DBS Group Research said stagflation risks are expected to shape discussions at the IMF and World Bank Spring Meetings in Washington, D.C., after a US move involving the Strait of Hormuz. It said the IMF World Economic Outlook (WEO), due on 14 April, is likely to cut global growth forecasts.
The report described President Donald Trump ordering the US Navy to blockade the Strait of Hormuz by stopping vessels in international waters that paid Iran a toll for safe passage. It also referred to Trump’s 17 March address in which NATO and Asian security partners were called “free riders” who did not “share the burden”.
Stagflation Risks And Global Policy Focus
It said the action followed a US Supreme Court ruling that removed Trump’s ability to use the International Emergency Economic Powers Act (IEEPA) for broad-based tariffs. The report said the administration is instead using energy security measures aimed at trade deficit partners in Europe and Asia.
It said Asia may be the most exposed region because of heavy reliance on Hormuz-linked industrial inputs. IMF Managing Director Kristalina Georgieva said prices may take time to return to levels seen before Operation Epic Fury began on 27 February.
Looking back at the turmoil of early 2025, we saw how the Strait of Hormuz blockade triggered the exact stagflationary shock many feared. The disruption, which began with Operation Epic Fury, caused a massive energy price spike that rippled through the global economy. This is a crucial backdrop for our current market positioning.
The CBOE Volatility Index (VIX) surged above 40 in April 2025, reflecting deep market uncertainty as the IMF downgraded its global growth forecast. As predicted, Asian economies were hit hard, with Japan and South Korea entering technical recessions in the second half of last year. US inflation, measured by CPI, subsequently peaked at 5.9% in the third quarter of 2025.
Positioning For Volatility And Range Bound Markets
Central banks were caught in a bind, forced to raise interest rates throughout the second half of 2025 to combat the supply-side inflation. This decision, while necessary to tame prices, further squeezed economic activity, particularly in manufacturing. We are still living with the consequences of those policy choices today.
Today, with inflation still stubbornly above the Fed’s target and growth anemic, the path for monetary policy remains highly uncertain. This environment makes options on short-term interest rate futures particularly compelling. They offer a way to trade the ongoing debate between further hikes to crush inflation or potential cuts to stave off recession.
We are also seeing elevated volatility in energy markets, even a year after the initial crisis. Brent crude prices, which briefly touched $140 per barrel last year, have settled but remain jumpy around $92 on any new geopolitical headline. Using long-dated call and put spreads on crude oil futures can help manage exposure to these persistent price swings.
This stagflationary echo also suggests equity indices may remain range-bound for some time. We are therefore positioning using strategies like iron condors on the SPX. This approach allows us to profit from a lack of strong directional movement and continued high implied volatility.
