Although I’m of the opinion that the near-term, war-driven spike will fade more quickly than most anticipate, I’d be remiss not to note that oil was bubbly again Tuesday.

As the death throes of the Islamic Republic continued, Brent traded up to $85 or so, the highest since July of 2024.

The news flow out of the Mideast was no less disconcerting on day four of Donald Trump’s “Operation Epic Fury” than it was on day three. Iran managed to hit the US embassy in Riyadh with drones, for example, prompting an expanded shelter in place order from the State Department.

In Iraq, the IRI (a confederation of PMF groups loyal to the Quds) targeted a hotel in Erbil and the State Department said all Americans should leave the Mideast immediately “due to serious safety risks.”

In other notable reporting, Reuters said the Marines were forced to open fire on protesters at a consulate in Pakistan after locals, furious at the assassination of Ali Khamenei, “breached the compound’s outer wall.” The incident happened days ago, but the reporting’s new and it speaks to the risk of regional upheaval.

It’s a hornet’s nest over there. (Cue Chris Farley: “Bees! Bees in the car!”)

Obviously, Trump can’t have $100 crude headed into the mid-terms, but there’s a long time between now and then. It’s inconceivable that the Strait of Hormuz will remain de facto closed until November. The notion that the IRGC can sustain kinetic activity for eight months in the face of US and Israeli combat operations which, by every indication, are set to intensify, is laughable.

But, in the meantime, the read-across from soaring energy costs is higher inflation expectations and less in the way of breathing room for central banks to cut rates. Bonds are reflecting that, particularly in Europe.

Gilts were roiled on Tuesday as European gas prices surged and traders ditched dovish BoE bets. The market-implied odds of a UK rate cut at this month’s meeting are now just one in five, down from three in four a few days ago.

Traders now see no chance of a second BoE cut by year-end. Those odds were almost 100% last week. Recall that the UK arguably suffered the most among major, developed economies during 2022’s energy crisis. 10-year UK yields are up 25bps in three sessions.

Data out Tuesday from Eurostat showed inflation in Europe was quicker than expected last month, albeit still just 1.9%. The core measure showed a 2.4% YoY advance, likewise topping estimates.

Between the upside surprise in the euro-zone inflation figures (which, I should note, was almost entirely attributable to a distortion from the Winter Olympics in Italy) and the unfolding energy shock, the euro front-end’s perturbed. In fact, STIRs now reflect better than even odds of an ECB hike in 2026.

The figure shows the German front-end. Two-year yields are up 20bps in two days. That’s the same dynamic: Markets preemptively pricing a quarter-point hike from the ECB.

In the event the war drags on and energy prices don’t recede, Europe could find itself in a similar, albeit probably less acute, bind to the crunch witnessed in and around the onset of the war in Ukraine.

With no coherent strategy for joint debt issuance to fund stimulus, and with budgets already strained by the imperatives of higher defense spending, providing for the kind of sweeping subsidies many European governments resorted to four years ago may not be feasible.

Trump couldn’t care less about Europe, he’s made that clear. But he does care about the mid-terms in the US, he’s hell-bent that the Fed will cut rates from June and determined that longer-end US borrowing costs will fall.

This war works at cross purposes will all three of those domestic imperatives. To me — and this brings us full circle — that suggests Trump will take steps to mitigate the war’s impact on energy prices.

Finally, as a kind of existential addendum, broader, structural questions about resource scarcity are, and will remain, the macro story of the 21st century.