Often, when financial markets are hit by bad news, policymakers scramble to calm them down. This happened today in response to last night’s rising oil prices (chart).
1. G7 Answer
G7 finance ministers and central bank governors held an emergency virtual meeting today to deal with market turmoil following the escalation of conflict in the Middle East. The group’s main strategy was to signal a “systematic urgency” to prevent a continuing global energy shock.
They issued a joint statement saying they were “ready to take the necessary steps”, specifically mentioning the coordinated release of the Strategic Petroleum Reserve (SPR).
Although they haven’t pulled the trigger on a release today, the mere official discussion of it has successfully chilled the market. And, which had surged toward $120 overnight, retreated toward the $100 mark after the statement. Intraday easing in energy costs helped stocks recover from their worst premarket levels. This evening, Brent and WTI are back to around $89. This is an incredible reversal!
2. Trump bump
President Donald Trump also calmed financial markets today with assurances that all will be well. He reiterated that the US Navy would soon provide escorts for oil tankers and other commercial vessels passing through the Strait of Hormuz. He reiterated that the US government would provide political risk insurance and financial guarantees to shipping companies.
He described current gasoline price increases as “a very small price to pay for US, and world, security and peace,” arguing that prices would “fall precipitously” once the “nuclear threat” is neutralized (chart). The stock market recovered from its early morning plunge.
Trump told CBS News that the military operation — Operation Epic Fury — is actually “way ahead of schedule,” indicating that the conflict could be “much more complete” much sooner than the initial 4-5 week estimate. After initially downplaying the strategic petroleum reserve (SPR) requirement over the weekend, it indicated today that it was “price conscious” and could tap reserves if necessary.
3. Mission accomplished?
Trump clearly aligns his policy actions with the stock and bond markets and works to mitigate downside if initial market reactions are negative. This happened last year when it postponed its Independence Day tariffs on April 9. It might be difficult to enforce a “Trump Pit” in wartime unless he declares victory and lands on one of our aircraft carriers, with a large banner reading “Mission Accomplished.”
If he does, what happened to the idea of ”unconditional surrender”?
4. Not so fast.
In fact, Trump said the mission was nearly accomplished. Not so fast, according to Defense Secretary Pete Hegseth. In recent briefings at the Pentagon, he has backed away from his initial “short war” rhetoric. He recently said that while the U.S. is “winning decisively,” the military will take “all the time we need” to ensure victory.
Specifically, he noted that the timeline could stretch to six or eight weeks — roughly double the president’s initial 4-week estimate — depending on how quickly he can achieve “uncontested airspace” over Iran.
Secretary of State Marco Rubio has also been more cautious about the “end game.” He recently emphasized that the mission is about “denying Iran the ability to use ballistic missiles,” a goal that requires a sustained campaign to find, fix and destroy mobile launchers that are difficult to track. He suggested that the process would be continuous rather than a one-time strike.
5. The difficulties of recession
According to Polymarkets.com, the odds of a recession this year jumped from 21 percent on Wednesday, Feb. 25, to a three-month high of 34 percent on Friday, just before the war broke out. Recession odds fell to 28% today (chart) thanks to a sharp response from G7 ministers and the US president.
6. Feelings
We feel better at the weekend, eg. We’d feel a lot better (and faster) if we saw some ships pass through the Strait of Hormuz without being attacked by Iranian suicide drones.