Rabobank analysts Philip Marey and Kan Ji say higher global oil prices linked to the Iran conflict could lift US inflation and keep it elevated. They describe this as a stagflationary supply shock affecting prices and growth. They expect US CPI to rebound in March and peak at 3.3% in April. They forecast inflation will then ease slowly, reaching 2.5% in the second half of 2028.

Inflation Impact From Oil Shock

They note the US is a net exporter of oil and natural gas, but still reacts to global oil prices. They say domestic fuel prices move closely with global levels. Their baseline assumes the Strait of Hormuz reopens slowly after fighting ends in the second half of April. Based on updated energy price forecasts, they project inflation averages 2.9% in 2026 and 2.8% in 2027. They add that earlier simulations indicate inflation could rise more and GDP growth could fall more if energy prices climb further. The piece was produced using an AI tool and reviewed by an editor. The recent conflict in Iran has created a significant supply shock, which we see keeping prices elevated for some time. WTI crude oil has responded immediately, with futures for May delivery now trading around $105 per barrel, a sharp increase from the low $80s seen in January. This surge in energy costs is expected to directly impact upcoming inflation reports.

Market Positioning For Higher Rates

We expect this will cause US inflation to rebound starting with the March data. The most recent report for February 2026 already showed a concerning uptick in the annual CPI rate to 2.8%, suggesting inflationary pressures were building even before the full impact of the oil shock. We now project inflation will peak at 3.3% in April and remain stubbornly high. This changes the outlook for Federal Reserve policy, making interest rate cuts in the near future highly unlikely. The market is already reflecting this, with the probability of a June rate cut plummeting from over 70% a month ago to less than 20% today. Traders should therefore consider positions that benefit from rates staying higher for longer, such as selling SOFR futures contracts for late 2026 delivery. Such a stagflationary shock breeds uncertainty and market nervousness, which is reflected in rising volatility. The VIX index has already climbed from the low teens to above 22 in the past few weeks. This suggests traders could look at buying call options on the VIX to hedge against or profit from further market turbulence as this situation unfolds. The forecast for inflation to average 2.9% in 2026 assumes the Strait of Hormuz reopens in the second half of April. If the conflict escalates or is prolonged, energy prices could move substantially higher. Derivative traders could use call spreads on crude oil futures to position for further upside while defining their risk. Looking back, we recall from 2025 how persistent inflation proved to be after the supply chain disruptions earlier in the decade. That experience, combined with the historical precedent of the 1970s oil shocks, suggests this period of high inflation could be more entrenched than many currently expect. This reinforces the view that assets sensitive to high interest rates may remain under pressure. Create your live VT Markets account and start trading now.

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