G7 finance ministers and central bankers convene in Paris Monday and Tuesday with the Iran war and the Strait of Hormuz closure dominating the agenda, as long-term borrowing costs across multiple G7 economies surge on fears that tight energy supplies will keep inflation elevated through the summer.
Eurogroup President Kyriakos Pierrakakis, speaking ahead of the meeting, said publicly that “opening the Strait of Hormuz and bringing the conflict to a lasting end are of the utmost importance.” Pierrakakis framed the situation as a stress test of how exposed the interconnected global economy remains to external shocks despite years of supply-chain diversification efforts post-pandemic.
The market backdrop entering the Paris meeting is stark. Brent crude has risen 74% year-to-date as the strait has remained effectively closed since the U.S. and Israel began strikes on Iran on February 28. WTI closed Friday around $105 per barrel after an 11% weekly gain. Gasoline at the U.S. pump has climbed to a national average of $4.515 per gallon, with six states — Alaska, Hawaii, Illinois, Nevada, Oregon, and Washington — now averaging above $5 per gallon. California is over $6.
Bond markets are pricing the spillover into rate expectations. The U.S. 30-year Treasury yield jumped nearly 11 basis points Friday to 5.121%, the highest level since May 22, 2025 and nearing the highest since October 2023. U.K. 30-year gilts are trading at their highest levels since the late 1990s. Japan, particularly sensitive to inflationary pressure as a major energy importer, has seen bond yields rise drastically in recent days.
Federal Reserve Chair Kevin Warsh, who took office earlier this year, faces his first major policy decision under crisis conditions. Traders are positioning for the Fed to hold rates higher for longer than previously expected as inflation data has come in messier than the disinflation trend of the prior two years had implied.
The IEA warned in its monthly oil market update last week that global oil inventories are falling at a record pace to compensate for the supply disruption in the Middle East, and that they will approach critical levels if Hormuz does not reopen. “Rapidly shrinking buffers amid continued disruptions may herald future price spikes ahead,” the IEA said. Crude and fuel flows through Hormuz fell by around 4 million barrels per day in March and April.
The G7 meeting follows the Trump-Xi summit in Beijing that concluded May 14, at which both leaders agreed Hormuz must remain open and Iran cannot have a nuclear weapon. The administration has reportedly proposed to Iran a 20-year verified moratorium on its nuclear program, surrender of all highly enriched uranium, and free commercial traffic through the strait as conditions to end hostilities. Pakistan has been acting as intermediary. As of this writing, Iran has not accepted those terms.
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