Prolonged conflict could push crude to extreme levels: Paul Meeks

Global markets were once again pushed into a zone of discomfort after fresh remarks from U.S. President Donald Trump signalled a potential escalation in geopolitical tensions, dashing earlier hopes of a near-term de-escalation. Investors, who had entered the day expecting a conciliatory tone, instead found themselves grappling with renewed uncertainty—particularly around crude oil prices, inflation, and the trajectory of global interest rates.

Speaking to ET Now, Paul Meeks from Freedom Capital Markets captured the shift in sentiment succinctly. “People were hoping for de-escalation and they got rhetoric that indicated escalation. And so, we all thought before the speech was televised, it was no surprise he was going to make some comment that hopefully the hostilities would be over in two to three weeks, that is consistent. But then the rhetoric about bombing them into the stone age and we are going to take out all of their electrical power plants and it sounded actually a lot nastier than we thought it was going to be this afternoon when he declared he was going to give a presentation to the US populist.”

The sharper-than-expected tone has injected volatility into already fragile markets. While Trump reiterated a potential two- to three-week timeline for the conflict, the aggressive rhetoric has raised doubts about whether the situation will indeed remain contained—or spiral further.


Crude Oil: The Key Variable
At the heart of the market’s anxiety lies crude oil. With prices already witnessing a sharp surge, the lack of clarity around the conflict’s duration has made forecasting increasingly difficult. The ripple effects are being felt across asset classes, with inflation expectations once again taking centre stage.

Highlighting the uncertainty, Meeks said, “I think that if the hostilities go beyond this two- to three-week window and, of course, with Trump that could easily be the case, and if crude continues to rise and now with gas per gallon in the United States at over four bucks, it is very damaging particularly because it impacts inflation and we are trying to wrestle as we go from one Fed chair to another Fed chair in May, what is going to be the look for a price of a barrel of crude, how does that impact US inflation, and then what does that mean for US interest rates? Because if interest rates are on the rise to fight inflation, that is really going to be a valuation trigger to the downside for US equities.”

The linkage is clear: higher crude leads to higher inflation, which in turn could force central banks—especially the U.S. Federal Reserve—to keep monetary policy tighter for longer. For equity markets, that combination is rarely favourable.

Fed’s Policy Dilemma Deepens
The evolving geopolitical backdrop could not have come at a more delicate time for the Federal Reserve, which is already navigating a leadership transition and mixed economic signals. According to Meeks, the central bank may find it difficult to pivot towards a softer stance despite political pressure.

“I do. Now, Kevin Warsh the reason he got the job, like anybody that gets a job in a cabinet-like position with Trump, obviously is going to do his bidding. And his bidding is you will get this job if you lower rates. But the problem is with this conflict and with the rising price of crude and inflation in America, it is going to be very difficult for Kevin Warsh when he comes in to do the boss' bidding. There is going to be other countries around the world that actually raise rates to rein in inflation. It would be very difficult for us to go in the other direction. And so, it is going to be very challenging regardless of who Trump has in the office in May to go with easier monetary policy when this conflict is still brewing.”

This divergence between political expectations and economic realities could further complicate policy communication and market expectations in the coming months.

Worst-Case Scenarios Loom
For oil-importing economies like India, the stakes are particularly high. A prolonged disruption in supply—especially through critical chokepoints like the Strait of Hormuz—could trigger a sharp spike in prices, with wide-ranging macroeconomic consequences.

Meeks pointed to extreme scenarios that are increasingly being discussed in market circles. “Well, I have read and I am no oil markets expert that if the Strait of Hormuz ends up to be blocked for a longer period of time, let us say Trump has this two- to three-week window. Now, what happens if it is twice that? What happens if it is three times that? I have seen some price targets in that dire scenario as high as $200 per barrel. And if that takes gas in the United States to $8 per gallon, there will be hell to pay, not with just consumers, but also with equity and even fixed income prices.”

Such an outcome would not only strain household budgets but could also trigger a broader sell-off across financial markets, as both equities and bonds reprice to reflect a higher inflation, higher rate environment.

A Market on Edge
For now, markets remain caught between hope and caution. While the possibility of a short-lived conflict still exists, the tone of recent developments suggests that risks are skewed to the upside—at least in terms of volatility.

With crude oil emerging as the central variable, and monetary policy hanging in the balance, investors may need to brace for a period of heightened uncertainty where headlines, rather than fundamentals, drive market direction.