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Sixteen days into the US-Iran conflict, markets remain hostage to events in the Strait of Hormuz. Brent crude has traced a remarkable arc since the assassination of Ayatollah Khamenei on 28 February, surging from $67 to touch $120 on 9 March before settling around $101 at the time of writing. The pattern has become familiar: escalation drives oil higher, a de-escalation headline triggers a sharp reversal, then reality reasserts and prices grind back up. Critically, each cycle is establishing a higher floor.

The appointment of Mojtaba Khamenei as the new Supreme Leader has extinguished hopes of a rapid resolution. His vow to keep Hormuz closed as a "tool of pressure," combined with President Trump's shift from declaring the war "pretty much done" on 10 March to stating that "terms aren't good enough" by 14 March, has effectively collapsed the TACO (Trump-Arranged Ceasefire Outcome) thesis that briefly buoyed markets mid-week. Both sides are hardening. The IEA's record release of 400 million barrels from strategic reserves, unprecedented in scale, was shrugged off by the market. That tells you everything about where sentiment sits: with 10 million barrels per day of supply shut in, the largest disruption in oil market history, stockpile releases buy days, not weeks.

The implications for central banks are uncomfortable. Australia faces a particularly awkward starting point, inflation already above target, capacity utilisation elevated across six of eight industries. The RBA's Andrew Hauser sounded decidedly hawkish last week, and a rate hike at next week's Monetary Policy Board meeting is very much live. With headline inflation potentially reaching the high fours and core inflation for Q1 likely to print around 0.9-1.0%, the RBA has limited room to "look through" this supply shock in the way central banks have historically done against a backdrop of low, stable inflation.

Equity markets have been surprisingly resilient in places. The Nasdaq continues to hold its ground, whilst Europe, far more exposed to Middle Eastern energy flows, has borne the brunt of selling. The DAX fell 1.4% in the most recent session, and European bond yields have surged, with 10-year Bunds up 10 basis points and Gilts up 13. 

The Australian dollar, counter-intuitively, has been a standout performer, hitting a four-year high above 71.5 US cents. Australia's status as a net energy exporter means this is effectively a positive terms-of-trade shock, particularly through Liquefied Natural Gas prices. The traditional correlation between the Aussie dollar and risk appetite appears to be breaking down.

Looking ahead, the key variable remains the Strait of Hormuz. Trump's proposed naval coalition to escort commercial shipping represents a potential circuit-breaker, but mine clearance alone could take weeks, and Iranian attacks on merchant vessels continue. The ship-tracking data tells its own story, the strait is effectively devoid of commercial traffic. Until that changes, the risk is that oil's highs remain ahead of us, not behind.