This week I will focus on the risk of the oil crisis escalating, despite talk of some kind of deal overnight. Then at the end I will round up markets over the week, and see “What’s Hot? What’s Not?” right now.
Washington has said there will be some kind of deal some time soon. There is a memorandum of understanding, nothing more, which has as yet not been approved by Trump or the Iranian regime. It is flaky. Best for investors to be prepared for a negative outcome, and that is my focus today.
The financial markets remain complacent. That calm is because it is assumed to be a temporary dislocation, soon to be solved, and this view is encouraged by the limited visibility of any impact on day to day, at least in the West. But oil moves slowly through the global system, at a predictable pace, so it can be predicted when problems will become more visible.
That hit will be more self-evident later in June and into July – not overnight, but still inexorably day by day.
For investors, the key is not waiting for petrol stations to run dry. By then, equity markets will have started pricing the problem. The earlier warning signs are found in government wording, and sector-specific disruption.
Here are the five stages of an oil crisis and how markets might react:
Stage 1 — “It’s A Price Problem”
At this stage, oil and fuel are still available, but prices are rising fast. Governments may cut taxes, release reserves, or ask industry to absorb some of the pain. Consumers notice higher petrol, diesel, heating, shipping and airline costs, but the system still works.
Listen for… The language is usually calm: “markets are volatile,” “we are monitoring the situation,” “supplies remain resilient,” or “we are working with partners.”
Watch for… Fuel prices, shipping costs, airline fuel surcharges, and profit warnings from transport-heavy companies.
How equities may respond
Markets often treat Stage 1 as a rotation, not a crisis. Energy producers, oil services and some commodity names may benefit. Airlines, retailers, chemicals, logistics and consumer discretionary stocks may weaken. In the UK, the FTSE 100 can be cushioned by energy exposure and dollar earnings, while the FTSE 250 is usually more exposed to domestic cost pressure.
Stage 2 — “There Is No Shortage”
This is the politically interesting stage. Fuel is still broadly available, but the system is under strain. The government starts coordinating with industry. Airlines may consolidate flights. Refineries may be asked to produce more of a particular fuel. Officials reassure the public that there is no shortage. The UK is broadly here now, especially in aviation.
Listen for… The key phrases are: “no current shortage,” “no need to panic buy,” “supplies remain stable,” “industry is well prepared,” and “contingency planning is under way.”
Watch for… Flight cancellations, government meetings with fuel suppliers, and warnings from transport companies. The UK has already allowed airlines flexibility to consolidate or cancel flights.
How equities may respond
This is the stage where complacency can be dangerous. Markets may still believe the problem is contained. Airlines, travel, leisure, logistics, food retail, construction and chemicals become more vulnerable. Globally, import-dependent Asia and Europe tend to suffer more than oil-producing economies. The phrase “no shortage” is not proof of safety. It is a sign that the issue has become sensitive enough to require reassurance.
Stage 3 — “Please Behave Responsibly”
The government moves from reassurance to demand management. The public is not on ration books yet, but behaviour is being directed. The aim is to stop panic buying, keep critical supply chains moving, and prevent a manageable shortage becoming a major crisis.
Listen for… The language changes to: “avoid unnecessary journeys,” “buy only what you need,” “work from home where possible,” “reduce non-essential travel,” “critical users will be protected,” or “temporary limits may apply.”
Watch for… Purchase limits at petrol stations, restricted opening hours, official guidance to reduce travel, export controls, and fuel-priority lists.
How equities may respond
This is usually when broader equity markets begin to react more sharply. The issue is no longer just higher input costs; it is lower economic activity. Domestic cyclicals, small caps, and banks can sell off.
Stage 4 — “Essential Users Come First”
Government decides which users get priority: emergency services, NHS, food distribution, public transport, utilities, military, agriculture, and critical infrastructure.
For the UK, the clearest sign would be activation of priority-fuel arrangements, designated filling stations, or emergency powers.
Listen for… The phrases become much more serious: “priority users,” “critical services,” “designated filling stations,” “emergency powers,” “fuel allocation,” “temporary rationing,” or “measures under the Energy Act.”
Watch for… Police or military involvement in distribution, priority access for key workers, private motorists deprioritised, non-essential business travel restricted, and government control over where fuel goes.
How equities may respond
This is a recessionary signal. The FTSE 250 would be more vulnerable than the FTSE 100. Globally, markets would start differentiating between fuel-importing economies and fuel-producing economies.
Stage 5 — “The system is no longer reliable”
Fuel cannot reliably reach even some priority users. Shortages begin to cascade into food distribution, hospitals, power backup, ports, airports, agriculture, public transport and industrial production. The question is no longer “what is the oil price?” but “what parts of the economy can still operate normally?”
Listen for… The language may include: “temporary closure,” “emergency-only travel,” “suspension of services,” “regional supply failure,” “national resilience measures,” or “civil contingency response.”
Watch for… Supermarket delivery disruption, airports suspending routes for lack of fuel, freight restrictions, public transport reductions, factory shutdowns, and visible involvement of emergency-planning authorities.
How equities may respond
Equity markets would likely price a severe recession or wartime-style rationing economy. Correlations rise: even good companies get sold. Energy producers may not automatically win, because windfall taxes, export controls, political intervention and demand destruction become serious risks. Globally, capital would probably favour the most energy-secure countries, reserve-currencies, and defence.
There you have it. Be prepared. Hoping it won’t happen is not a strategy.
Over the week Japan is the winner, gaining nearly 5%, responding to the oil price coming off and hopes of a deal in the Near East. Logically, this makes Japan vulnerable if that deal doesn’t emerge in the coming days. The NASDAQ was accompanied by FTSE 250 and China’s CSI index, up 2-2.5%. Brazil was off 1.5%, most others were up a touch.
Industrial metals had a decent weak, up 5-8%, again encouraged by news from the Near East, and assuming less threat of an oil price spike and global recession.
In our “What’s Hot?” feature for funds, the month was dominated by chunky gains driven by the unfolding AI bubble, and includes surrogate tech funds, such as Korea, a stock market dominated by just two stocks. Latam and energy funds feature in the duds, along with some consumer-focussed China funds which have drifted lower.
The “What’s Hot?” sector analysis tells a similar story on tech, with a range of Asian sectors also driven up both by a small number of tech stocks and the oil price coming off its peak, Asia being mostly an oil importer. Oil was obviously a loser, losing 6-10%.
Don’t try and make big short-term market calls. You know that financial markets are very vulnerable. Simply organise your portfolio and your defence (stop-loss), and be prepared to act.