Oil, Interest Rates: G7 Finance Meeting Opens Amid High Tensions in Paris

A Summit Under Energy and Bond Market Pressure

The context in which the Paris meeting is taking place is marked by a rapid deterioration in sovereign financing conditions. The yield on the 10-year Treasury has risen by more than 20 basis points over the past week, reaching 4.63%, amid renewed inflation concerns sparked by the energy shock.

In Japan, tensions are even more pronounced: the 10-year JGB has reached 2.80%, the highest level since 1996, and the 30-year is around 4.20%, a record level, according to Reuters via Investing.com. The prospect of an additional budget aimed at mitigating the shock from the war in the Middle East increases the selling pressure on Japanese debt.

Brent crude, which gained nearly 8% last week and more than 50% since the end of February according to the same sources, is directly contributing to this steepening of the curves. This sequence extends the movement already described during Donald Trump's visit to Beijing.

Global Imbalances and Critical Commodities at the Heart of Decision-Making

The G7 agenda revolves around three issues identified by the delegations. The first focuses on demand imbalances described as « unsustainable » by French Minister Roland Lescure: American overconsumption, Chinese underconsumption, and European underinvestment, with the risk of a disorderly adjustment in the financial markets.

The second concerns the economic consequences of the war in Iran and the prolonged closure of the Strait of Hormuz, topics deemed particularly sensitive for Japan and Europe, net importers of hydrocarbons. Several delegations, including the United Kingdom, are advocating for coordinated actions against inflation, for supply chain issues, and for the restoration of freedom of navigation.

The third area targets reliance on critical raw materials and rare earths. According to Reuters, G7 members are working on a « common toolkit » covering stock coordination, joint projects, and potential tariff measures to reduce their exposure to China in strategic value chains linked to renewable energy, electric vehicles, and defense. However, the tangible impact of these discussions will depend on the members' ability to overcome their commercial differences.

U.S. Inflation and Chinese Fragility: The Macroeconomic Backdrop

The central banks' room for maneuver has tightened on the eve of the summit. According to the Bureau of Labor Statistics, the U.S. consumer price index increased by 3.8% year-over-year in April, with the energy component up 17.9%, complicating the prospect of a monetary easing by the Fed in 2026.

On the Chinese side, April activity data released by the National Bureau of Statistics shows industrial production up by 4.1% year-over-year, retail sales up by 0.2%, and fixed asset investment down by 1.6% over four months. All components came in below expectations, confirming the fragility of domestic demand recovery at the beginning of the second quarter.

This situation—U.S. inflation driven by energy on one side, sluggish Chinese demand on the other—illustrates the imbalances that the G7 aims to address. It is part of the ongoing signals noted during the latest Sino-American meeting.