Crude oil is up due to weekend tensions involving ships. Talks in Pakistan offer hope, but the situation is fluid. The Strait of Hormuz was effectively closed over the weekend.

He remains skeptical of a resolution and believes crude oil could still move aggressively higher due to physical market shortages.

Western countries face critical supply shortages: Australia has 10-13 days of diesel left; the EU could run out of jet fuel in two weeks, risking flight cancellations.

Physical market prices remain elevated, and shortages are ongoing, which is conducive for oil and energy products to move higher.

The key difference in this oil shock is that the market is not pricing in Fed rate hikes, unlike past shocks. This supports equity prices.

If the Fed shifts tone to suggest rate hikes, equities could break down as in past conflicts. Currently, credit spreads are tight, liquidity is strong, and earnings are beating expectations (85% beat rate vs. 75-76% average).

The fulcrum for the market is the Fed's narrative on rates. Geopolitical risk can be digested over time, but the Fed's stance on pausing/cutting vs. hiking is critical.

Explains why Yardeni is optimistic: markets can live with geopolitical risk if the Fed isn't simultaneously draining liquidity.