From the Desk

In commodity supply interruptions, there are usually two phases. First, the immediate impact as markets assess inflation pressure and a view on how long it could last. However, when the episode wears on without an obvious fix to higher prices, markets quickly shift to concerns about how it could derail growth. Economists euphemistically call this “demand destruction.” But when it happens with intensity it can become a serious hit to economic growth.

This is already happening in Asia as natural gas prices spike. Many countries in the region have already become proactive with energy saving strategies including adopting a four-day work week, moving education online, more work from home and substituting coal for natural gas. Some are using rolling power outages. 

Across sectors, aviation is showing strain. With jet fuel prices soaring, large carriers in Asia are already adding surcharges to ticket prices. They are also culling flights and dropping uneconomic routes. Some countries are already restricting the amount of car usage. Substitution is also under way as countries fire up coal plants to help with electricity supply. Some households are also switching to coal and wood for cooking and heating. 

In all these conservation efforts some governments are prioritizing household energy availability over commercial needs, which underscores how concerned they are about public unrest. The other outcome governments are trying to avoid is panic buying and hoarding, which not only sends high prices higher but further intensifies the scarcity for more households.

Parts of Asia are an early alert for what a prolonged energy crunch could look like. Europe is heavily dependent on energy imports and could be the next to adopt energy conservation, while North America is more energy independent.

Sources: Bloomberg, The Financial Times, Atlantic Council 2026

Short term U.S. government debt securities are performing below expectations and may attract increased attention from investors as markets navigate heightened volatility including uncertainty around the Strait of Hormuz.

With energy prices rising, the market may concern itself with the Federal Reserve reversing course and raising short-term interest rates. The Fed can prove us wrong, but will likely need to explain why higher energy prices – that could slam the breaks on the economy (read Niall Ferguson this week) and are a non-monetary factor affecting the inflation rate – would be a reason for the Fed to raise rates with the goal of tempering inflation. Even if the storm at the edge of the Gulf of Oman raises crude prices to $150 a barrel (currently about $88), it may add pain on top of pain for the Fed to raise rates, tightening credit into a possible recession induced by energy costs.

The short end has potential income attached and potentially less risk, except opportunity lost if equities rally on the war ending or inflation recedes driving down longer-term rates.

Over the past week, an unusually intense heatwave shattered hundreds of temperature records across the western United States, driving temperatures roughly 15–35°F above historical norms across large parts of California and the Southwest. The timing is critical: sustained heat in March accelerates snowmelt precisely when western snowpack would normally still be building. Scientists characterize these episodes as “snow‑eater” heatwaves, which can sharply compress the runoff season.

To put it in simpler terms: there will be a lot less water available when it will be needed the most this year. It’s been a record‑dry winter across much of the western United States. By early March, federal drought monitors identified snow drought conditions across every major western river basin. These snowpack shortfalls raise material concerns for 2026 water supply, agricultural allocations and hydroelectric output during summer peak demand. On top of this, the extended heat means wildfire season is also expected to start earlier.

When hydropower declines, the power systems in California, Oregon and Washington typically lean more heavily on natural gas generation and increased electricity imports. There is considerable cross-border electricity trading, but Canada is not a guaranteed backstop. British Columbia’s provincial snowpack is near average but uneven. Canada, like the U.S., is seeing a growth in electricity demand from multiple sources, including industrial re-shoring, data centers and electric vehicles. As a result, any surplus exports to the western U.S. in 2026 are likely to be opportunistic rather than ample.

Sources: Canada Energy Regulator, NOAA, US Bureau of Reclamation, U.S. Energy Information Administration