Pivots

By Bas van Geffen, senior macro strategist at Rabobank

The situation in the Middle East remains on an escalatory path, with Houthi attacks on Saudi Arabia now a regular event. Attacks have already damaged the east-west pipeline, which allowed Saudi Arabia to bypass the Strait of Hormuz.

The damage to the pipeline increases Iran’s leverage. It forces Saudi Arabia to pivot back to oil exports through the Strait of Hormuz. Bloomberg reports that the country is already increasing sales of spot cargoes for ship-to-ship delivery in the Gulf of Oman, which means that the Saudis are taking the responsibility and risk of transporting the crude through Hormuz.

Saudi Arabia has been loading 8.7 million barrels of crude oil today (2026-09-15) at its east coast terminals.#OOTT #IranWar #Tankers pic.twitter.com/Md6iM6ehgi

— TankerTrackers.com, Inc. (@TankerTrackers) September 15, 2026

Further supply risks follow from the Houthis taking key areas around the Bab el-Mandeb strait and rumors they have laid mines in the waterway, which puts new constraints on tanker movements. Following the unfolding escalation in the Middle East, we have updated our energy forecasts.

The energy market had already shifted higher on the news of re-escalation, and prices of crude and refined products are drawing new attention from motorists and lawmakers. Yesterday, US Senate Majority Leader Thune said he is “open to exploring” a diesel export ban if that helps ease domestic price pressures. If this idea gets more traction, it would predominantly be at the cost of Europe and South America. Or could these new supply chain disruptions be the catalyst for more countries to send military assets to the region?

The energy supply shock is also creating an increasingly difficult situation for central banks. Interest rates continue to rise in tandem with energy prices. Our US strategist still believes that the nature of the shock does not warrant a hike, but a credibility problem is pushing the Fed into a corner.

Markets expect much more than a one-and-done hike, but the same goes for expectations embedded in curves where central banks have shown a more proactive response. Yesterday, EUR money markets priced more than four additional rate hikes on top of the two the ECB has already delivered.

Policymakers probably do not mind some financial tightening that follows from rate hike expectations, but markets have probably gotten a bit too far ahead of the central banks – which are increasingly struggling to balance inflation and growth risks, and growing uncertainty.

If rate setters do not give any pushback, the market could wag the central bank into further rate hikes and more restrictive policy than they may deem necessary. Yet, pushing back is difficult. Inflation risks remain to the upside, and central bankers don’t want to sound complacent since this could affect inflation expectations.

In her press conference last week, ECB President Lagarde already refused to reaffirm that markets “understand the ECB’s reaction function well,” which we construed as a hint that the market may be moving faster than the policymakers like. Even though energy-driven inflation is set to increase further, price pressures are still mostly driven by that supply shock and there is no evidence that inflation is spreading.

Yesterday, anonymous sources “leaked” to MNI News that any next move would probably not be in October, but in December. Market-implied odds for the October meeting dropped from a likely hike to a coin toss after the news broke. And interestingly, the story also suppressed pricing for the next 12 months – suggesting that the pushback helped to dampen expectations of a more forceful response across the board. We imagine there may be more leaks in the coming weeks to at least lessen the expectations for the October meeting.

Likewise, the market pared back expectations for the Bank of England somewhat after today’s inflation data. UK inflation was in line with expectations, with higher energy and fuel prices the main cause of the rise to 3.1% y/y. Beyond that, there is very little that may alarm the MPC ahead of their meeting: core CPI and services CPI are both unchanged, and food CPI is also not doing what was expected.

Combined with yesterday’s labor market report, which showed slack continuing to rise, and survey evidence from the DMP that showed relatively muted selling price expectations, this all suggests that second-round risks remain contained. The data clearly support a hold tomorrow at 3.75%, which is already around 50bp above economists’ estimates of the UK’s neutral rate.

Whereas the ECB provided some hints about their next move, the central bank has yet to provide clarity on its leadership. The central bank’s staff have reportedly urged President Lagarde to state whether she does or does not intend to serve her full term, so that uncertainty does not undermine the institution. Rumors of Lagarde’s early departure still rampant, and Ms. Schnabel has also been tipped to leave early to fill a vacancy at the IMF.

In addition to personal motivations, the prospect of Le Pen winning the French presidential elections is fuelling speculation that European leaders want to fast-track key decisions to avoid that the Eurosceptic can delay or derail them.

Indeed, France may have started horse trading for the three soon-to-be-vacant seats in earnest. Reuters reported that President Macron may support Klaas Knot’s candidacy for ECB president if the chief economist job goes to a French candidate. We can certainly name a couple of French economists who would be suitable. However, Germany may also eye the economist role instead of Schnabel’s current focus on market operations.

Internal divisions already complicate decision making on multiple fronts. European diplomats poured some cold water on PM Carney’s hopes to strengthen the ties between Canada and the bloc, to strengthen the countries’ position versus the US and China. Unsurprisingly, the countries that rely most on NATO’s deterrence are wary of the damage this could do to EU-US ties.