High Oil Prices, Inflationary Pulses, and the Risk of Transatlantic Policy Scissors YCC Perspective: At YCC Capital, our global macro value lens prioritizes capital-flow dynamics and gaps between prevailing narratives and underlying realities. The protracted US-Iran stalemate and depressed shipping volumes through the Strait of Hormuz constitute a textbook geopolitical supply shock. Its transmission into global inflation, central bank policy paths, and cross-asset pricing is asymmetric across economies—particularly relevant for our positioning in Asia and RMB assets, where energy import diversification provides relative insulation compared with more vulnerable regional peers. This analysis dissects the inflationary impulse, the probability of a Fed-ECB policy scissors, and the resulting implications for bonds, equities, and currencies. Key Takeways High oil prices have elevated inflation across multiple economies. The US-Iran conflict has remained locked in a three-month stalemate as of early June. Hormuz Strait daily transit volumes have collapsed to single digits—approximately 5% of pre-conflict levels—with no meaningful recovery. Brent and WTI midpoints have shifted from ~66 USD to ~101 USD (+53%). Energy CPI now exceeds both core and headline inflation in the US (17.9%), Canada (~18%), Eurozone (10.8%), and UK, confirming a potent imported inflation pulse. Japan remains an outlier due to targeted energy subsidies. Energy inflation is likely to create a policy scissors between the Fed and ECB. Eurozone inflation pressures feel more binding: single mandate, higher energy dependence (non-exporter status), and inflation expectations that have spiked to 2022 highs. US dual mandate and resilient domestic energy production afford the Fed greater flexibility. Market pricing implies <1% probability of a June Fed hike versus >90% for an ECB hike. Should the ECB move first, the resulting narrowing of the USD-EUR rate differential would provide tactical support to the euro and cap the DXY. Bond markets face more persistent pressure than equities; FX shows RMB resilience. Over the past three months, global bonds adjusted broadly higher in yield as rate-cut expectations were pared back. Equities exhibited clear bifurcation: Europe and energy-vulnerable markets underperformed while AI-exposed US indices and select Asian markets (e.g., Korea) proved more resilient. Looking forward, we expect the 10Y UST yield midpoint to grind higher. On FX, RMB has appreciated against the USD while JPY, CHF, and EUR depreciated—supported by China’s diversified energy sourcing and export outperformance amid regional supply-chain stress. A policy scissors would likely keep the USD in a wide trading range with mild RMB appreciation bias persisting. Risk factors remain elevated. Further escalation in the Middle East, an oil price spike beyond current levels, or an unexpectedly hawkish Fed reaction function could materially alter the base case. Sources: Bloomberg, YCC Capital analysis. Data as of early June 2026 unless otherwise noted. High Oil Prices Have Elevated Inflation Across Multiple Economies The US-Iran conflict, which erupted earlier this year and entered a protracted stalemate by early June, has now persisted for approximately three months without a durable de-escalation agreement. Throughout this period, maritime transit volumes through the Strait of Hormuz—the critical chokepoint for roughly 20% of global oil trade—have remained severely depressed. Average daily transits have fallen into the single digits, representing roughly 5% of pre-conflict throughput. There are no clear signs of normalization. Constrained supply has kept international crude prices elevated and structurally higher than the pre-conflict equilibrium of approximately 66 USD per barrel. The post-conflict midpoint has shifted to around 101 USD—a 53% increase. This sustained deviation is transmitting directly into global inflation via higher energy input costs, creating a classic imported inflation shock. Energy Inflation Transmission: Cross-Country Evidence In the three months since the conflict intensified, energy CPI has materially outpaced both core and headline measures in most major economies (April 2026 data). The United States recorded energy inflation of 17.9% against headline CPI of 3.8%. Canada saw similar extremes in the 17–20% range. The Eurozone and broader Europe registered energy inflation between 10% and 15%, well above their respective core and headline prints. The United Kingdom followed a comparable pattern. Japan stands apart: its energy CPI remains in negative territory, though the pace of deflation has narrowed meaningfully versus the pre-conflict baseline. This divergence largely reflects Japan’s aggressive fiscal response—most notably the 3.11 trillion JPY supplemental budget that established a dedicated Middle East emergency energy reserve to cushion domestic price pass-through. Without such buffers, the inflationary impulse would likely have been more uniform globally. The key takeaway is that a geopolitically induced oil price regime shift—rather than a transitory spike—has already embedded a durable inflationary pulse into multiple large economies. This is not merely a headline effect; it is feeding into core inflation expectations and, critically, into central bank reaction functions. Markets are now pricing higher-for-longer policy rates in several jurisdictions, with the Euro area appearing particularly sensitive. Energy Inflation and the Emerging US-Europe Policy Scissors Negotiations between the US and Iran have continued in fits and starts. While markets briefly priced in the possibility of an extended ceasefire or de-escalation framework in late May, renewed mutual strikes quickly dispelled that optimism. Key uncertainties persist around any potential extension of the current pause, restoration of Hormuz transit, and the stance of Israel. June’s cluster of global central bank meetings will therefore occur against a highly fluid geopolitical backdrop, with oil prices and negotiation outcomes remaining live variables. Relative to the United States, the European Central Bank faces a more acute inflation challenge. April data showed Eurozone energy inflation at 10.8% and headline CPI at 3.0%—already above the 2% target. US comparables were 17.9% energy and 3.8% headline. While the numerical gaps are not enormous, three structural factors tilt the balance toward greater ECB urgency: Energy dependence asymmetry: The United States is a net oil exporter with substantial domestic production flexibility. The Eurozone remains a large net importer with limited short-term substitution options. Inflation expectation dynamics: Eurozone long-term inflation expectations have surged to levels last seen during the 2022 energy crisis peak. US expectations, by contrast, have remained more contained—even below the levels observed during the 2025 tariff-related inflation scare. Institutional mandate differences: The ECB