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A Quick Bridge

Since our last Market Update on March 5th, the conflict has escalated materially. Brent has surged from $83 to above $107, Iran’s Assembly of Experts has named Mojtaba Khamenei as the new Supreme Leader, the IEA has announced a record 400m barrel reserve release, and Iran has begun laying mines in the Strait of Hormuz. We covered the initial escalation and oil surge in Monday’s ‘This Week’s Setup’. This report builds on that.

Executive Summary:

The Middle East conflict has intensified since March 5, pushing Brent crude above $107 amid Iranian mining in the Strait of Hormuz, infrastructure attacks, and constrained Gulf output. Despite the IEA’s 400-million-barrel reserve release (at ~2 mb/d), near-term supply deficits persist, keeping oil in strong backwardation and prices elevated. This has lifted near-term inflation and bond yields, reducing expected 2026 rate cuts to just one (likely September), while raising prospects for deeper easing in 2027 if the conflict resolves or growth weakens. Bitcoin has held resiliently, backed by ETF inflows, positive Coinbase premium, and deeply negative funding rates, positioning it for a potential short-term relief rally to $76k–$78k resistance - though the longer-term outlook remains bearish with a $50k–$63k bottom still anticipated in the coming months.

Chart Title: Brent Crude Oil 4hr Chart

Little to No Signs of an Off-Ramp in the Middle East

The conflict between the US/Israel, and Iran continues to dominate headlines and markets. Overnight, two vessels were attacked in Iraqi waters, whilst Reuters reported on Wednesday that the Islamic Republic had placed about a dozen mines in the Strait - this is despite President Trump saying that there is 'no evidence of this'. By targeting oil infrastructure and the closing of the Strait, which only requires a few drone strikes on several large vessels each day, this puts mounting pressure on the US and Israelis as the price of oil continues to rise. This is then emphasised further by many Gulf countries closing down oil production facilities due to capacity restraints.

Brent Crude Oil has opened higher today, although it's pulling back from these highs. But when looking at the term structure for oil, buyers were willing to pay north of a 30% annualised premium to receive oil today, rather than in 5-6 months i.e., the expectation is that oil prices will be higher in the months to come, and buyers want and need that oil now, and they're willing to pay a premium for it.

Today's higher oil price comes despite the IEA (the International Energy Agency) announcing that they'd strategically release 400 million barrels of oil into the market. The issue is that the flow rate is estimated at 2m barrels/day, so the 400 million barrels will potentially take 200 days to reach the buyers, meaning there'd still be a supply deficit in the short-term, as the release rate can’t keep pace with the shortfall. This only supports the price of oil remaining elevated.

Higher oil prices mean higher inflation, which means higher Bond Yields, which means rate cuts are pushed further out. This is an unsupportive backdrop for risk assets in the short-term.

Long-term, it's a different story. Higher oil prices are inflationary in the short-term, but deflationary in the long-term. Higher prices mean less spending, and therefore, it has a negative impact on the economy. The result of this is that rate cuts are pushed further out. But when they do come, more will come.

What has this done to the rate cut odds?

The market is currently priced for just 1 rate cut in 2026, with the likelihood of that coming at September's Fed meeting.

Chart Title: Target Rate Probabilities for September 2026 Fed Meeting

However, it is now likely that there will be more rate cuts in the first half of 2027, which may even be brought forward if there is a resolution to the conflict in the Middle East in the next 2-6 weeks, and if the inflationary impact of higher oil prices result in a weaker economy - forcing the Fed's hand to then cut.

Bitcoin Holds Up Under the Weight of War

Despite the conflict in the Middle East, Bitcoin has held up relatively well and continues to do so. The Bitcoin ETFs have seen positive inflows over the last two weeks, although a small nominal number.

Chart Title: Bitcoin ETF Flows

Whilst the Coinbase Premium is positive and it has maintained this level for the last week - signals demand in the US in comparison to the rest of the world, historically this is positive for price action.

Chart Title: Bitcoin Coinbase Premium

Alongside this, Funding Rates are very negative across the board.

Chart Title: Major Coins Funding Rates

Despite the negative news flow, the price has held up relatively well and is now squeezing into the $70k-$71k resistance zone. Interestingly, positioning is skewed negatively, with the underlying foundation there for price to move higher, resulting in Shorts being squeezed and sidelined capital chasing back in. This could open a move to $74k, with the price potentially even reaching $76k-$78k.

Should price reach that level ($76k-$78k), we'd expect that to be a local top for price as there a number of resistances between $78k-$84k, these include key cost basis levels, and moving averages.

Our short-term thesis is that an upside breakout is possible, but this is dependent on price getting above $71k, so that's the first key level to watch.

However, we would still view $76k-$78k as a likely local top, where multiple resistances converge, and risk becomes structurally elevated.

Cryptonary's Take

Even though the short-term and medium-term macro outlook isn't constructive for Bitcoin, it's possible that we can see a relief rally in the short-term. This would be driven by negative futures positioning and a positive Spot bid. Should this upside breakout come, we'd expect it to run into resistance between $76k and $78k, and that area will likely mark a local top for price.

Our longer-term macro view remains the same; we expect Bitcoin to bottom between $50k-$63k in the coming months. The geopolitical escalations and the recent tightening in financial conditions only strengthen our view. But, positioning is favourable for a relief rally in the short-term, which we expect to come first, before we see $60k again, and then lower.

Key Dates Ahead

• Mar 17–18: FOMC meeting

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