In response to the ongoing Middle East conflict, the United States has issued a second authorization permitting buyers to receive Russian oil shipments already in transit at sea. This action is designed to alleviate pressure from rising crude prices. The U.S. Treasury Secretary stated on social media that the move is intended as a "precisely designed short-term measure," applicable only to oil already en route, which would not generate significant financial gains for the Russian government. The authorization applies solely to oil loaded before March 12, expanding upon a one-month exemption granted to India last week, which covered crude loaded before March 5. The Treasury Secretary had previously hinted that the U.S. could "unlock" more Russian oil to ease price pressures in the petroleum market. He emphasized that any U.S. action benefiting Russia would be "unfortunate" and strictly short-term, expressing a desire for it to be a "very brief period" where Russia might gain.

A senior fellow at the Brookings Institution commented on social media that if oil prices surge again—for instance, due to increased Iranian attacks on tankers transiting the Strait of Hormuz—pressure to relax sanctions on Russia would intensify further.

Concurrently, the administration is preparing a 30-day temporary waiver for the Jones Act. This law mandates that vessels transporting cargo between U.S. ports must be American-built and crewed. If implemented, the waiver would allow foreign tankers to participate in domestic energy transport, facilitating the movement of fuel from the Gulf Coast and other U.S. regions to East Coast refineries. Informed sources indicate this potential measure aims to boost domestic fuel transport capacity, thereby mitigating energy price increases driven by geopolitical conflicts.

Furthermore, on March 11, the U.S. Department of Energy announced that the administration has authorized the release of 172 million barrels of crude oil from the Strategic Petroleum Reserve starting next week, countering price spikes triggered by U.S. and Israeli airstrikes on Iran. The release, scheduled over approximately 120 days, is part of a broader effort. The International Energy Agency stated on March 11 that 32 member countries have unanimously agreed to release 400 million barrels from their strategic reserves to address global supply tightness resulting from the military actions. However, this historic coordinated release has failed to quell market anxieties. Iran's Supreme Leader, in his first statement since assuming the role, vowed not to abandon revenge and confirmed the continued closure of the Strait of Hormuz. As of the latest update, Brent crude remains near $100 per barrel.

The surge in international oil prices has significantly impacted U.S. gasoline costs. Latest data from the American Automobile Association on March 11 shows the national average gasoline price has risen to $3.58 per gallon, the highest level in over 21 months. Over the past week, prices increased by 38 cents, and over the past month by 64 cents, marking the largest weekly and monthly gains since March 2022. Current prices are approximately 22% higher than a month ago. With the Strait of Hormuz blocked, Asian refiners are unable to access crucial crude supplies typically shipped through the passage, leading some to consider reducing crude processing rates. Meanwhile, U.S. refiners are transitioning from producing winter-grade gasoline to more expensive summer-grade fuel, a seasonal shift that typically pushes prices higher in the spring.

Gasoline prices are a key indicator of inflation for American consumers. Although overall prices remain below the historic peak of over $5 per gallon following the outbreak of the Russia-Ukraine conflict in 2022, the rapid increase is sufficient to raise market alarm. The swift rise not only challenges the administration's core political pledge to curb inflation but also casts a shadow over its economic agenda ahead of the midterm elections. Analysts suggest sustained oil price increases could adversely affect the ruling party in the November elections, where control of Congress is at stake, as voters are already discontented with high living costs and the administration's economic management.

Critically, soaring oil prices conflict with the administration's goal of reducing government borrowing costs. The persistent push for Federal Reserve interest rate cuts is partly driven by an aim to alleviate the approximately $1 trillion annual federal debt burden. However, rising oil prices are fueling concerns about resurgent inflation, dampening expectations for Fed rate cuts and pushing up U.S. Treasury yields. Although Wednesday's U.S. CPI data for February met expectations, indicating stable price trends, it did not reflect the impact of the oil price spike from the Middle East conflict. The market widely believes the inflationary effects of energy price volatility will likely manifest in CPI data over coming months, becoming a significant uncertainty for U.S. inflation trajectory.

As energy prices rise and inflation worries intensify, expectations for Fed rate cuts are noticeably cooling. Traders have largely abandoned anticipations of an early summer rate cut. Prior to the Middle East conflict, the market generally expected a 25-basis-point cut in June, with possible additional cuts in September, and even up to three cuts within the year if economic conditions allowed. This outlook was based on a gradually cooling labor market, receding inflation, and the upcoming new Fed Chair. Data from CME's FedWatch Tool previously suggested a gradual shift toward accommodative monetary policy. However, with escalating Middle East tensions driving oil prices higher, market expectations have shifted significantly. Investors broadly believe that, amid potential further inflationary pressure from energy costs, the Fed will prioritize inflation control in the near term. Economists at Goldman Sachs noted in a Wednesday report that "a higher inflation path will make it harder for the Fed to start cutting rates soon," delaying their forecast for the first cut from June to September, though they still expect at least one cut by the end of 2026. Some market participants are more cautious; latest pricing in the federal funds futures market shows traders have largely ruled out a September cut, now anticipating only a potential cut in December, with further reductions pushed to 2027 or early 2028.