A case of US-Iran déjà vu for markets?
Hopes for a ceasefire deal is boosting market optimism to start the new week. And we’re seeing oil prices open with a gap down while equities are pushing up alongside precious metals and bond yields and the US dollar falls. Does all that sound familiar?
Well, it’s not like we haven’t seen it before.
That was the case in mid-to-late June before it led to the first ceasefire deal or memorandum of understanding as one would call it at the time. Yet, that amounted to nothing and here we are again circling back to that after one month.
Despite the market optimism we’re seeing today, there’s always that cautious saying that sometimes it is the hope that kills you.
Traders and investors are seeking relief, and that is evident in early action in markets to start the new week. The only real question is, can it really last this time around? Let’s take a step back and analyse the facts again.
As things stand, the Strait of Hormuz remains in de facto closure. That has not changed despite the recent developments over the weekend. Ship tracking data only recorded roughly 1-3 vessels transiting through the strait in the past days, essentially signaling a complete standstill. The only oil tankers that were reportedly crossing were Iranian-linked/domestic product tankers exiting the waterway. Meanwhile, LNG tankers have not been able to transit whatsoever since 16 July.
And this is not to mention what else is happening with the Red Sea with just 11 commodity vessels only reported to cross the Bab el-Mandeb strait on 26 July. For some context, the usual daily traffic figure is around 60 to 80 vessels.
Again, the longer this plays out just means that the reality of the situation for the global energy market is playing out very differently to what the market reaction would suggest. As a reminder, spending all your savings just to keep up in appearances isn’t the best solution when you have to dig into the pockets again at some point down the road. And that is what is happening in the oil market.
Besides the point there and the fact that Iran will never relinquish control over the Strait of Hormuz, there is also the fact that both the US and Iran remain worlds apart on dealing with nuclear/uranium talks.
For more background: Iran outlines that nuclear talks will include enrichment, stockpile, and its nuclear needs
The first ceasefire deal ended without either side even finding any opening for nuclear/uranium talks. The negotiations kept being delayed before a further pause amid funeral processions, in which after that saw the ceasefire deal broke down. It was essentially three weeks of nothing in terms of progress on talks.
And until now, nothing has changed in terms of their key red lines and their negotiating positions. So, what’s next in all of this?
As mentioned before, Iran’s current strategy seems to be to keep playing for time. They want to extract as much concessions as they can from the US and its allies while maintaining the current status quo for the most part.
So, making the US and the world run in circles is all part of that agenda. We might see talks restart at some point and Iran saying that they will “reopen" the Strait of Hormuz again. However, all of that will just be for show and likely just to stall things long enough before finding another excuse to break the next ceasefire deal.
A case of déjà vu beckoning?
This article was written by Justin Low at investinglive.com.