Oil up nearly 60% since Iran war

Oil is the story here — not just because gasoline gets pricier, but because a war-driven oil spike can leak into inflation, bond yields, and rate cuts all at once. That is what Treasury’s own borrowing advisory committee flagged this week. In a May 6 note, it said oil is up nearly 60% since the Iran conflict began and nearly 80% since the start of 2026. It also said the shock is now hitting rates markets harder than anything else. (home.treasury.gov) ### Why did oil move this much? The basic answer is the Strait of Hormuz. A huge share of the world’s seaborne oil moves through that narrow passage, and the war has turned it into a live chokepoint. The U.S. and Israel launched military action against Iran on February 28. Since then, commercial tra(home.treasury.gov) stranded ships out under “Project Freedom” before briefly pausing that effort on May 5. (usnews.com) ### Why does Hormuz matter so much? Because it is one of those bottlenecks where geography does the damage fast. Reuters said the strait has been virtually shut and that roughly 20% of world oil supplies are affected. When tra(usnews.com)n jump long before the physical shortage fully shows up. (usnews.com) ### What did Treasury actually say? The striking part is that this was not a bank note or a hot take. It was the Treasury Borrowing Advisory Committee telling the Treasury secretary that financial markets have been “highly inf(usnews.com) felt the impact most acutely. In other words — this is no longer just an energy story. (home.treasury.gov) ### How does expensive oil hit interest rates? Through inflation expectations first. Treasury’s committee said U.S. 1-year inflation swaps have jumped about 75 basis points since the war began, and European ones about 100 basis points. That is the market saying near-term inflation looks hotter than (home.treasury.gov)to cut. Bond yields then move higher because investors demand more compensation for future inflation. (home.treasury.gov) ### Why is Europe getting hit harder? Turns out the U.S. has one big buffer — it is a major energy producer. Treasury’s policy statement this week stressed that the U.S. is the world’s largest producer of petroleum and natural gas and a net exporter of both. The TBAC note went further and called the(home.treasury.gov) energy prices can boost American export income even while they hurt consumers. Europe and Asia do not get that cushion to the same degree. (home.treasury.gov) ### So are markets still expecting Fed cuts? Less than before. CME FedWatch shows traders are still using fed funds futures to price the odds of upcoming moves, and the whole point of the recent repricing is that hotter energy-driven inflation makes cuts harder to justify. Treasury’s committee said (home.treasury.gov) unchanged or lower by the end of 2026. Now, outside the U.S., every other G10 central bank is priced for hikes this year. (cmegroup.com) ### Why have U.S. markets held up anyway? Because investors think the U.S. can absorb the shock better than most places. Treasury’s committee said U.S. equities have outperformed the rest of the world by nearly 10% since early March, while 10-year Treasury yields remain below cycle high(cmegroup.com) sells energy, runs a strong tech investment cycle, and has already used supply measures like strategic reserve releases to soften the blow. (home.treasury.gov) ### Bottom line The cleanest way to read this is that oil is not “just” up. Oil is now the transmission belt between the Iran war and the global economy. If the Strait of Hormuz stays unstable, the next fight is not only over crude prices — it is over inflation, rate cuts, and how much damage the rest of the world takes before supply normalizes. (home.treasury.gov)