Middle East and Russia-Ukraine conflict disruptions to energy supply still uncertain

On Friday (2026-10-09) U.S. stocks closed higher, SPY up 0.60%, QQQ up 0.49%; over the past week SPY up 1.16%, QQQ up 0.23%. During the weekend market closure, there were new developments simultaneously in the Middle East and on the Russia-Ukraine front, and these news items had not yet been reflected in Friday's closing prices.

Main story: Two weekend energy developments

First, the Middle East. On Saturday, Saudi authorities reported that Riyadh International Airport was attacked, leaving 12 dead and more than 300 injured; the dead included Saudis, Bangladeshis and one Palestinian. On Sunday there were reports the airport suffered a second attack, with 1 dead and 11 injured; the Houthis were accused of being the attackers, making this the second incident in two days. Arabic-language media also reported that a large-scale military operation against the Yemeni Houthis has already begun, while Iran warned it may wage a long war. The airport is not an oilfield, but Saudi Arabia sits at the center of Gulf energy supply. As the scope of the conflict keeps expanding, it becomes even harder to judge when oil will return to normal flows.

Against this backdrop, U.S. President Trump on Friday announced plans to import diesel from Russia. The Iran war continues to push up global energy prices: as of October 5 the U.S. retail diesel average was $6.199 per gallon, $0.232 higher than four weeks earlier. Once the plan was announced, criticism followed. A Ukrainian MP called it a 'betrayal.' German-language media reported that in Kyiv some have dubbed it 'diesel Munich,' borrowing the old 1938 Munich Agreement anecdote to criticize it as a concession to Russia.

A new element emerged on Sunday. Trump said that both Russia and Ukraine agreed to an 'energy ceasefire,' but gave no details. Kyiv subsequently reported that Russian forces continued to strike energy facilities after his remarks. The ceasefire has been announced, but concrete action has not followed.

Putting these items together, the thread is this: the Middle East conflict is expanding, and there is no answer on when supply will be restored. Washington is therefore both seeking diesel from Russia and announcing an energy ceasefire between Russia and Ukraine. This is effectively trying to use political arrangements to fill an energy shortfall, but each arrangement carries uncertainty. The import plan was criticized by allies, the energy ceasefire has no details and attacks followed the announcement, and attacks in the Middle East continue.

For markets, the key at Monday's open is whether these messages will translate into actual supply changes. Friday's prices stopped before these weekend developments: energy stocks XOP fell 1.02% that day, while SPY and QQQ were both up. What happened over the weekend will only be written into prices on Monday.

Other things worth knowing

There are two items from China. On October 10, National Development and Reform Commission director Zheng Shanjie hosted a forum with private enterprises and said authorities will step up countercyclical adjustments — that is, when the economy cools they will ramp up policy support. He also said they will 'promptly plan more policy tools with strong multiplier effects.' Participating companies came from petrochemicals, natural gas, agricultural machinery, and artificial intelligence, among other sectors. On October 9, the China Securities Regulatory Commission publicly solicited comments on the Measures for the Operation and Management of Publicly Offered Securities Investment Funds (Draft for Comment), reshaping the public fund system for the first time in 12 years and shifting the focus from 'scale' to 'returns.' On Friday the China internet ETF KWEB rose 3.79%; there are currently no reports directly attributing this rise to those two announcements.

On the U.S. side, CNBC published a warning from a chief investment officer that if AI capital expenditure reverses, it could drag the U.S. economy into recession. The Financial Times the same day also asked whether the U.S. economy is as 'narrow' as the stock market. Both articles discuss whether growth is overly concentrated in AI investment. Last week the chip ETF CHPS fell 4.68% over the past 5 days, but it is still up 5.52% over the past 20 days.

Tracking the oil shock

Supply shocks continue. The spot-minus-near-month futures for Brent averaged $21.6 per barrel over the past 5 days, compared with only $4.5 per barrel about a month ago — indicating much tighter spot markets. Strait of Hormuz tanker transits (as of October 4) remain only 1.9% of pre-war norms. The New York Harbor diesel spot premium over Brent spot averaged $76.4 per barrel over the past 5 days, down from $94.2 per barrel a month ago, narrowing somewhat.

Today's logic: Why is diesel so much more expensive than gasoline?

US retail diesel averages $6.199 a gallon and gasoline $4.354, a gap of $1.85; a year ago the gap was only $0.59.

A refinery turns the same barrel of crude into both gasoline and diesel, so when crude rises both follow. The extra gap comes from diesel being scarcer on its own. On supply, Russia and the Gulf region are both major sources of the world's diesel exports: Ukraine keeps striking Russian refineries, and tanker traffic through Hormuz is only 1.9% of pre-war levels. With both disrupted at once, more diesel than gasoline goes missing. On demand, trucks, farm machinery and cargo ships cannot run without diesel and can hardly use less; once the summer driving season ends, gasoline demand eases, while the harvest and winter heating lift demand for diesel.

So in the wholesale market, New York Harbor diesel sells about $72 a barrel above Brent crude, while gasoline is only about $17 above it. Neither disruption shows signs of being resolved soon, so diesel's premium is unlikely to fall back quickly.

How the ETF Radar model sees it

First, FXI. FXI actually rose 3.16% over the past 5 trading days (about a week), and was up 2.36% on Friday alone. Looking forward to the next 1-3 months, the ETF Radar model's directional assessment is positive. The evidence mainly comes from Chinese policy: according to the model's records, the central bank lowered the PSL rate by 25 basis points (PSL is the central bank's low-rate long-term loan to policy banks) and increased the relending quota by about 500 billion yuan. On October 10 the National Development and Reform Commission also said it would step up countercyclical adjustment; policy is indeed moving toward a floor-supporting stance.

Uncertainties are also clear. FXI had net outflows of 3.62% over the past 30 days and 4.80% over the past 90 days. Short positions most recently amounted to 64.39 million shares, 3.4% higher than the previous period; based on average daily trading volume, covering shorts would take about 3.81 days. The rebound over the past week is consistent with the model's direction, but FXI is still 0.72% behind over the past 20 days, and the funding backdrop has not yet turned.

Next, EEM. EEM fell 1.29% over the past 5 trading days (about a week), and rebounded 1.06% on Friday. The ETF Radar model's directional assessment for the next 1-3 months is negative, consistent with recent performance. This assessment is not directly related to today's main story; it is the model's independent medium-term view. For the same China exposure, the model sees policy support in FXI but regulatory and funding pressure in EEM.

There are three bases for this. First, China plans to implement from October 22 a regulatory levy-type measure of roughly 20%; details remain to be finalized. Second, rising U.S. Treasury yields: as of October 9, the 10-year yield was 5.24%, up 28 basis points over the past 20 trading days — the higher the rates, the more pressure on emerging market assets. Third, shorting and protection demand: as of the reporting period ending September 30, EEM's short positions were 23.9% higher than the prior period; implied volatility on puts is 25.9%, higher than calls at 22.34%, indicating more buyers of downside insurance and higher insurance costs. Uncertainties include that net outflows over the past 30 days only account for 0.29% of assets, a limited magnitude, and the implementation timing of the regulatory measure is unset.

Finally, BKLN, which holds primarily floating-rate senior loans. BKLN was essentially flat over the past 5 trading days (about a week), down 0.05%. Looking forward 1-3 months, the model's directional assessment is negative. The trigger for this update was a sharp fall in UK government bonds, which raised the global risk-free rate and risk premia and transmitted into the U.S. credit market.

As evidence, the high-yield credit spread was 3.15% as of October 8, having widened 45 basis points over the past 20 trading days. BKLN's short positions are 47.43 million shares, 25.9% higher than the prior period. On the easing side, the MOVE index, which measures bond market volatility, fell to 98.47, down 13.32%, suggesting no wholesale panic in the bond market. The flatness over the past week and a negative model view are not contradictory: the model looks out 1-3 months, and this pressure has not yet materialized.

Summary

Weekend developments focused on energy: Riyadh airport was struck again, the U.S. plans to import diesel from Russia, and the Russia-Ukraine 'energy ceasefire' lacks details — price reactions will have to wait until Monday. Reminder: the above are directional forecasts for general markets from a systematic quantitative model and do not constitute investment advice tailored to you; please consult a licensed investment advisor before investing.