Michael Gapen

So right now, I might be able to get as much oil as I need at a higher price.

What happens if it's not available at any price?

Then you could start to see things through the lens of supply chain disruptions like we had during COVID.

Where that's going to show up first is in Asia, because I think, as you know, about 85% of the oil that comes out of the Strait of Hormuz, its destination is Asia.

So if some economies are going to experience outright shortages first, it will be there.

uh and and then you're talking about i can't get the oil or as you say the fertilizer uh or the distillate that that i need therefore activity has to to stop so those are the risks we could get second round effects on inflation because we've been above target for for so long or this this conflict could go on long enough where it actually it changes from price effects to quantity effects then

You're right, we could see a much more persistent inflation story.

You laid it out very well.

I would argue that markets are reacting a little less

to the headlines now than they were two to three to four weeks ago.

As you said in your introduction, oil was up around eight, nine, 10 percent today in response to the implementation of the blockade, but US equity markets did okay today.

I do think the market is discounting a little bit the headline noise, looking through some of the day-to-day volatility in a way that it did not do it a few weeks ago.

So I agree with you that it can be very disconcerting to hear headlines one way one day and the other way the next day.

But I think the market's actually starting to filter that out better and volatility has come down.

I think a second factor behind that is markets had to de-risk for the first two to three to four weeks of this.

Most investors were positioned for rates to fall

at least at the front end of yield curves, all throughout most of the world, not all the world, but much of the world.

And what this oil price shock did, of course, was push yields higher.

So markets needed to rebalance and de-risk and get out of positions and kind of get flat or neutral, as we would call it.

That process leads to a lot of initial volatility.