No rush
The President’s claims of an imminent end to the war are being undermined by Iran’s refutation that such talks have occurred. Trump in turn has continued to extend and extend a deadline for Iran to come to the negotiating table only to be scorned by news outlets in Iran, presumed to speak on behalf of what authorities remain locally. The inability to get Iran around the negotiating table could be seen as an embarrassment for Trump but so far hasn’t led to a significant ramping up in military action. However, the threats are beginning to stack up.
Still, the pain point for Trump appears to be the Strait of Hormuz. His demands when questioned on the subject are fixated upon reopening shipping through the Strait. Currently only Iranian-flagged commercial ships are being allowed safe passage which has created a new phenomenon. Economic sanctions against Iran, and in particular Iranian oil, are being undermined by the regional conflict. Iranian oil normally trades at a vast discount to other crude in the region due to limited buyers willing to purchase it due to US-led economic sanctions. As the conflict has endured the spread has narrowed to nearly nothing with Iranian crude trading within a couple of Dollars per barrel versus unsanctioned benchmarks. Some commentators even argue the US is in favour of Iran continuing to export the commodity to ease price pressures.
So, what? Well, this means vastly increased oil revenues for Iran implying that, despite the devastating human consequences of war, the nation could continue to finance its defence and economy if it chooses to. That could delay beyond what might otherwise be the prompt conclusion of this war if Iran chooses. We have seen risk assets continue to deteriorate this week after further punishment last week. As we highlighted yesterday, GBP looked vulnerable to such a deterioration in risk sentiment and, as of the European open today, looks have to have succumbed further to that pressure.
Discussion and Analysis by Charles Porter
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