Rabobank’s Senior Macro Strategist Bas van Geffen highlights that Brent futures near the mid-$90s per barrel, down from a recent peak of $108, still reflect only a relatively optimistic scenario for the Iran conflict. A prolonged disruption in the Strait of Hormuz could keep Oil markets tight, drive input costs higher and sustain inflationary pressure.

Hormuz disruption and Oil price risks

“Financial markets have continued to trade a relatively optimistic scenario for the Iran war, which may not fully reflect the potential for physical shortages around the globe – especially if the situation in the Middle East lasts much longer, or if tensions flare up again. At the time of writing, near-term Brent futures are trading around $96/barrel.”

“The Strait of Hormuz has effectively been closed for several months now, and the balance of risks is skewed towards a longer closure. The first signs of the inflationary effects have started to manifest already, and a more protracted conflict would probably add to these price pressures.”

“Our global strategist now assumes that the Strait of Hormuz remains out of normal operation for up to three more months. Even if the US and Iran agree to extend the ceasefire, this would not resolve the conflict.”

“So, at best, an extended ceasefire would lessen the near-term tail risks – although both sides have already violated the current armistice. At the same time, it arguably increases the medium-term risks for the global economy. The longer the conflict remains unresolved, the longer Hormuz will effectively remain closed – putting more strain on supply chains. And if negotiations fail and tensions were to re-escalate in a couple of months, this will happen against a backdrop of further depleted fossil fuel supplies.”

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