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Right now, the world is bracing for the Trump 2.0 Administration’s ‘reciprocal tariffs’ which are set to kick in on Wednesday, April 2 (U.S. time.)
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Rightly so, this is what markets are currently watching. Except that Trump has threatened to bomb Iran in the last 12 hours, which is perhaps less rattling than it would be if markets weren’t already so rattled.
Another bloodbath on Wall Street overnight Friday (Oz time) has informed a bloody Monday for Australia – in fact, in ’25, the ASX has had its worst Q1 since back in COVID-19.
The Friday sell-off on Wall Street was informed by renewed tariff anxiety as Trump started talking about auto tariffs late Week 13 – surely, Elon Musk’s pole position in the Trump-buddy-ecosystem is part of the problem with that one – but U.S. inflation data didn’t really help things either.
Core U.S. PCE inflation came in one tick higher than expected at 0.4% growth. The timeframe isn’t really important here. It’s usually the kind of thing that would be ignored by markets, or that would have been true in H2 of CY24, except perhaps for uber-bears.
But we aren’t in the realm of what is “usual.” (Probably evidenced by the fact Trump has threatened to bomb Iran.)
We are, ignoring this latest threat to certainty, in a realm of flip-flop tariff threats that seem to change hourly. And after more than a month of this being the quo day after day, it’s my suspicion the market has stopped watching the news and is instead waiting for April 2.
Combine that and a PCE core inflation beat, even if it’s just one pip, and it’s all too much.
So perhaps that’s why the market appears to have missed the rather worrying point – and I’ll admit here perhaps this article could come across as panicbait – that there’s a new geopolitical risk to consider.
But Trump’s threats to Iran (if he goes ahead with them) threaten to throw a more traditional, non-tariff-related inflationary risk into the works.
Long story short: An attack on Iran would be guaranteed to push up the price of Brent Crude oil, the international benchmark that ultimately informs the price of fuel at the servo worldwide. (America has its own oil benchmark: The West Texas Intermediate.)
So why would an attack on Iran do that?
In truth, there’s no real fundamental reason supporting it anymore. But the entire market seems to have absorbed the historical memory of the 1970s Iranian oil crisis when Iran was able to squeeze the American consumer by restricting oil exports.
That was, of course, when Iran was a bigger player in the global oil game. The world’s largest producer is now the USA. Even bigger than Saudi Arabia.
But that reality hasn’t quite yet sunk into the contemporary market zeitgeist of 2025. This has been evidenced clearly in recent history – when Israel started bombing its neighbours throughout last year, the Brent price would jump as surely as the sun rose.
Any breakout of conflict in the Middle East is often followed by a jump in fuel prices, even if fleeting. But given we’re talking about an unpredictable Trump Administration, given we’re talking about Iran’s debated-but-probable efforts to design its own nukes, and given an already sensitive and fragile market – one could expect, perhaps, an exaggerated effect.
Even despite the fact the U.S. is still the world’s largest producer.
And how could a higher oil price push up inflation? That’s easier to answer.
Trucks, ships, planes, and the cost of driving the kids to school before heading off to work.
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