As oil prices once again topped $100 a barrel, the damn-the-torpedoes confidence Wall Street analysts have had since the U.S. and Israel undertook strikes in Iran took another knock. Economists have lived in hope that President Trump is unlikely to pursue the campaign beyond the end of the month, arguing the White House won’t want to see energy prices inflate in a mid-term year.
However, volatility across the tickers is making it harder for analysts to maintain a sense of calm. The unease relates to the worsening geopolitical situation: A string of attacks was launched this week on oil ships in the Persian Gulf, and assurances of military escorts from the U.S. Navy are yet to emerge. Likewise, attacks on the countries neighbouring Iran are continuing: Dubai has reported a number of drone attacks, while Kuwait’s airport has also been targeted.
“Investors are increasingly pricing in a more protracted conflict that causes extensive economic damage,” noted Deutsche Bank’s Jim Reid to clients this morning. The outlook of investors hasn’t been helped by the latest monthly report from the International Energy Agency (IEA), which wrote today that the war in the Middle East is “creating the largest supply disruption in the history of the global oil market. Iran has reportedly dismissed the notion of a ceasefire, while President Trump has maintained there is “practically nothing left” to target in Iran.
No concrete evidence of de-escalation in the region has been confirmed, Reid notes as a result: “That’s keeping oil prices elevated, and raising the risk of a broader stagflationary shock … with each passing day it gets harder to argue that the disruption to shipping and energy infrastructure will only prove temporary.”
