Oil prices have surged above $100 a barrel this week as the market started to price in a prolonged disruption to energy flows after Trump’s midterm comments. Brent climbed as high as around $109 yesterday, while WTI moved above $104, with both benchmarks on track for their strongest weekly gains in months.
Iran’s foreign minister and Pakistan’s army chief have been discussing ways to restore diplomatic efforts and de-escalate the conflict on all fronts. Islamabad has also been pressing Tehran to rein in the Iran-backed Houthis following their attacks on Saudi Arabia.
The diplomatic push is gaining momentum ahead of a Monday meeting in Oman where the foreign ministers of the six-member Gulf Cooperation Council are expected to meet their Iranian counterpart. The meeting would be the first high-level diplomatic gathering between Iran and the GCC since the war began, highlighting the growing urgency to restore shipping flows.
The sharp increase in oil prices above the psychological $100 level now gives Tehran greater leverage in negotiations. The key issue remains the Strait of Hormuz, through which a significant share of global energy supplies passes. Iran and Oman have been working on an interim arrangement that could facilitate shipping through the waterway.
However, an agreement between Iran and Oman alone is unlikely to fully reopen the strait. Iran has made clear that it wants the US to meet several conditions before allowing the waterway to return to normal. These include lifting the blockade on Iranian ports, reinstating a waiver allowing Iran to sell oil and giving Tehran access to some of its frozen overseas assets.
With oil prices above $100, the economic cost of keeping Hormuz disrupted is becoming significantly larger for the US and the global economy as long-term yields make new cycle highs. Iran just gained significant leverage to extract concessions from the US.
I feel like the market might start sensing some kind of resolution as soon as Trump backtracks on his midterm comments. I think that would be enough for a pullback as positioning became quite stretched in recent weeks. With the GCC meeting on Monday and potentially a Fed rate hike on Wednesday, I would keep a close eye on de-escalatory headlines and any Trump comment.
This article was written by Giuseppe Dellamotta at investinglive.com.