated towards $93 per barrel from an intra-day high of $120 per barrel on Monday 9th. As a result, risk appetite recovered with equity and bond prices simultaneously edging higher, in tandem with a baseline scenario that military operations could last about 4-6 weeks with limited scars to the global economy and corporate profitability.
The sooner the combined US–Israeli force degrades Iran’s missile and drone capabilities, thereby limiting Iran’s ability to launch retaliatory attacks in the region, the sooner oil flows through the Strait of Hormuz (SoH) will resume.
Moreover, the Group of Seven (G-7) finance ministers assured that they stand ready to use any necessary tool, including the release of strategic oil reserves, in order to lessen price pressures of major international energy commodities that has prompted, inter alia, stagflationary concerns.
Indeed, the increase in inflation risk premia and the repricing of monetary policy expectations toward a more hawkish stance particularly in Europe has driven a notable rise in sovereign bond yields, albeit from low levels, while euro area periphery bond spreads have widened modestly.
As the US economy appears more insulated from a sustained energy shock compared with Europe, upward pressure on Treasury yields has been more moderate. Soft labor market data have capped the yield upside as net non farm payrolls have averaged only +17K during the first 2M:2026.
In the past week, public statements from decision makers (e.g. President Trump demanding on Friday the unconditional surrender of Iran), political developments in Iran and developments on the field, have rendered more challenging a swift end to the war in the Middle East or a potential de-escalation.
In Iran, Mojtaba Hosseini Khamenei, who is considered by many as a “hardliner”, was elected as the new Supreme Leader, in a position previously held by his recently killed father, Ayatollah Ali Khamenei.
On the field, critical infrastructure is targeted in various Middle East countries. At the same time, maritime passage through the SoH, located between Oman and Iran and the primary export route for oil, LPG & LNG produced by Saudi Arabia, Kuwait, Qatar, Iraq, Iran and the UAE, has essentially been brought to a halt.
Circa 30% of world’s seaborne oil trade (20% of total oil supply), 30% of LPG and 20% of LNG global exports (Qatar, UAE) moves through the SoH, with limited to modest ability of a re-direction of flows through alternative venues (e.g. pipelines). In that context, oil & gas producers, especially around the Persian Gulf, are cutting or even halting operations (Qatar, Kuwait and the United Arab Emirates have already announced such decisions).
On a less optimistic scenario, the more protracted the war and broader the disruptions in the production of oil & gas products, the less manageable respective potential oil supply deficits will become. Non-linearities may emerge as the intensification of manageability issues will pick up speed when more supply deficits are accumulated.
With President Trump declaring the Middle East war could be “over soon”, crude oil prices retreated towards $93 per barrel from an intra-day high of $120 per barrel on Monday 9th. As a result, risk appetite recovered with equity and bond prices simultaneously edging higher, in tandem with a baseline scenario that military operations could last about 4-6 weeks with limited scars to the global economy and corporate profitability.
The sooner the combined US–Israeli force degrades Iran’s missile and drone capabilities, thereby limiting Iran’s ability to launch retaliatory attacks in the region, the sooner oil flows through the Strait of Hormuz (SoH) will resume.
Moreover, the Group of Seven (G-7) finance ministers assured that they stand ready to use any necessary tool, including the release of strategic oil reserves, in order to lessen price pressures of major international energy commodities that has prompted, inter alia, stagflationary concerns.
Indeed, the increase in inflation risk premia and the repricing of monetary policy expectations toward a more hawkish stance particularly in Europe has driven a notable rise in sovereign bond yields, albeit from low levels, while euro area periphery bond spreads have widened modestly.
As the US economy appears more insulated from a sustained energy shock compared with Europe, upward pressure on Treasury yields has been more moderate. Soft labor market data have capped the yield upside as net non farm payrolls have averaged only +17K during the first 2M:2026.
In the past week, public statements from decision makers (e.g. President Trump demanding on Friday the unconditional surrender of Iran), political developments in Iran and developments on the field, have rendered more challenging a swift end to the war in the Middle East or a potential de-escalation.
In Iran, Mojtaba Hosseini Khamenei, who is considered by many as a “hardliner”, was elected as the new Supreme Leader, in a position previously held by his recently killed father, Ayatollah Ali Khamenei.
On the field, critical infrastructure is targeted in various Middle East countries. At the same time, maritime passage through the SoH, located between Oman and Iran and the primary export route for oil, LPG & LNG produced by Saudi Arabia, Kuwait, Qatar, Iraq, Iran and the UAE, has essentially been brought to a halt.
Circa 30% of world’s seaborne oil trade (20% of total oil supply), 30% of LPG and 20% of LNG global exports (Qatar, UAE) moves through the SoH, with limited to modest ability of a re-direction of flows through alternative venues (e.g. pipelines). In that context, oil & gas producers, especially around the Persian Gulf, are cutting or even halting operations (Qatar, Kuwait and the United Arab Emirates have already announced such decisions).
On a less optimistic scenario, the more protracted the war and broader the disruptions in the production of oil & gas products, the less manageable respective potential oil supply deficits will become. Non-linearities may emerge as the intensification of manageability issues will pick up speed when more supply deficits are accumulated.