From the studio

Podcast: Ulrike Hoffmann-Burchardi's Signal over Noise , on Apple or Spotify (6 mins)
Podcast: Jump Start | Oil and inflation: Will it trigger a reaction from central banks? (8 mins)
Video: Investors Club | Oil volatility, Asia’s energy exposure, and China’s resilience (9 mins)
Podcast:Across the Pond: Trump, Iran, and the global ripples on Apple or Spotify (23 mins)

Thought of the day

Oil prices rose on Monday morning after the US bombed military targets on Iran’s main oil export hub Kharg Island on Friday. US President Donald Trump threatened additional strikes targeting energy facilities if Tehran continued to block the Strait of Hormuz, while Iran warned about the consequences of any attack on its energy infrastructure.

However, futures contracts for the S&P 500 advanced 0.3% ahead of the US market open and the US dollar softened slightly. While Iranian foreign minister Abbas Araghchi said the Islamic Republic has not asked for negotiations with the US, on a more positive note, two tankers carrying liquefied petroleum gas to India sailed through the Strait over the weekend.

With the conflict now in its third week, markets are likely to stay volatile in the near term as investors assess fresh signals from political leaders and policymakers.

Will there be indications of a resolution? The Strait of Hormuz is not only a critical chokepoint for global energy, but also for other commodities. Qatar makes some 30% of the world’s helium—a key input for semiconductors, industrial manufacturing, and medical imaging—while several key ingredients for fertilizer production also move through the Strait. Any lengthy disruption will not only impact energy prices, but also food prices and industrial production. This likely means that the more the conflict edges closer to a dangerous escalation spiral, the higher the urgency of a resolution. While the US cannot achieve meaningful de-escalation on its own, the four- to- six-week timeframe offered by White House economic advisor Kevin Hassett suggested that the US administration is mindful of both the economic and political risks a prolonged war can impose.

Will other countries help keep the Strait open? Trump’s statements that the US has achieved its military objectives and is now seeking international support in reopening the Strait is another indication that the US is looking for an off-ramp. According to the Wall Street Journal, the Trump administration plans to announce this week that it has formed a coalition with a number of countries to escort ships through the Strait. European Union foreign ministers are also expected to discuss the idea of expanding the bloc’s Aspides naval mission from the Red Sea to the Strait. The involvement of US allies, and the extent of their support, could represent a significant development in the conflict.

What will central banks signal? Eight major central banks will give policy guidance this week, including the Federal Reserve, the European Central Bank, the Swiss National Bank, and the Bank of England. While we do not expect central banks to make knee-jerk policy moves, policymakers are likely to stress vigilance over inflation risks amid elevated oil prices and uncertainty over the length of the war. Comments that are more hawkish than expected could inject further volatility into a market that is vulnerable to shifts in sentiment.

With the situation in the Middle East still in flux, we think the combination of ongoing supply disruption and limited offset from strategic reserves means oil prices are likely to stay higher for longer, even if flows through the Strait resume in the coming weeks. We now expect Brent crude to trade at the USD 90/bbl level at the end of June.

For investors, we continue to believe that ensuring portfolio diversification across asset classes, sectors, and regions is key. Investors can also consider hedges such as capital preservation strategies and exposure to gold and broad commodities.