Middle East war live: EU must ‘step up efforts’ to restore stability, Macron says

The market is still underpricing the duration of the second-order inflation shock. Even if physical flows normalize quickly, the bigger transmitters are higher insurance, freight, fertilizer, and working-capital costs that bleed into food and goods CPI with a lag of one to three quarters. That argues for a more persistent impulse to rates than the headline energy move alone suggests, especially in import-dependent EMs where FX weakness can turn a commodity shock into a balance-of-payments event.

The cleanest relative winners are the Gulf producers and defense-infrastructure beneficiaries, but only if the disruption remains contained. Any reopening of shipping lanes would likely compress the geopolitical risk premium faster than it unwinds upstream equity cash flows, so the trade is not in spot oil duration; it is in equities and options that monetize volatility and capex repricing. Conversely, shipping, airlines, chemicals, and food processors face margin pressure from both fuel and input-cost pass-through constraints, with the most vulnerable names in regions that cannot reprice quickly.

The contrarian read is that the immediate price spike in crude may be overdone versus the physical supply loss, but the equity market consequences are probably not. The real risk is a policy response that forces strategic releases, diplomatic de-escalation, or accelerated reopening, which would hit crude beta first while leaving inflation expectations and defense spending elevated. That asymmetry favors hedged expressions: short cyclical sensitivity, long volatility, and selective long defense/gas infrastructure where cash flows are less dependent on the exact oil price path.