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On social media, President Trump announced an “energy ceasefire” between Russia and Ukraine. President Zelensky expressed surprise at the announcement but later said he would support such a deal if Russia agreed to it. The announcement mirrored a similar energy ceasefire announced by President Trump in mid-September. By yesterday, it was clear that the ceasefire was an illusion, with President Zelensky telling the Financial Times that Ukraine would restart strikes on Russia’s oil refineries. Zelensky said, “the block [on attacking refineries] is out. We’re done”. He said strikes on Russian energy infrastructure had been paused for three days to comply with US wishes, during which time Russia continued to attack Ukrainian infrastructure.
The US also announced a deal with Russia to release sanctioned Russian diesel to world markets, with President Trump saying Moscow had agreed to “immediately release” 300,000 tonnes of diesel “to the American and Global marketplace”, with a further 500,000 tonnes next month, and a further million tonnes “immediately thereafter”.
Saudi Arabia’s main airport in Riyadh was struck twice within 24 hours by Iran-backed Houthi rebels, killing at least 14 people and injuring more than 300. This was the deadliest offensive against a Gulf Arab country since the Iran war began in February. Military operations in the Gulf have also intensified, with the US military striking a commercial ship in the Gulf of Oman after it attempted to break the US naval blockade of Iran’s ports. This was the first such attack in more than a month. Commodities platform Kpler said that the “intensified attacks on tankers had driven exports sharply lower” in the past week.
The International Monetary Fund warned that the world’s largest economies must take “urgent action” to reduce their fiscal deficits in an update to its World Economic Outlook. The latest outlook showed that leading economies are facing their biggest budget deficits since the Covid-19 pandemic. The IMF forecast that deficits in advanced economies would reach 5.2% this year. Deficits in the US and China would hit or exceed 8% of GDP in 2026 using a wider range of borrowing measures than some national gauges, including state and local government borrowing. The IMF held or raised economic growth forecasts for most G7 countries, except France. The global growth forecast was marginally upgraded to 3.1% from 3.0% in the April forecast. Growth is expected to accelerate to 3.4% in 2027. The outlook noted that the global economy has weathered the shock of higher oil prices, in part thanks to the AI-related investment boom. The IMF noted that the AI-related boom was “unlikely to lift all economies equally” and that, while aggregate economic growth was stable, it was increasingly concentrated, with 32 countries accounting for 95% of global growth.
By the numbers
US inflation climbed to 3.7% year on year in September, with the Iran conflict driving a rebound in fuel prices. The September figure was up from 3.4% in August and ahead of expectations of 3.6%. Petrol prices were up 9.1% month on month and 34% year on year. Core inflation, which excludes food and energy prices, was also ahead of expectations and rose to 2.6% from 2.4% in August. The September CPI print represents the first acceleration in inflation since May. The data raised expectations of a US interest rate hike this month, with its probability reaching 29%, while the probability of a December hike was priced at 81.5%. Over the next 12 months, markets are pricing in 73 basis points of rate hikes.
China’s exports surged 36.3% in dollar terms year on year in September, exceeding the strong 25% growth seen in August and coming in well ahead of expectations of 25.7%. The growth was led by shipments of electronics driven by the AI capex boom. China reported a trade surplus of $938.1 billion for the first nine months of 2026, up from $875.1 billion for the same period in 2025. China remains on track to surpass 2025’s record $1.2 trillion surplus. Imports rose by 31% year on year, up from 28.2% in August, partly reflecting higher crude oil costs. The strong export performance contrasts with the continued lacklustre performance of the domestic economy, where weak demand persists because of the prolonged property market slump.
A cyberattack targeted hundreds of French supermarkets, with hackers taking over the temperature controls of fridges and freezers and raising temperatures to as high as 50°C. Supermarkets reported significant losses from spoiled food. According to Bloomberg, the refrigeration units, supplied by Danish refrigeration firm Danfoss, use ‘old technologies’ that no longer receive software or security updates.
The Investment Lens
The US ‘energy ceasefire’ and diesel deal with Russia this week are clearly aimed at reducing fuel costs in the US, with the midterm elections now just a few weeks away. We have seen heating oil futures (a proxy for diesel pricing) fall this week, but diesel prices remain close to record highs and oil prices are firmly stuck above $100 a barrel. So, is this too little, too late? Russia had suspended diesel exports after Ukrainian attacks limited output at many refineries, causing fuel shortages in Russia. Russia’s refineries are currently able to run at only 49% of capacity because of the attacks. The initial diesel release of 300,000 tonnes equates to 2.2 million barrels. Is that a lot? Well, no, given that the US alone consumes 3.8 million barrels of diesel a day. This is therefore the proverbial drop in the ocean and is unlikely to shift diesel prices significantly from their recent record highs.
Energy markets remain in flux, and the increased number of attacks on shipping this month has slowed transit through the Strait of Hormuz. Bear in mind that data to the end of September showed oil volumes closing in on pre-war levels, thanks to shuttle transits through the Strait to larger vessels waiting in the Gulf of Oman. This method had also started to be adopted for the more complex transport of liquefied natural gas, with older LNG tankers used to move gas through the Strait under US escort and with their transponders switched off. The LNG is then transferred to larger, more valuable and vulnerable tankers for onward transport. Transferring LNG is more complex than transferring crude oil, given the need for the fuel to be chilled to -162°C and pressurised. Deliveries had recovered to about a third of pre-war levels by the end of September, but Iran has since escalated its attacks on shipping in the region.
The fact that the US has been pressuring Ukraine to halt attacks on Russian refineries and opening world markets to Russian diesel points to domestic concerns over diesel prices, potentially driven more by the political fallout than by the economic and inflationary impact. Such measures will have a limited effect compared with a resolution to the situation in the Strait of Hormuz and the wider Middle East, which would fundamentally change the outlook for global energy prices.
