Iran – Strikes on energy infrastructure push oil higher
Last week, tensions in the Middle East escalated further, with continuous strikes from both sides. The US targeted key Iranian infrastructure, including Kharg Island, the core hub of Iran’s oil economy. Reports also indicate that Ali Larijani, a prominent regime figure, was killed in a strike, potentially weakening internal coordination. The escalation peaked when Israel struck Iranian gas extraction infrastructure. Iran retaliated by targeting the South Pars gas field, the largest in Qatar, raising concerns over global LNG supply. Approximately 17% of Qatar’s LNG exports could be disrupted for up to three years, pushing gas prices sharply higher and driving Brent crude close to $120/bbl. The strategic focus remains on the Strait of Hormuz, where risks related to naval mines and broader disruptions are increasing. On Thursday, comments from Netanyahu suggesting the conflict may be nearing its end provided some temporary market relief, although attacks have continued and uncertainty remains elevated. The Israeli Prime Minister also stated that Iran is no longer able to enrich uranium or manufacture ballistic missiles.
Central Banks – A global hawkish repricing
A series of central bank decisions has shifted the global monetary policy tone in a more hawkish direction. While the Fed, ECB, and BoE kept rates unchanged, a more concerning inflation outlook and forward guidance triggered a sharp repricing at the front end of yield curves. In the US, markets now expect almost no rate cuts for the remainder of the year. In contrast, European and UK markets are pricing in more than two hikes for 2026. Yield curves flattened significantly, with 2s10s moving on Thursday by around 10 basis points in the Euro area and over 20 basis points in the UK. The sharp move in the UK front end was only partially offset by Governor Bailey’s attempt to temper expectations. In the Eurozone, ECB officials have opened the door to potential hikes, with the April meeting now seen as a “live” one and roughly 50% priced for a move, largely contingent on developments in the Middle East.
Algebris Investments’ Global Credit Team
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