The conflict enters week five. Trump issued his strongest threat yet: Iran has 48 hours to reopen the Strait of Hormuz, or US forces will destroy Iran's power grid and desalination infrastructure. Iran responded by threatening a complete blockade and strikes on US and Israeli targets across the entire Gulf. Both sides are escalating simultaneously. Markets are being forced to reprice for worst-case scenarios.

Last Friday, the S&P 500 closed at 6,506 (-1.51%), Nasdaq at 21,648 (-2.01%), Dow at 45,577 (-0.96%) -- a fifth consecutive weekly loss. The Nasdaq is now 9.3% below its January high, approaching correction territory. ANZ revised its call for the first Fed cut from June to September. Markets have begun pricing year-end rate hike odds at approximately 12%.

ANZ Chief Economist Richard Yetsenga described the latest developments as a concerning escalation, warning that severe market reactions could influence Trump's policy decisions. ANZ Senior Commodity Strategist Daniel Hynes argues that global energy markets are undergoing structural reorganisation -- not just a price shock, but a physical rerouting of supply chains. This structural shift will not reverse quickly, even if Hormuz reopens.

China is demonstrating a distinctly different response. Having purchased and stockpiled aggressively in January and February -- before markets fully priced the Iran conflict -- China now holds an estimated 1.2 billion barrels of strategic reserves, covering approximately 108 to 130 days of import needs. Russian crude now accounts for over one-fifth of total Chinese oil imports, materially reducing direct Hormuz dependence.

But China is not immune. Beijing has ordered refiners to cut fuel exports. Yuan stability and capital flows face additional pressure from the dollar above 100. And global growth slowdown will hit Chinese exports. China is a structural beneficiary of this crisis -- not a fully insulated one.

The RBA's semi-annual Financial Stability Review explicitly named the Middle East conflict as the primary risk of a "material adverse shock to the domestic economy." The RBA now forecasts inflation peaking in mid-2026: trimmed mean at 3.7%, headline CPI at 4.2% -- both higher and later than previously projected, returning to the 2-3% target band only by mid-2028. Whether May brings a third consecutive hike depends entirely on how this week unfolds.