After the attack on Saudi Arabia, the market remains unusually calm, but soaring diesel cracks pose inflation risks

(1) Cross-asset analysts have pointed out that the market’s response to the attack on Saudi energy facilities appears rather muted. Although oil prices are approaching $100 per barrel, equities and assets such as gold remain relatively calm, suggesting investors may be underestimating the potential impact of this incident. (2) The diesel crack spread is at a historical high, and diesel fuels about three-quarters of freight and commercial transport in the US. Rising prices will be passed onto almost all produced or distributed goods, with sectors such as transport, logistics, aviation, industry, and retail affected first. (3) If energy costs continue to rise and push up inflation expectations, bond yields will face upward pressure, and growth sectors more sensitive to interest rates, such as technology stocks, may be impacted. The chain of volatility transmission across markets is likely much broader than current pricing reflects. (4) Analysts believe this geopolitical event is ill-timed for the refined oil products market. With crack spreads already high, any additional supply-side disruptions could magnify price effects, feeding back into broader asset pricing through real economy channels. (5) Attention now turns to the speed at which energy prices are passed onto end consumers and to central bank policy responses. If inflation expectations heat up significantly, the market may reprice the interest rate path, and there is a systemic risk of elevated cross-asset volatility.