Commodities weekly: From energy shock to stagflation risk

Energy: Infrastructure damage points to higher for longer

Crude oil traded higher on the week as the conflict persisted and the Strait of Hormuz remained effectively closed, with strikes increasingly targeting energy infrastructure. Price action remains asymmetric, pulled between political signals aimed at containing prices and a worsening on-the-ground situation that now includes direct attacks on critical production assets.

Crude benchmarks are diverging, with WTI trading at a sizeable discount to Brent and Middle East-linked grades despite the disruption. This highlights that headline crude prices are not fully capturing the scale of the shock. Tightness is most visible in Asian physical markets, where disrupted Middle East supply has forced refiners to bid for prompt cargoes, lifting nearby pricing and regionally linked benchmarks. WTI, by contrast, remains more insulated, reflecting inland U.S. dynamics and weaker exposure to immediate global flows. The disruption is therefore expressed more clearly through location spreads, time spreads and products than in flat crude prices.

Attacks across the Persian Gulf, including significant damage to Qatar’s LNG infrastructure, point to supply constraints that may persist for years rather than months. Combined with restricted transit through Hormuz, higher insurance costs and logistical friction, any post-ceasefire recovery in flows is likely to be gradual rather than immediate.

Refined products continue to signal the underlying stress. Diesel and jet fuel have surged, with strong premiums to crude reflecting tight inventories and robust demand for middle distillates. This underscores that downstream constraints are now as critical as upstream supply risks.

In this context, softer crude prices should not be mistaken for easing conditions. Instead, they reflect a temporary buffer from elevated oil-on-water inventories accumulated ahead of the conflict. As these are drawn down, the risk of a sharper price response—potentially into demand-destruction territory—remains unless flows from the Middle East are fully restored.

Metals: Liquidation replaces momentum

Gold is heading for its biggest weekly loss in six years after breaking below USD 5,000, triggering a wave of technical selling. Silver, with its higher beta and industrial exposure, has corrected more sharply, while platinum and palladium have also moved lower.

Rising inflation expectations have pushed yields higher, reducing the appeal of non-yielding assets, while a stronger dollar and fading rate-cut expectations have added further pressure. At the same time, elevated speculative positioning left both gold and silver vulnerable to a rapid unwind once key technical levels gave way, with leveraged and systematic strategies amplifying the downside.

There is also emerging, though still secondary, speculation that some surplus economies may need to raise liquidity, potentially including gold sales. While not a confirmed driver, it adds to the more cautious tone. Overall, gold’s failure to rally despite geopolitical stress highlights the current dominance of higher real yields, a firmer dollar and position adjustment over its traditional safe-haven role.

Industrial metals have come under pressure for related but more growth-driven reasons. Copper, aluminium, nickel and zinc have all declined as concerns about global demand begin to outweigh earlier supply disruptions and energy-transition support.

While the near-term outlook has become more challenging, we maintain a constructive view on precious metals once the current liquidation phase subsides. Fiscal concerns remain elevated, with rising government debt levels likely to worsen in the event of an economic slowdown. At the same time, the current shock carries clear stagflationary characteristics: if inflation remains elevated while growth weakens, central banks will face a difficult trade-off between easing policy and risking renewed inflation or staying restrictive and deepening the slowdown.

In that environment, gold’s role as a hedge against monetary debasement and dollar exposure remains intact, supported by the ongoing trend toward de-dollarisation and diversification of reserves. However, some of this demand could be partially offset if certain central banks are forced to raise liquidity through asset sales, including gold, in response to falling revenues or rising costs linked to the energy shock. Even so, structural drivers continue to point to a supportive longer-term backdrop for precious metals.

Agriculture and softs: Second-round effects emerge

Beyond energy and metals, the impact of the shock is beginning to spread across agriculture and soft commodities. The sector has posted a modest gain overall this past week, while broad gains have been recorded so far this month. Led by commodities that directly or indirectly have received a boost from higher energy prices and disruption to shipments, not least that of fertilisers with the Persian Gulf being a major production hub given its access to cheap natural gas, the main feedstock.

The bio-fuel and ethanol link to rising fuel prices have supported gains in corn, soybean oil and sugar, while drought across the southern US following a very dry winter has raised crop concerns thereby underpinning prices for wheat and cotton, the latter also being supported by the rising cost of synthetic fibres which are produced from petrochemical-based raw materials.

Sugar has been a notable outperformer, rising to the highest level since October. The rally reflects both direct and indirect effects from the energy market. Higher oil prices are supporting ethanol production in Brazil, reducing the availability of cane for sugar. At the same time, disruptions in the Strait of Hormuz have affected shipping routes, with vessels carrying raw sugar stranded or rerouted, constraining refining capacity and tightening supply.

These developments highlight the broader and perhaps initially overlooked inflationary impact of the current environment. Higher energy prices feed into fertiliser production, transportation and processing costs, creating second-round effects that extend well beyond the energy complex.

A market adjusting to a more persistent shock

Across the commodity complex, the key takeaway is that the market is transitioning from an initial shock phase to a more prolonged adjustment.

Crude prices may respond quickly to headlines around escalation or de-escalation, but the underlying conditions—damaged infrastructure, disrupted trade flows and elevated costs—suggest that the effects of the current crisis will persist.

The divergence between sectors reflects this shift. Energy markets continue to price tight supply and physical disruption, while metals are adjusting to a more challenging macro backdrop. Agriculture and soft commodities are beginning to reflect the second-round effects.

Even if a ceasefire is reached and the Strait of Hormuz reopens, the path back to normal will likely be uneven. For now, the commodity complex remains supported by a combination of supply constraints and inflationary pressures, but the growing risk is that these same forces begin to weigh more heavily on global growth. In that sense, the market is no longer just trading a geopolitical event. It is increasingly pricing its economic consequences.