Brent and WTI are up nearly 12 percent this week after renewed fighting between the United States and Iran constrained traffic through the Strait of Hormuz and raised the possibility of disruption along the Red Sea route. The two-year Treasury yield closed Thursday at 4.16 percent, down from 4.26 percent on Monday, while the five-year breakeven inflation rate fell from 2.31 percent to 2.24 percent and the ten-year breakeven slipped from 2.26 percent to 2.22 percent. The dollar was also lower for the week.

Slower tanker traffic, higher insurance costs and the risk of lost supply raise the price of replacement barrels immediately. A sustained rise in Treasury yields would require those higher costs to last, reach gasoline and diesel, raise freight and airfare prices, and begin influencing inflation expectations and Federal Reserve policy.

The latest inflation reports made that outcome less immediate. June consumer prices fell 0.4 percent, core prices were unchanged and gasoline dropped 9.7 percent. Producer prices also declined, with producer energy prices down 6.4 percent and gasoline down 12 percent. Those reports covered the earlier decline in energy rather than this week’s reversal, but they showed less existing inflation pressure for higher oil to build on.

Brent near $84 is also a different problem from Brent above $120. The 12 percent weekly increase is large, but crude remains well below its earlier wartime peak, and the global economy has already operated with oil around current levels. The move could become more serious if the disruption persists, but it hasn’t yet produced the kind of absolute price that would force a broad reassessment of inflation and growth.

Weak demand from China has limited the pressure. Its crude imports have fallen from a five-year average near 11.5 million barrels per day to roughly 8 million during the conflict, leaving more supply available to other buyers. The Energy Information Administration’s July outlook also assumed that improving production and restored trade flows would reduce global inventory draws during the third quarter and move the market toward oversupply next year. Renewed fighting may undermine that forecast, though the expected recovery in supply helps explain why crude remains far below its earlier conflict highs.

The tighter problem is refined fuel. U.S. gasoline inventories are 8 percent below their five-year seasonal average, crude stocks are 6 percent below average and distillate inventories are 11 percent below average. Refining margins have reached record levels, while average gasoline prices have risen to roughly $3.95 per gallon. With those inventories already thin, a prolonged disruption could reach consumers and businesses quickly through gasoline, diesel, freight and airfares.

Dallas Fed President Lorie Logan has already warned that renewed Middle East hostilities could reverse recent fuel-price relief, and she has argued that policy may need to become modestly tighter. Fed funds futures still imply roughly one quarter-point of tightening by December, so another increase remains possible. This week’s oil rally simply hasn’t pushed that expectation any higher after the softer CPI and Some of the decline in nominal Treasury yields may reflect defensive buying during the semiconductor and equity selloff. Yields also move with growth expectations, real rates, Treasury supply and demand for liquid collateral, which makes market-based inflation compensation more useful here. It has fallen this week, suggesting investors haven’t demanded more protection against rising prices because of the increase in crude.

That could change if gasoline moves materially above $4, inventories keep falling, freight and insurance costs rise, and more Fed officials call for near-term tightening. A two-year yield above Monday’s 4.26 percent close and a five-year breakeven above 2.31 percent would provide clearer evidence that higher energy costs are beginning to alter the policy outlook. If Hormuz traffic normalizes, refining margins retreat and Brent falls back below roughly $80, the pressure may ease before it reaches the Fed. Until fuel prices and shorter-term yields rise together, higher crude has not yet narrowed the Federal Reserve’s choices.