Seventy‑three days into the Iran war, clarity remains in short supply. Initial expectations of containment have faded, replaced by a situation that oscillates between escalation and restraint, leaving markets and policymakers alike navigating an unresolved equilibrium.
The initial price shocks can be seen in refined products such as diesel, jet fuel and bunker fuel, as well as in prompt prices for the two main crude benchmarks, Brent and West Texas Intermediate (WTI). Bunker fuel is trading at roughly double its pre-war level, which is broadly in line with expectations.
What is unexpected, however, is that bunker fuel currently trades at roughly the same level in Singapore as in ARA (Amsterdam-Rotterdam-Antwerp). The impact would be expected to fall more heavily on Asian markets. US Energy Information Administration (EIA) data put roughly 84% of crude moving through the Strait of Hormuz in 2024 as Asia-bound, and the initial spike in Singapore bunker prices, which briefly tripled, appeared to confirm that view.
Oil, however, is a global commodity, and Asian buyers did not wait long before redirecting their tankers to the Americas and bidding for WTI barrels, the key U.S. benchmark. That surge in demand pushed WTI higher, briefly trading above Brent.
Filled storage facilities in the Gulf, shut-in wells and tankers trapped or diverted to the Americas argue against a quick resumption of production and delivery, even in the evet of a peace agreement.
The disruption has also rippled through a range of other critical commodities, including sulfur, a by‑product of oil and gas processing, along with helium and natural gas. Estimates suggest that as much as 30% of global urea trade has been removed from supply chains due to disruption in the Strait of Hormuz, an impact exacerbated by sulfur shortages at the outset of the spring planting season.
Market participants are now starting to price in higher inflation. Inflation expectation swaps, a derivative brokered at TP ICAP, are moving higher and pointing to elevated inflation over the next one to two years.
The world’s central bankers and rates traders are equally starting to shift. The 29 April 2026 Federal Open Market Committee (FOMC) meeting featured a rare 8-4 vote to hold the target range at 3.50%-3.75%, the highest dissent count since 1992. Three of the four dissenters, regional Fed presidents Hammack, Kashkari and Logan, objected to language in the statement suggesting a bias toward future easing, arguing it was inappropriate given inflationary pressures, while the fourth, Governor Miran, dissented in favor of a 25 bp cut.
The market remained calm after the decision, as a hold was widely expected and priced in. Overnight Index Swaps on SOFR (Secured Overnight Financing Rate), anchored by the Fed funds rate, stayed steady at the front-end.
The US overnight index swaps term structure is now fully inverted. The long end at 30Y looks poised to break out, while the front-end 3M tenor appears to have found a floor near 3.6% and the 1Y tenor a floor near 3.8%.
One wild card to watch, the weather. Forecasters are increasingly flagging the risk of a “Godzilla el Niño” for the 2026-2027 season. Model probabilities for a very strong (Niño-3.4 ≥ +2.0°C) event have risen sharply since the spring; National Oceanic & Atmospheric Administration (NOAA) and Climate Prediction Center (CPC) now puts the probability that El Niño develops and persists through year-end in the 88–94% range, with roughly a one-in-four to one-in-two chance that it crosses into super-Niño territory, peaking around the November–February window.
Taken together, these developments point to heightened inflationary pressure over the next one to two years. Higher energy prices will filter through most, if not all, economic activity. At the same time, the loss of up to 30% of global urea trade, combined with an incoming El Niño season, threatens to depress crop yields and push food prices higher. The reduction in helium supply adds another layer of pressure, weighing on the semiconductor industry and likely lifting prices for chips used across data centres, personal computers and smartphones.
Inflation, in other words, looks set to persist.
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