Energy Price Surge Tests US Debt and Squeezes Ukraine Budget
High energy prices are putting pressure on the US budget and testing its ability to service debt. The price of Brent crude oil has reached $105 per barrel, while diesel fuel costs an average of $6 per gallon in the United States, a 75% increase since January.
The surge in fuel prices is driving inflation expectations and eroding the political footing of US President Donald Trump. Commercial transit through the Strait of Hormuz remains disrupted due to sustained military confrontation between the US and Iran, while Saudi Arabian oil extraction has plummeted to its lowest level since 1990.
Elevated global oil prices have more than offset Moscow's volume losses despite declining Russian crude output, which is partly due to Ukrainian long-range strikes. The cost of servicing US sovereign debt has spiked sharply, with 30-year Treasury yields reaching 5.36% and 10-year yields hitting 4.95%
High American yields reflect elevated inflation expectations and persistent concerns regarding Washington's swelling budget deficit, which financial markets are pricing in at a 71% probability of an interest rate hike by the Federal Reserve in October.