Inflation Is Not Over. War Is Rewriting the Rate Path.

Two maritime chokepoints, thinner energy buffers and resilient labour markets are turning geopolitical escalation into a global monetary-policy problem.

Oil is reopening the inflation problem just as labour markets are proving too resilient to absorb it cleanly. The US–Iran conflict has widened from the Strait of Hormuz to the Red Sea, US strikes have continued for a twelfth night and rate markets are repricing central-bank hikes rather than cuts. Else where, Australia’s 76,300 employment gain is the warning that the labour market remains firm. AI spending is intact, but its hurdle rate is climbing with energy costs and real yields. Escalation, not resolution, is becoming the near-term base case.

Brent near $98 is not the most important development this morning. The important development is why it is there. Iran’s near-closure of the Strait of Hormuz has been joined by a confirmed Houthi strike on a Saudi tanker near Bab el-Mandeb and a claimed attack on a second, placing the Red Sea workaround at risk. The US has completed a twelfth consecutive night of strikes and retaliation is widening. This is no longer a temporary risk premium sitting on top of an intact disinflation story. It is becoming a policy shock.

My base case over the next few weeks is further escalation before a durable settlement. Each cycle is widening both the geography and the threatened target set, from one chokepoint to two, and from military assets and shipping to bridges and power plants.