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Rabobank’s Global Strategist Michael Every shifts its Iran conflict base case to a longer closure of Hormuz, warning of sustained disruptions to Oil flows and rising physical prices in Asia. He highlights high escalation risks and compares a possible geopolitical realignment to the 1956 Suez Crisis, with broader downside implications for multiple asset classes.
Hormuz closure risk drives energy repricing
“Our new geopolitical base case is of an extended closure of Hormuz (in the range of 2-4 weeks). However, the likelihood of escalation to achieve that de-escalation is very high, which risks more energy supply damage.”
“Meanwhile, the US economic blockade of Iran and the de facto Iranian blockade of Hormuz remain in place: critical energy and goods are not going to flow for longer, with exponentially rising economic damage. Indeed, the US says it will ramp up Operation ‘Economic Fury’ at sea and via sanctions. Iran claims it will break its blockade by force, if it persists, which would of course lead us straight to an escalation again.”
“Looked at like this, there is nothing for markets to savour about a ‘chicken TACO Tuesday’. Indeed, screen oil prices only softened a little in response to the US ceasefire extension, and the price of physical oil and products in Asia will continue to rise unless Hormuz reopens.”
“Yet it’s undeniable the extended ceasefire also points towards a true TACO, which we’ve long made clear would be a geopolitical earthquake on par with the 1956 Suez Crisis. Were that to occur, it might be bearish for energy but could leave Iran in charge of Hormuz, which is less so; or Israel in charge of removing Iran from Hormuz, so far less so. Moreover, it would be bearish for lots of assets markets don’t yet envision.”
