October 12 – Geopolitics are the feature to start the week, with major weekend escalations in the Middle East and a surprising U.S. / Russian agreement throwing a wrench into Black Sea diplomacy. Stock futures are pointing to a quietly mixed open as traders attempt to digest the weekend developments, as well as prepare for this week’s September inflation data, and look ahead to the upcoming third quarter earnings season. The VIX is elevated to start the week but remains near the low-end of 2026’s range, hovering near 15.5 at the time of writing. The dollar continues to march higher, though it does appear to be running into resistance every time it approaches the 102.5 level, currently trading near 102.42 this morning. U.S. bond markets are closed today in observance of Columbus Day, though Treasury futures will be trading normally. Crude oil is rising following the weekend escalations, with nearby WTI up 2.15% at the time of writing to trade near $93.65, while nearby Brent is up 1.9% to trade near $106.70, a nearly four-week high. The ags are largely mixed to start the week, with the market finding its footing following Friday’s surprises in USDA’s October WASDE report.
The Iran-backed Houthis carried out multiple deadly strikes on Saudi airports over the weekend, with the most notable attack being on the capitol Riyadh’s international airport that reportedly killed 13 people and wounded more than 300 on Saturday. The same airport was attacked again on Sunday, while the Houthis also claimed attacks against the international airport in Dammam, next to Bahrain on the Saudi east coast. The Houthis also claimed strikes on two Saudi Aramco facilities over the weekend, though Saudi authorities have not yet reported any major interruption to crude production or exports, with the primary impact of the weekend attacks being centered on civilian targets. Fighting continues to rage on the ground in Yemen, with the logistically critical southwestern city of Taiz seeing one of the most intense battles of the new Saudi-backed Yemeni government offensive, while heavy Saudi air pressure continues. President Trump has suggested that the U.S. may join in the Saudi strikes on Houthi targets in Yemen following the weekend’s attacks, as the Yemeni front continues to draw in more participants and threaten wider regional escalation.
President Trump announced late Friday that he had concluded a deal with Russian President Vladimir Putin to supply Russian diesel “to the American and global marketplace.” Trump followed this up with an announcement of an energy ceasefire between Russia and Ukraine “effective immediately” on Sunday, with Ukrainian leaders expressing their surprise at the news, but President Zelenskiy stating that such a ceasefire was “good news for everyone,” but adding “it is important that it become part of reality.” That’s where it appears to be falling short, with Russia striking a thermal power plant in Kharkiv after the announcement. While full details and contract terms have yet to be released as of the time of writing, we do know that the U.S. Treasury/OFAC issued a temporary general license authorizing the sale, delivery, offloading, and importation of Russian-origin diesel, including into the United States, through April 7, 2027. The stated volumes were 300k tons immediately, another 500k in November, and 1M tons “immediately thereafter,” while also adding 3M tons “within a short period of time” depending on Russian refining capacity.
That may sound like a lot, but let’s put those numbers into perspective. Assuming we’re talking metric tons and a conversion rate of roughly 7.4 barrels per ton, that initial 300k equates to 2.22 million barrels (mb), November’s 500k equates to 3.70 mb, 1M equates to 7.40 mb, and 3M equates to 22.20 mb. Total U.S. distillate demand less exports over the last four weeks averaged 3.769 mb per day. Assuming all of this fuel made its way to the U.S., which it won’t given the stated purpose including both the U.S. and global market, that initial 300k would equate to less than 60% of one day’s domestic demand. Assuming the full 3M made its way to the U.S., we’re talking about less than six days of domestic demand. For additional context, the entire package equates to only about one to one-and-a-half months of normal Russian diesel exports prior to the recent refinery disruptions and export restrictions, suggesting that any lasting market impact would depend more on the re-opening of Russian exports than on the announced volumes themselves. This is why many in the energy sector are skeptical of such a deal having a meaningful impact on domestic diesel prices, especially coming from a long-time geopolitical foe.
The ultimate question for the market is whether this agreement translates into longer-term implicit U.S. support for Russia in the ongoing war. Trump has been very direct in his warnings to Ukraine to stop their strikes on Russian refineries, and now such strikes could be translated as directly impacting U.S. energy supply, which would be a huge win for Putin. Reuters is reporting that the Trump administration has threatened to suspend intelligence sharing and restrict weapons procurement support for Ukraine if they continued striking Russian refineries. As could be expected, there has been immediate opposition from both sides of the aisle, but with Congress currently in recess until after the midterm elections next month, there appears to be no chance for near-term legislative restriction. While questions remain regarding the feasibility of this deal, one of the biggest limiting factors for these barrels actually making their way to the U.S. in this timeframe is likely whether Ukraine resumes striking Russian refining capacity. If the Trump administration does in fact pressure Ukraine into no longer targeting Russian energy, the global market would be faced with one less major supply disruption. Ukraine’s targeting of Russia’s energy sector, their primary financing mechanism for their ongoing war effort, has swung the momentum notably in their favor in 2026. In that context, it’s difficult to see them being willing to stop, barring some sort of concessions from Moscow, which have proven very elusive thus far.
Tying the two conflicts together, what’s counterintuitive about this diesel diplomacy is Russia’s overt support for Iran’s war effort against the U.S. Iran has been a key strategic and military partner for Russia since the invasion of Ukraine in early 2022, with the Iranian-designed Shahed serving as the backbone of Russia’s long-range one-way drone campaign, initially imported but since 2022 domestically manufactured with Iran’s permission, while Russia has long been accused of providing targeting information, intelligence, and other military support to Iran. These supply chains are intentionally very opaque, which allows for some plausible deniability for the skeptics, but look no further than Putin’s own public quotes. Just last week, Putin met with Iranian President Pezeshkian, stating “we know that Iran is making real efforts to end the conflict, which broke out through no fault of its own, no fault of Iran’s.” This isn’t new either, with Putin stating during the previous U.S. and Israeli strikes on Iran in 2025 that “the completely unprovoked act of aggression against Iran is without foundation or justification.” I could go on, but the point is this—the U.S. appears to be attempting to shift the blame for lofty global fuel prices, particularly diesel, solely onto Ukrainian targeting of Russian refineries. That may provide some near-term relief if Russian barrels do in fact make their way to the U.S. and global market in more meaningful volume, but the bigger global disruption in pure barrel terms comes from the Middle East, and providing financial support to Russia may only extend that disruption.
