Oil just took control of the macro narrative again.
Brent pushing above 113 is not just a price move. It is a signal that markets are pricing a real supply shock. The combination of escalating tension between the US and Iran and tightening physical balances has shifted oil from a risk to a driver.
The geopolitical side is clear.
The US is preparing for potential military action, with Donald Trump reaffirming a hard stance against Iran and rejecting recent proposals. At the same time, the naval blockade remains in place, and Tehran is warning of retaliation.
That keeps the probability of escalation elevated.
And when escalation risk rises in this region, the market immediately looks at supply.
This is where the second layer matters.
US inventory data is confirming that the market is already tight. Crude and fuel stockpiles are falling sharply, while exports have surged above 6 million barrels per day. That means less buffer in the system at a time when disruption risk is increasing.
So the move in oil is not just fear-driven. It is supported by fundamentals.
This is what turns a geopolitical event into a macro shock.
Once oil moves like this, the transmission is direct.
Higher oil feeds into inflation expectations almost immediately. Energy costs filter through transportation, production, and consumer prices, keeping inflation elevated even if underlying demand is stable.
That creates a problem for central banks.
The Federal Reserve and others cannot ignore energy-driven inflation if it persists. Instead of moving toward easing, they are forced to stay cautious, keeping policy restrictive for longer.
In more extreme cases, the market even starts to consider whether tightening could return.
That shift pushes yields higher.
Higher yields support the dollar and tighten financial conditions globally. Risk assets face pressure as discount rates rise and cost structures deteriorate. Gold also struggles in this environment, as rising real yields increase the opportunity cost of holding non-yielding assets.
So oil is not just moving on headlines.
It is resetting the macro backdrop.
As long as supply remains constrained and geopolitical risk stays elevated, oil remains bid. And as long as oil remains bid, inflation stays in the system and policy stays tight.
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