The energy shock is a regime change, not a price spike

Treat the 2026 energy shock as a continuation rather than an event. The post-pandemic inflation regime was already built on shaky foundations — peak globalisation behind us, demographics turning, fiscal dominance

entrenched — and a second war-related oil spike inside four years is the stress test that confirms the break. The relevant question is no longer whether the Fed can re-anchor inflation expectations on its own terms. It is which economies absorb the shock as a tax and which collect it as rent.

The Capital Flows thesis is that a sustained energy shock metastasises through three layers in sequence: it breaks the central-bank reaction function, it redistributes geopolitical leverage toward net exporters, and only then does it show up in the asset prices most retail commentary fixates on. FX and rates move first; equities and gold are downstream. That ordering matters, because it implies the early, tradeable expression of this regime is in currency pairs and the front end of curves — not in a melt-up

or melt-down narrative for risk assets.

Growth was already softening into the shock. The Atlanta Fed nowcast slipping under 2 percent is the kind of print that, in the post-GFC world, would have pulled forward rate-cut expectations mechanically. In a fiscal-dominant, supply-constrained regime it does no such thing. Barry Ritholtz's framing — that the true regime change is the handover from monetary to fiscal dominance — is the clearest lens on why Powell's options are narrower than the dual mandate language suggests. The Fed maintained zero rates from 2008 to 2015 and ran 3.6 trillion dollars of QE while PCE inflation stayed under 2 percent. None of those conditions hold now.

Sovereignty over consumption

The second-order story is geopolitical. Tian Yang's argument is that in a G2 US–China world, governments are rationally prioritising sovereignty and security of food, energy and supply chains over consumer-led growth. China's new normal explicitly diverts resources to geopolitically important industries — critical resources, technology, manufacturing — rather than households. That is a structural bid for hard assets and a structural drag on the goods-disinflation channel that anchored the 2010s. It also explains why two years of US effort to close shadow channels for Chinese access to discounted Iranian and Venezuelan crude, as Capital Flows notes, is itself a form of monetary policy by other means.

FX and rates move first. Equities and gold are downstream of a reaction function that no longer reacts.

The dollar sits at the hinge. Yang reads USD as caught between structural reserve diversification away from it and a cyclical terms-of-trade tailwind from the Iran shock — range-bound, with the diversification trade supporting gold underneath. That is a usefully specific call in a dossier otherwise thin on quantified forecasts: the only formal prediction extracted is Yang's directional view that macro growth, inflation and policy headwinds build through the rest of the year, and at medium caliber

. There is no bearish counter-position in the cluster on the regime itself; readers should treat this as a one-sided dossier on direction, with the live debate being about magnitude and sequencing rather than sign. The operational expression is in the crosses, not the index.

“Whilst many thought we were in a permanent period of lower inflation, the post-pandemic era has shattered many of those assumptions. We had already passed peak globalisation and the point of most supportive demographics by the mid to late 2010s, foreshadowing future inflationary pressures.”

— Jim Reid

Reid's framing closes the loop. If the structural inflation floor was already rising before Covid, the pandemic stimulus accelerated it, 2022 cemented it, and 2026 confirms it, then the working assumption for the next cycle should be that energy shocks no longer mean-revert through the central-bank channel the way they did in the Greenspan-Bernanke era. They get absorbed by fiscal balance sheets, redistributed via FX, and capitalised into the strategic assets governments now treat as sovereign infrastructure. Jared Kushner soliciting 5 billion dollars from Gulf sovereign wealth funds while negotiating with the same governments, per Capital Flows, is the political economy of that world rendered in miniature.