Headline Fatigue May Stave Off Another Rate Hike in 2026

Dear Reader,

On Wednesday, the ceasefire died.

Tankers came under attack in the Strait of Hormuz. Washington revoked the waiver that let Iran sell its crude. Tehran claims strikes on US military sites in Bahrain and Kuwait. Trump says the ceasefire is over, and the bombs are falling again.

Brent crude rose 5%.

Five. To $78 a barrel.

Compare that to March. When the first bombs hit Iran, Brent ran from US$61 at the start of the year to more than US$126 at its peak. The strait shut. Goldman Sachs called it the largest supply shock in the history of the crude market. We walked you through the wreckage in The Oil Shock Nobody Wants to Think About.

Now the same war has reignited, and the market shrugged.

Something changed while everyone was watching the missiles. I want to explain what it was, because it rewrites the interest rate story for the rest of this year.

The Path We Were On

Cast your mind back six months.

The RBA hiked in February. Again in March. Again in May. Three hikes, back to 4.35%, the peak of the last cycle.

None of it surprised us. Back in March we told you markets had gone from pricing two hikes this year to three minimum, with a fourth half priced in. In January we warned you the market was treating inflation like a post-pandemic fade while we saw 1970s style big inflation risks.

We saw this scenario as a 20-30% chance. Not the base case. But not remote enough to ignore completely.

Then the war handed inflation a fuel can. Oil flows through everything. Diesel, freight, fertiliser, food. Headline CPI hit 4.6%, well above the target band, and the RBA had one job.

Australia was on a hiking path. Solid, priced, confirmed by every data print.

Then the peace talks started.

The Pause We Called

On 12 June the two sides agreed fresh ceasefire terms. On 17 June they signed the Islamabad Memorandum and gave themselves 60 days to negotiate a final deal.

Oil unwound the whole war. By early July, Brent traded under US$71. Below where it sat before the first bomb fell. The entire conflict premium, gone in a few weeks.

And the RBA did what we said it would. In May’s Monthly Markets Update we wrote: ‘The RBA will likely take any opportunity to pause while negotiations between the US and Iran play out. A June pause is likely.’

June came. The RBA paused for the first time this year.

That’s where we sit today. Cash rate at 4.35%, finger off the trigger, one eye on the Gulf.

So the war is back. Does the hiking resume with it? It’s a much lower likelihood. For the time being, the RBA still has room to breathe before it needs to pull the rate lever again.

The key to understanding why comes from another recent (well actually still current) war.

The Ukraine Lesson

February 2022. Russia invades Ukraine. Within two weeks, Brent touches US$139, the highest price since 2008. Wheat goes limit-up. European gas trades at levels nobody had ever printed. Every headline out of Kyiv moved every market on Earth.

Fast forward ten months. The war was still raging, and crude traded below its pre-invasion price.

By 2024, Ukrainian drones were hitting Russian refineries and the market would give it a dollar. Sometimes less. Traders had a name for it.

Headline fatigue.

Markets can’t stay scared. Fear is expensive. You have to pay for it every day with hedges, with insurance, with barrels stored on ships. When the feared event keeps failing to end the world, the market stops paying.

In Ukraine, that decay started to set in within months. If you were actively trading it, you noticed the change in reaction on each new headline. For many it may have only become obvious after a year. In the Gulf, there are signs of headline fatigue.

Trump adds to the effect. He changes his mind so often, it’s hard to believe any state of peace or war will last more than a few days… or hours even.

The story is tired. And a tired story needs a bigger shock each time to get the same reaction. To move oil the way March moved it, you’d need escalation beyond anything we’ve seen. A full closure of the strait lasting months. Strikes on Saudi or Emirati processing plants. Short of that, expect muted responses from here.

Wednesday’s 5% was a telling sign.

There’s a second reason the market stopped flinching, and it matters more for inflation.

Supply Chains Stopped Waiting for Peace

The world spent those four months building around this war.

Saudi Arabia’s East-West pipeline is running flat out, moving crude to the Red Sea and skipping Hormuz. The UAE is pushing barrels out through Fujairah, on the far side of the chokepoint. The IEA authorised 400 million barrels from strategic reserves. OPEC+ lifted quotas. Airlines rerouted and repriced. Insurers worked out what war risk costs and put a number on it.

Trade treats the conflict like weather now. Routes bend around it. Premiums price it.

The supply chains have lengthened by days and weeks. While longer supply chains cost more, the important thing is that those chains are full again. Supply is flowing, though less than perfect. The new system is holding.

That’s the part most commentary misses. Further fighting doesn’t take much away, because the market has already written off what this war can reach. The barrels that were going to be lost are lost. The routes that had to bend have bent.

The important point is that the status quo is now war.

War Is the Default Now

Here’s the strange place we’ve landed.

Back in February, war was the shock scenario and peace was the baseline. Today the market carries war as the standing assumption. It’s built into every freight rate, every insurance premium, every barrel in storage.

So peace is now the surprise.

Think through what a genuine deal would do. Hormuz reopens fully. War-risk premiums on tankers vanish. Freight and insurance costs collapse. Shut-in Gulf production restarts into a market where OPEC+ has already lifted quotas. All those long, expensive workaround routes snap back to short ones, within weeks.

Those long supply chains shorten, and there are suddenly excess barrels of oil sitting on docks, on ships waiting offshore to be unloaded, in warehouses that can’t get much fuller.

That’s a deflationary impulse, and a large one. Oil into the 60s? Fuel, freight and food costs rolling over together. The very inflation the RBA spent this year hiking against would start draining out of the system a quarter or two later.

Nobody is pricing what an actual peace would do to the rate path, because for four months peace kept almost happening and never did.

The Islamabad process is battered, but the 60-day window runs to mid-August and the incentive to finish the deal hasn’t gone anywhere. Both sides are poorer than when they started. Wars end when that maths gets loud enough.

So what do you do with all of this?

The Edge

The war trade already paid. It paid in March, to the people who read about the chokepoint before the bombs fell. Chasing energy names on this week’s headlines means buying a premium that decays with every muted response.

The asymmetry sits on the other side of the boat.

If the war grinds on, oil stays rangebound in the 70s and 80s, the RBA stays paused, and rate-sensitive assets tread water. Little harm done. If peace lands, the supply chains shorten, the deflationary pulse arrives, and the conversation shifts from ‘how long is the pause’ to ‘when is the first cut’.

The assets that were hammered through three hikes could rerate hard. That’s growth. Think tech, like Stakk (ASX:SKK), and biotech, like Lumos Diagnostics (ASX:LDX).

One side of that bet costs you little. The other side pays well.

Watch three things. Tanker war-risk premiums out of the Gulf. Transit counts through Hormuz. And the size of oil’s reaction to each new headline. When the market yawns at an air strike, that’s apathy setting in. That’s a chuckle in the face of danger.

None of this is to say we’re out of the inflation danger zone. It’s still there. An end to the war could create some great trades and an extended pause in the hiking cycle. Potentially even a cut or two.

But the greater long-term risk still leans heavily in the direction of very hard to stop inflation. The global economy and relative prices are still all out of whack. And the reshuffle into the correct relative positions can take a long and painful time.