TBAC: oil up ~60% since Iran war

Oil is suddenly doing a lot more than moving gas prices. It is now sitting in the middle of the bond market, inflation expectations, and Treasury’s own borrowing math. That was the clearest message in the Treasury Borrowing Advisory Committee’s latest report, released May 6 after its May 5 meeting. TBAC told Treasury that oil is up nearly 60% since the Iran conflict began and nearly 80% since the start of 2026, and that this commodity shock has become the main force pushing markets around. (home.treasury.gov) ### What is TBAC, and why do people care? TBAC is the outside committee that advises the Treasury Department on how to finance the U.S. government — what to issue, how to think about demand, and what risks markets are signaling. It is not setting Fed policy, but it matters because Treasury has to borrow into the mar(home.treasury.gov)o. This quarter’s materials were released as part of the regular refunding cycle on May 6. (home.treasury.gov) ### What did the committee actually say? The committee’s report was blunt. Since early February, it said, financial markets have been “highly influenced” by oil prices. Oil’s jump has come alongside broader commodity strength, with the broad commodity index now above its 2022 pandemic(home.treasury.gov)ce of money. (home.treasury.gov) ### Why does oil hit bond markets so fast? Because oil is one of the fastest ways to change inflation expectations. When energy jumps, investors start asking whether headline inflation will stay hotter for longer, whether central banks will need to keep rates high, and whether growth will weaken at the same time. Th(home.treasury.gov)bout 100 basis points in Europe and 75 basis points in the U.S. since the war began. (home.treasury.gov) ### Why was Europe hit harder than the U.S.? Turns out the U.S. has one big cushion — it is a major energy producer. TBAC described the Iran conflict as a positive terms-of-trade shock for the U.S., unlike Asia and Europe. U.S. energy exports hit record highs in the prior two months, which helps explain why U.S. mar(home.treasury.gov)g, investors think the U.S. can absorb this shock better than many peers. (home.treasury.gov) ### What changed in rate expectations? Before the conflict, rates markets broadly expected central banks to be flat or cutting by the end of 2026. TBAC says that view has now been repriced in a hawkish direction, especially in Europe. Outside the U.S., every other G10 central bank is now priced for rate hikes this y(home.treasury.gov)ent cycle highs. (home.treasury.gov) ### So what does this mean for Treasury borrowing? The catch is that Treasury has to make issuance plans while inflation, growth, and rate expectations are all getting jerked around by the same shock. Treasury’s May presentation still projected $189 billion in privately held net marketable borrowing for Q3 FY2026 an(home.treasury.gov)mains relatively high because the outlook for monetary policy and the economy is unusually unclear. (home.treasury.gov) ### Is this just about markets, or the real economy too? Not just markets. TBAC pointed to March data showing a jump in U.S. consumer gasoline spending. Other spending categories stayed fairly solid, helped in part by larger tax refunds, but the warning is obvious — if energy keeps eating (home.treasury.gov)so squeeze consumers. (home.treasury.gov) ### Bottom line This is really a story about an oil shock turning into a financing problem. Higher crude does not just mean pricier fuel — it changes inflation math, central-bank pricing, bond yields, and the backdrop for Treasury debt issuance all at once. TBAC’s report matters because it shows Treasury now treatin(home.treasury.gov)her headline. (home.treasury.gov)