New York, March 19, 2026, 10:23 EDT
Oil jumped above $119 a barrel for a moment on Thursday, rattled by Iranian strikes on Gulf energy infrastructure. That move shook up markets that were already on edge as the Federal Reserve grows warier regarding rate cuts. Brent later eased to roughly $113.40, but the surge was enough to refocus traders on inflation.
This oil shock is hitting just as U.S. producer prices jumped 0.7% in February—up 3.4% from a year ago—and with the Fed raising its inflation forecast for 2026. Gas at the pump? Now averaging $3.88 a gallon, that’s roughly 30% higher than prewar levels, making it more likely that both households and businesses get squeezed by another spike in fuel costs.
The Fed left its key rate steady at 3.50%-3.75% on Wednesday, noting uncertainty around the economic impact from the Middle East. In its latest projections, officials see both headline and core PCE inflation hitting 2.7% in 2026. The median forecast for the fed funds rate at year-end remains at 3.4%, pointing to just a single quarter-point cut for this year.
Chair Jerome Powell flagged higher energy prices as a near-term driver of overall inflation, noting the Fed is keeping an eye on whether pricier diesel, jet fuel and other petroleum-related costs start moving through to broader inflation. He reiterated the central bank stands ready “to do what needs to be done” if the situation calls for it. Still, Powell pushed back against comparisons to the 1970s, saying the U.S. remains a long way from that kind of era marked by slow growth and soaring prices. Reuters
Supply worries took center stage after Iran targeted energy facilities across Qatar, Saudi Arabia, Kuwait, and the United Arab Emirates in response to Israel’s strike on Iran’s South Pars gas field. QatarEnergy reported “extensive damage” at Ras Laffan, the main hub for its LNG business, after missile attacks hit the site. European gas prices surged 28%. Suddenly, traders were forced to revisit risks around the Strait of Hormuz, where about 20% of the world’s oil and LNG shipments move each day. Reuters
Wednesday’s session saw the Dow slide 1.63%. The S&P 500 slipped 1.36%, and the Nasdaq finished down 1.45%. Sellers were back early Thursday: the S&P 500 dropped a further 0.63%, the Nasdaq slid another 1.27%. The Russell 2000—often seen as most sensitive to rates—was trading 10% below its record intraday peak.
Anthony Saglimbene, chief market strategist at Ameriprise, said the Fed isn’t the main story for investors right now. Oil supply risks and the uncertain timeline for Gulf shipping and output returning to normal are front of mind instead. Charu Chanana, Saxo’s chief investment strategist in Singapore, described the recent escalation as a “turning point for markets” since it’s impacting the “plumbing of the global energy system.” Reuters
This policy jolt isn’t limited to the U.S. The Bank of England left rates untouched at 3.75% after a unanimous vote Thursday and flagged that inflation might hit 3.5% in the coming two quarters. Over in Frankfurt, the European Central Bank also stuck with its 2% key rate, cautioning that the ongoing war is set to push near-term inflation higher via energy prices. BOE Governor Bailey, for his part, dismissed market expectations for rapid UK rate hikes, calling traders’ bets premature.
Markets aren’t locked into turmoil just yet. Brent crude pulled back hard after spiking earlier, while the Trump administration considers ways to boost supply—potentially by lifting sanctions on roughly 140 million barrels of Iranian oil stuck on tankers. Should the attacks cease and Gulf shipments pick back up, the inflation effect might unwind quicker than traders are pricing in.
The risks are clear enough. If Ras Laffan sees more trouble or if the Hormuz disruption drags on, oil and gas prices—and expectations for rate moves—could push further out of bounds for investors. In Europe, traders have already flipped to betting on several hikes from the ECB and BoE, while wagers on U.S. rate cuts are fading fast. What only looked like a fleeting jolt in commodities just days back now appears tougher to shake.
