US-Iran Conflict Fuels $100 Oil Fears

The US-Iran conflict is causing concern for oil prices, which may soon reach $100. This could have significant implications for inflation and central banks' policy decisions.

Market analysts are warning that the prolonged disruption to shipping in the Strait of Hormuz could lead to a further dislocation in supply-demand dynamics, putting upward pressure on crude prices.

The bigger worry is that there doesn't seem to be any appetite for de-escalation this time around. This has led Antreas Themistokleous, market analyst at Exness, to say that the escalation around the Strait and the possibility of further disruption to shipping could keep upward pressure on crude if tensions persist.

The immediate impact will show up in headline consumer price inflation (CPI) numbers, but policymakers will be much more concerned about what happens next. Central banks have been trying to skirt around making policy decisions based on short-term or temporary shocks, but when push comes to shove, they may have to raise interest rates.

This could lead to a second-round effect, where higher transportation costs for companies like trucking and airlines are passed on to consumers in the form of higher prices. This, in turn, could lead to increased wages and inflation expectations.