Half the Oil, the Same Contract Dates
Crude has risen 37% since the strikes on Iran, and the reassurance offered most often is five decades of falling oil intensity. The decline is real, and it measures barrels rather than borrowing terms.
By the team at Banyantree Investment Group
This essay is adapted from analysis first shared in our Monthly Investment Letter of 25 March 2026.
The world produces a unit of economic output today on roughly half the oil it needed in 1979.¹ At 3.43 pm on 24 March, Australia's Parliament was asking its energy minister whether the states had told Canberra to prepare a fuel-rationing plan.²
Seven minutes later came a second question: would he invoke the Liquid Fuel Emergency Act, the legislation that lets the Commonwealth declare a national fuel emergency and control the supply of fuel. He said he did not envisage using it. He also said the power was there if it were needed. By then the government had already let fuel suppliers draw down up to a fifth of their baseline stockholding obligations, some 762 million litres of petrol and diesel, and regional shortages were appearing even as ships kept arriving.² Australia still had fuel. The problem was where it was, how fast it could be moved, and how much strain an import system built for ordinary weeks could take.
Hold those two pictures side by side, because most of the commentary since the strikes has been holding only the first. The reassuring chart has been everywhere for a month: oil intensity of global GDP falling steadily for five decades, a slow compounding dividend from more efficient engines, buildings, and industrial processes, and from an energy mix that leans harder on gas and renewables with each passing year. The conclusion drawn from it is that this is not the 1970s, that the same barrel now buys less economic damage than it used to, and that the shock working through crude markets should land more softly than the episodes investors keep reaching for as precedent. We broadly agree with that conclusion. We also think it answers a narrower question than the one this war is asking.
The questions filling allocator conversations since late February have been reasonable ones. Is this the 1970s again. How high does crude go if the Strait stays shut. Whether to buy the volatility or wait it out. The more useful question sits underneath all of them: where does an oil shock actually land in an economy that needs half the oil?
Give the comfortable answer its full weight first. The intensity decline is real, it is large, and it is not the whole of the case for calm. JPMorgan's equity strategists have put arithmetic on the earnings channel: if US$120 oil were sustained for six months, they estimate roughly US$12.7 would come off annual S&P 500 earnings per share, about 4% of the consensus US$317.³ Four per cent is a bad quarter. Markets digest bad quarters. And the market has treated this one as exactly that. Despite a month of falling indices, about 48% of NYSE stocks were still trading above their 200-day moving averages in late March; in the Covid selloff, and again in April last year, that figure went below 20%.⁴ There has been no capitulation, and the composure is defensible. Corrections led by geopolitics have historically been brief, and a market that has watched the past year's confrontations resolve through de-escalation has learned to fade the headline.
So the case for calm stands on three legs. The economy needs less oil, the earnings arithmetic is modest, and history says these episodes pass. Each leg is sound. Our reservation is about what none of the three can see.
Oil intensity is an average: barrels consumed across the whole economy, divided by everything the economy produces. Averages are honest, and averages are soothing, and they say nothing about the margin. Rationing decisions get made where a specific cargo is late to a specific terminal in a specific week, and diesel misses the trucks that move food. That is the week Australia's Parliament was preparing for. The country's economy is far less oil-intensive than it was in 1979, and across the same decades it closed all but two of its refineries and came to rely on imported crude and refined fuel, much of the latter refined in Asia from Gulf crude, with normal traffic through the Strait of Hormuz now all but halted. It held roughly five weeks of petrol at home in March, and it has, separately, run below the 90-day import-cover obligation it owes the International Energy Agency every year since 2012.² Efficiency reduced the oil the economy needs. It did not shorten the sea route or reopen a refinery. There is a second edge to the same period: while efficiency was halving the average, the systems that move and store fuel were growing leaner on their own economics, inventories, just-in-time distribution, spare refining capacity. The system needs fewer barrels and tolerates missing ones less gracefully. The average outcome has grown milder while the tail has stayed about where it was.
The margin, though, is the smaller of our two reservations. The larger one is that intensity describes only one of the two channels a supply shock can travel. It measures the output channel: fewer barrels per unit of GDP, less production lost to a dearer barrel, and on that channel the comfort is earned. What it cannot see is a date. It has nothing to say about when a regulated tariff resets, when a bond matures, when collateral must be posted, when a borrower has to return to the market. So watch what moved in the four weeks to 25 March, and hold the question of cause open for a moment. Crude, first: West Texas Intermediate from US$66.96 a barrel on 27 February to US$91.51 on 25 March, up 37%.⁵ Then the two prices that sit underneath every other price in the system: the US ten-year Treasury yield from 3.97% to 4.33%, and the Federal Reserve's broad dollar index from 117.82 to 120.13, a rise of about 2%.⁵ Cause is genuinely unsettled. Long yields answer to growth, Treasury supply, expected policy, and the term premium; the dollar answers to rate differentials and the demand for shelter; and in the early weeks of a war a safe-haven bid can pull long yields the other way entirely. The readings are simply what they are. For context, the ten-year now sits in the upper reaches of the roughly 3.9% to 4.5% band it has kept for the past twelve months, and the dollar index, which closed 2025 at 120.12 and spent the first eleven weeks of this year declining, has taken all of it back in four.⁵
A borrower approaching the market does not get to wait for the causation debate to settle. It faces whatever prices prevail on the day its debt falls due. And the chain that could connect the barrel to those prices is short and familiar: a sustained rise in oil feeds headline inflation and, more importantly, inflation expectations; expectations narrow central banks' room to cut; pricing for cuts comes out of the curve and long yields back up; capital reaches for the dollar, partly as shelter and partly because a Federal Reserve boxed in on cuts pays better than the alternatives. Each link is unremarkable. Together, for as long as they hold, they operate as a tax collected globally and immediately: a higher long yield raises the floor under every discount rate in every market at once, and a stronger dollar leans on every unhedged dollar borrower while lifting the local price of oil at the very moment its dollar price is spiking.
Put one balance sheet under the tax, because in the aggregate it stays abstract. Picture a power utility in an oil-importing economy, illustrative rather than any particular company. Its fuel contract is indexed to oil and settled monthly in dollars: US$10m a month before the shock. Its customer tariff resets once a year, on the regulator's calendar. And it carries a US$500m bond maturing at the end of March, to be replaced with another seven-year issue. Run the four weeks through each line. If oil-linked costs rise 37% and hold for three months before retracing fully, the fuel bill costs an extra US$11.1m: real money, and finite. Now the bond, and load every assumption in the borrower's favour. The credit spread does not widen, the currency does not move, the market stays open, the full amount refinances, and only the 36 basis points the ten-year added passes into the new coupon. That is US$1.8m a year, a nominal US$12.6m across the seven-year term, fixed once, in the week the maturity date forced the company into the market, and payable until 2033.⁶ Three months of dearer fuel washes out of the income statement. The coupon written in the same weeks outlasts the war that was blowing while it was set. The fuel invoice, the tariff, and the maturity all belong to one company; they simply do not reset together, and the maturity is the only one of the three that cannot be argued with.
Notice what the arithmetic does to the obvious objection. Thirty-six basis points is noise as yield moves go; the ten-year moved fifty in a single week last April and markets absorbed it. All true. What the maturity date gives the small move is duration. On assumptions loaded in the borrower's favour throughout, four weeks of yield noise left a bill of the same order as the entire three-month fuel spike, and the fuel bill expired with the spike while the coupon runs to 2033. A move in crude taxes the users of oil for the duration of the spike. A move in the price of money taxes every contract rewritten while it lasts, and it gets carried out of the episode inside the contracts.
The utility is one borrower, and its maturity is one entry in a calendar it does not control. Other borrowers with no relationship to it, in different industries and different countries, will refinance while the same conditions prevail. What they share is a window in which contracts have to be rewritten, and each bond priced before conditions ease preserves part of the episode for the life of the debt. The dollar widens that population considerably. At the end of September 2025, dollar credit to non-bank borrowers outside the United States stood at approximately US$14 trillion, over half of it in debt securities with maturity dates of their own.⁷ The figure measures scale, and only scale: it contains every variety of currency, hedge, and dollar revenue, and it cannot be multiplied by anything to produce a loss. It marks the scale of the system in which an oil-linked cost and a dollar liability can arrive in the same quarter, each on its own schedule. The aggregate outcome, if the pair stays elevated, is undramatic and cumulative: a run of ordinary refinancings completed on worse terms, none of them reopened when the ceasefire comes.
The two channels run on different clocks. The output channel runs on the war's timetable: damage accrues with each week of disruption and stops accruing when the disruption stops, which is why the composed view leans so hard on these episodes being short. The financial channel keeps its own time. A lender can write a higher coupon into a seven-year bond after crude has already begun to fall. A government can keep issuing debt to fund energy support it has already promised. A margin call must be met before anyone knows whether the crisis has another week in it. A ceasefire announcement does not, by itself, retrace yields or the dollar; each answers to its own set of drivers, and the one an oil shock works through, inflation expectations, re-anchors slowly, because households and price-setters update on the fuel bills in front of them, which lag the headlines by months. The commodity can reverse before the handoff does.
That difference in clocks is how we read the market's composure. Breadth in the high forties is consistent with a market treating this as a short war and a contained earnings hit, and if that is the bet, history is on its side. What we doubt the composure has weighed is the handoff: the possibility that the episode stops being about barrels and becomes about the contracts written while the pair stays up. While the tax accrues slowly, markets can carry it. If funding ever tightens far enough to start forcing sales from holders who have nothing to do with oil, forced sellers set their own prices.
We have watched an energy shock change channels before, and recently. In September 2022 the United Kingdom was living through the gas shock that followed Russia's invasion of Ukraine. The acute damage, when it arrived, came through the gilt market, while the factory closures and fuel queues the country had braced for never quite materialised. A fiscal package designed to shield households from energy prices collided with a nervous bond market, thirty-year gilt yields rose more than a full percentage point inside a few days, and the leverage inside pension hedging programmes turned the rise into collateral calls and forced sales, until the Bank of England stepped in with emergency purchases to head off what it described as self-reinforcing fire-sale dynamics.⁸ Trace who carried the cost. Households handed it to the state, the state's response handed it to the gilt market, and the gilt market handed it to structures that had to find cash that week; each handoff changed what kind of risk it was. The analogy has limits. That episode needed an accelerant, leveraged pension structures, and a trigger, an unfunded fiscal announcement, so ask what would play those roles today. What it demonstrates is the channel: a modern energy shock did its worst damage in the market for a government's debt, weeks after the commodity move, in a place almost nobody was watching. The energy shock stood at the head of the chain, a fiscal decision pulled the trigger, and the bond market was the event.
The accelerant, at least, has a candidate with a name. Inside the Treasury market sits the basis trade: hedge funds holding cash Treasuries against short futures positions, financed overnight in the repo market at leverage that commonly starts around twenty times and runs far higher. Official estimates have put the trade's gross exposure above US$1 trillion, with leveraged funds' short Treasury futures near US$1.2 trillion at the end of 2024, and Federal Reserve officials spent last year describing it as a vulnerability of the world's benchmark market.⁹ The structure has now been tested twice in six years, with two different results, and the second is the more instructive. In March 2020 the trade did unwind: strains in Treasury and repo markets turned hedged positions into forced sales while equities were crashing, and the selling stopped only after the Federal Reserve bought roughly a trillion dollars of Treasuries in three weeks. In April last year the test came again, and the trade held. The ten-year rose roughly fifty basis points in a week, touching 4.5%, and the basis positions stayed largely intact, because repo went on functioning in an orderly way; the deleveraging that did occur showed up mainly in a neighbouring swap-spread strategy.⁹ April 2025 is the reading to internalise, and it cuts against the simple version of our own concern: a yield level, on its own, forces nothing. What converts a level into forced selling is funding. Repo rates and haircuts, futures margins, the behaviour of the basis itself, dealers' willingness to intermediate: that is where an unwind announces itself, and while those stay orderly the market can absorb a great deal of rate volatility without producing a forced seller. The trade has no view on oil. It answers to funding, and an oil shock working through inflation expectations is one of the ways funding conditions can eventually be reached. Nothing in March's readings says anything of the kind is under way. We name the trade to know where to look, and what to look at is the plumbing, ahead of any level on any chart.
The objection we keep putting to ourselves is that all of this has been survivable before. The ten-year was pressed to 4.5% a year ago and was back near 4% by October; the dollar spent the whole of last year falling from a record; a reader who fades every warning will be right most years. Stacked behind that is a second objection: the move may be self-limiting, since yields high enough to hurt will slow the economy, a slowing economy needs less oil, and crude eventually gives back the spike that started the chain. Both objections are fair, and the second is probably even true. Our answer is about sequence. Demand destruction does cure an oil shock, but it is a cure that works by causing the disease: the slowing that brings crude down arrives together with tighter money, a dearer dollar, and thinner liquidity, and portfolios experience the treatment before they experience the relief. As for the first objection, it is why we hold this as a posture and a set of readings rather than a prediction. Caution through an episode that fades costs a little carry. If the handoff comes, the bill for confidence arrives all at once, and the asymmetry between those two outcomes, not any estimate of their probability, is what earns the caution.
So the readings, in the order we would check them. The plumbing first: repo spreads and haircuts, Treasury futures margins, Treasury-market volatility, and the basis itself, because that is where a forced seller forms before any front page finds him. Then the pair, for context rather than as triggers: the ten-year against the roughly 4.5% top of its year, a level April 2025 showed it can touch without breaking anything, and the dollar index against the 120 it ended last year at and has just regained. Then breadth, standing watch over the composure itself: a slide from the high forties towards the sub-20% territory of genuine capitulations would say the calm has cracked. And through all of it, the divergence test, the single most informative sequence available: crude easing on ceasefire talk while yields and the dollar hold their ground or keep rising. No single reading proves cause, but that one would be the strongest evidence that the episode no longer needs the war. The same gauges can clear the concern just as cleanly. Crude retreating while the pair falls away and repo stays quiet would say the two clocks are stopping together, and March goes into the books as a costly interruption rather than a financial event.
One principle follows for how capital is held through weeks like these. The option value of liquidity is highest exactly when other holders of good assets are being marched to market by their calendars, and its value, when it finally shows, comes from someone else's timetable: the borrower at a maturity and the fund at a margin call cannot wait, and the investor holding cash can. The cost is real and worth stating plainly. If the episode resolves quickly, cash lags the recovery, and the carry forgone through an episode that fades is the premium paid. On the day a handoff arrives, it is what every forced seller is searching for.
In 1974 you could photograph an oil shock. The queue ran down the block and around the corner, and everyone standing in it could see how bad things were. The queues forming now are harder to see. One was outside the petrol stations of oil-importing Asia in March, and inside an Australian question time, and it is real, and it is still the smaller story. The other forms quietly, at maturities and margin calls and repo desks, wherever the price of money is doing the work the price of petrol used to do. Half the oil halves the shock you can photograph. The other kind is written into dates the world has already printed on its contracts, and it will go on collecting long after crude has left the front page.
General information only. Not personal advice. Past performance is not indicative of future performance. Examples are illustrative. This material is intended for wholesale and professional investors.
Notes
1. World Bank data show oil intensity of global GDP falling from 0.12 tonnes of oil equivalent per unit of GDP in 1970 to 0.05 in 2022. Columbia University's Center on Global Energy Policy calculates a 56% decline in barrels per US$1,000 of GDP between the 1973 peak and 2019, with the fall measured from the end of that decade close to half. The chart circulating widely in March 2026 was JPMorgan's rendering of the same long-run decline.
2. Australian Parliament question time, 24 March 2026: questions to the energy minister on fuel-rationing contingency planning and on possible invocation of the Liquid Fuel Emergency Act 1984, which has never been triggered; the minister said he did not then envisage using it. On 13 March 2026 the Australian Government announced that fuel suppliers could draw down up to 20% of baseline minimum stockholding obligations, equivalent to as much as 762 million litres of petrol and diesel, amid regional shortages and supply-chain pressure. Government fuel statistics reported roughly five weeks of petrol stocks in the country in March 2026; separately, Australia has reported below its 90-day International Energy Agency obligation, measured across crude and refined stocks in days of net imports, every year since 2012. Two refineries remain in operation following the 2021 closures, per the Department of Climate Change, Energy, the Environment and Water's Australian Petroleum Statistics.
3. JPMorgan Equity Strategy & Quantitative Research scenario, as publicly reported in March 2026: US$120 oil sustained for six months would reduce annual S&P 500 earnings per share by approximately US$12.7, about 4% of consensus EPS of US$317. The sensitivity is a scenario rather than a forecast.
4. Bloomberg data on the share of NYSE-listed stocks trading above their 200-day moving averages: approximately 48% in late March 2026, against readings below 20% in March 2020 and April 2025; the March 2020 trough reached single digits. Breadth establishes the extent of selling, not the market's precise expectations.
5. US Energy Information Administration daily spot prices: West Texas Intermediate at US$66.96 on 27 February 2026 and US$91.51 on 25 March 2026. Federal Reserve H.15 and H.10 releases: the 10-year Treasury constant-maturity yield at 3.97% and 4.33% on those dates, having traded approximately between 3.9% and 4.5% in the twelve months to 25 March 2026, with the high set in April 2025; the nominal broad US dollar index at 117.82 and 120.13, having closed 2025 at 120.12 after declining through that year from a record just above 130 in January 2025. These are contemporaneous readings; no causal claim is made.
6. Banyantree illustrative calculation. A US$10m monthly fuel cost rising by 37% for three months produces US$11.1m of additional expense. A 36-basis-point increase applied to a US$500m bond adds US$1.8m of annual interest and US$12.6m of nominal interest over seven years. The calculation assumes full refinancing, an unchanged credit spread, one-for-one pass-through of the Treasury movement, no currency depreciation, no hedging, no change in fuel consumption, and full reversal of the fuel increase after three months. Discounted at the replacement yield, the additional interest has a present value of approximately US$10.7m, of the same order as the fuel expense. The calculation compares costs on one illustrative balance sheet and does not attribute the Treasury movement to oil.
7. Bank for International Settlements global liquidity indicators: US dollar credit to non-bank borrowers outside the United States of approximately US$14 trillion at end-September 2025, the latest reading, with about 55% in debt securities, up from US$13 trillion at end-June 2024.
8. Following the UK fiscal announcement of 23 September 2022, 30-year gilt yields rose by more than 100 basis points within days; on 28 September 2022 the Bank of England announced temporary purchases of long-dated gilts, citing the risk that collateral calls on leveraged liability-driven investment funds would produce self-reinforcing fire-sale dynamics and a material risk to UK financial stability.
9. Federal Reserve and BIS analyses, 2023 to 2025: gross exposures in the Treasury cash-futures basis trade estimated above US$1 trillion at times; leveraged funds' short Treasury futures positions near US$1.2 trillion at end-2024; repo financing at leverage commonly of 20 times and higher; and a Federal Reserve Governor's public identification of the trade as a Treasury-market vulnerability in November 2025. For March 2020: Federal Reserve staff estimates put hedge fund Treasury sales during the selloff near US$200 billion, with Federal Reserve purchases of roughly US$1 trillion of Treasuries over the following three weeks. For April 2025: the 10-year yield rose approximately 50 basis points in the week following the 2 April tariff announcement, reaching roughly 4.5%; subsequent official analysis, including a May 2025 Federal Reserve Governor's speech and the May 2025 FOMC minutes, found cash-futures basis positions largely stable through the episode, with repo markets orderly and deleveraging concentrated in swap-spread and related relative-value positions.
