Oil Prices Rise Amid US-Iran Tensions

Strategic Insights -

Oil prices surged 2% as investors waited anxiously to see if Iran would retaliate against US attacks on its nuclear sites, with resulting risks to global activity and inflation. Despite the early highs, markets remained cautious, with the dollar showing a minor safe-haven bid but no sign of panic selling across markets.

Key Takeaways:

  • Oil prices reached 2.8% gains, but were off their initial peaks after the US strikes on Iran.
  • Analysts at Saxo said markets may be responding not to the escalation itself, but to the perception that it could reduce longer-term uncertainty.
  • JPMorgan analysts warned that past episodes of regime change in the region typically resulted in oil prices spiking by as much as 76% and averaging a 30% rise over time.
  • Goldman Sachs warned that prices could temporarily touch $110 a barrel if the critical waterway, the Strait of Hormuz, is closed for a month.
  • MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.0%, while Chinese blue chips dipped 0.2%.
  • The dollar edged up 0.3% on the Japanese yen to 146.50 yen, while the euro dipped 0.2% to $1.1500.
  • Futures for Federal Reserve interest rates were a tick lower, likely reflecting concerns a sustained rise in oil prices would add to inflationary pressures.

Statistics:

  • Oil prices rose 2% as investors waited to see if Iran would retaliate against US attacks.
  • The Strait of Hormuz, which sees around a quarter of global oil trade and 20% of liquefied natural gas supplies, is only about 33 km (21 miles) wide at its narrowest point.
  • Analysts at JPMorgan said oil prices could spike by as much as 76% and average a 30% rise over time following past episodes of regime change in the region.
  • Goldman Sachs warned that prices could temporarily touch $110 a barrel if the Strait of Hormuz is closed for a month.
  • MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.0%, while Chinese blue chips dipped 0.2%.
  • The dollar index firmed marginally to 98.958, while the euro dipped 0.2% to $1.1500.

Sources:

  • Wayne Cole, Reuters, "Oil jumps after US strikes Iran, but markets remain cautious," June 23
  • Saxo, cited in Reuters, "Markets may be responding not to the escalation itself, but to the perception that it could reduce longer-term uncertainty," June 23
  • JPMorgan, cited in Reuters, "Selective disruptions that scare off oil tankers make more sense than closing the Strait of Hormuz given Iran’s oil exports would be shut down too," June 23
  • Goldman Sachs, cited in Reuters, "In a scenario where Iran selectively disrupts shipping through the Strait of Hormuz, we see Brent oil reaching at least $100/bbl," June 23
  • Reuters, "World share markets were proving resilient so far," June 23
  • Reuters, "EUROSTOXX 50 futures lost 0.4%, while FTSE futures fell 0.3% and DAX futures slipped 0.5%," June 23