(The opinions expressed here are those of the authors.)

By Anna Szymanski

March 20 -

Everything Mike Dolan and the ROI team are excited to read,

watch and listen to over the weekend.

From the Editor

Hello Morning Bid readers!

The energy market is the Iran war's key theatre of battle - and

the damage is escalating - yet financial markets

are surprisingly well behaved. Expectations for more hawkish

monetary policy weighed on Wall Street and European equities on

Thursday, and the latter is set for its third weekly decline -

but there is no sign of panic.

Israel on Wednesday struck Iran's South Pars gas field, the

world's largest, triggering fierce retaliation from Tehran with

attacks on energy infrastructure throughout the region,

including Qatar's enormous Ras Laffan liquefied natural gas

production hub. This caused European gas prices to shoot up as

much as 35% in one day.

We are now officially in the doomsday scenario for energy

markets. But even though oil prices in the physical market are

soaring with the Strait of Hormuz mostly closed, the oil futures

market is still not pricing in a lengthy crisis.

While Brent crude reached a session high of $119 a barrel on

Thursday, it ended the day around $108, with West Texas

Intermediate (WTI) around $96. Investors may have trimmed the

"war risk premium" after Britain, France, Germany, Italy, the

Netherlands and Japan issued a joint statement on Thursday

expressing "readiness to contribute to appropriate efforts to

ensure safe passage through the Strait."

U.S. President Donald Trump also stated that he had told Israeli

Prime Minister Benjamin Netanyahu not to attack Iran's energy

infrastructure again.

But the paper market still appears to be overly optimistic about

the duration of the energy shock. Given the reality on the

ground, it appears more likely that Brent crude will hit $200 a

barrel - something Tehran has threatened - than tumble back to

pre-war levels as the U.S. president has predicted.

What's clear is that the part of the energy market currently

feeling the most pain is refined products like gasoline and

diesel fuel, particularly in Asia. China currently has the

largest crude stockpile - an estimated 1.2 billion barrels - and

⁠the biggest refining capacity, meaning it could supply more to

neighbouring markets. But Beijing has decided to prioritise

domestic energy security instead.

Meanwhile, in Europe, electricity prices are climbing fastest in

Eastern Europe and Italy, the most gas-dependent economies.

While the U.S. - as the world's largest oil producer - is

somewhat insulated from skyrocketing prices, it is rapidly

running out of shock absorbers to cushion the blow - and average

gasoline prices are creeping up toward $4 a gallon.

For more on how the U.S., China and Europe stack up energy

security-wise, check out this deep dive by Energy Transition

Columnist Gavin Maguire.

The energy crisis was obviously a major point of discussion at

the flurry of central bank meetings this week - only the second

time ever that the Federal Reserve, Bank of England, European

Central Bank and Bank of Japan have met in the same week. The

implications of the crisis on policy trajectories differ

meaningfully among the four.

The Federal Reserve kept rates on hold, as expected, on

Wednesday - though that might not be the case for long. Before

the meeting, markets learned that the Producer Price Index (PPI)

rose 3.4% on an annual basis in February, well above consensus

forecasts.

While near-term tightening might not be the base-case scenario

for the Fed, the central bank's communications on Wednesday

suggest it's increasingly possible that Fed Chair nominee Kevin

Warsh's first move, if confirmed, could be overseeing a rate

hike.

The only move among banks reporting this week was the

well-telegraphed 25-basis-point hike by the Reserve Bank of

Australia. But rates futures markets are now pricing in more

hawkish trajectories for most major central banks, causing a

rout in global bonds on Thursday.

The broad hawkish shift caused the euro, yen, sterling, Swiss

franc and Australian dollar to strengthen against the U.S.

dollar - though the greenback is still near multi-month highs.

With much of the world transfixed on the Middle East and

President Donald Trump's other foreign adventures this year,

many may have missed China's quiet - but significant - economic

renaissance in recent months.

The U.S. president and his Chinese counterpart Xi Jinping were

supposed to meet for a summit in Beijing on March 31-April 2,

but Trump on Monday confirmed that he had requested a delay of

around a ‌month given the ongoing war. When the two leaders do

eventually meet, Trump may find that Xi's position has

strengthened considerably since the start of the year.

Finally, President Trump met with Japanese Prime Minister Sanae

Takaichi in Washington on Thursday. He pressed Japan and NATO to

"step up" on helping to get energy flowing again in the Gulf.

With supply disruptions growing, that task is getting more

urgent by the minute.

For more data-driven insights on markets and commodities, check

out Reuters Open Interest. You can learn:

* What might a strong dollar surprise mean for global growth

and corporate earnings?

* Can Asia's earnings boom survive the Middle East stress

test?

* Why might EU competitiveness hinge on choosing a German as

the next ECB chief?

* What metal crucial to construction, transport and

renewable energy is being squeezed by the war?

And as we head into the weekend, check out the ROI team's

recommendations for what you should read, listen to, and watch

to stay informed and ready for the week ahead.

I'd love to hear from you, so please reach out to me at .

This weekend, we're reading...

MIKE DOLAN, ROI Finance & Markets Columnist: This VoxEU

column from the Centre for Economic Policy Research challenges

the notion that government bonds are safe havens in a crisis.

Three centuries of wars and pandemic-scale emergencies show they

consistently produce large real losses for bondholders.

RON BOUSSO, ROI Energy Columnist: This excellent analysis

from Carlyle Group's Jeff Currie and James Gutman considers the

long-term impact of the Iran war on global energy markets.

ANDY HOME, ROI Metals Columnist: This timely analysis from

the Center for Strategic & International Studies examines how

power supply constraints could limit the U.S.'s ability to scale

up defense production across key industrial inputs including

steel, aluminium and titanium.

JAMIE MCGEEVER, ROI Markets Columnist: If you want a

counterpoint to the growing narrative that the U.S. war on Iran

is a botched mess, Muhanad Seloom, professor of politics and

former intelligence adviser, makes the military case that

degrading Iran's ballistic missiles, nuclear infrastructure, air

defenses and navy is proving to be a success.

CLYDE RUSSELL, ROI Asia Commodities and Energy Columnist:

This article from Kpler cuts through the recent noise with a

clear-eyed look at the strategic importance of Kharg Island to

Iran.

GAVIN MAGUIRE, ROI Global Energy Transition Columnist: The

Centre for Research on Energy and Clean Air's latest report on

China's power system trends is a must-read for anyone tracking

the country's energy needs. It covers everything from

electricity output to EV, battery and steel production.

We're listening to...

RON BOUSSO, ROI Energy Columnist: The Ezra Klein

Show's recent episode with Ali Vaez, the Iran project director

at the International Crisis Group, offers a deep analysis of

U.S. and Iranian miscalculations in their relationship over the

past 50 years.

And we're watching...

JAMIE MCGEEVER, ROI Markets Columnist: Two of the world's

leading oil analysts - Amrita Sen at Energy Aspects and Jeff

Currie at Carlyle - discuss why this crisis won't resolve

quickly. The Strait of Hormuz isn't opening, supply isn't

returning to normal, and Trump can't "TACO" his way out this

time. "The damage is done ... There's an absolute denial and

misunderstanding of what's going on."

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Opinions expressed are those of the authors. They do not reflect

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