Markets update: Crude rises amid Iran ceasefire concerns, causing jitters
Susannah Streeter, chief investment strategist, Wealth Club: “Doubt about the durability of the Iran ceasefire is filtering in, fraying nerves once again. Oil prices have risen, reflecting the highly cautious sentiment, with Brent crude back above $97 a barrel.
This move has sent fresh jitters through equity markets, with some of yesterday’s sharp gains being erased. The Nikkei ended 0.5% lower, indices across Europe are in the red, and the FTSE 100 has struggled to hang onto gains. The mood is more subdued as investors watch and wait for the latest twist in the crisis.
While overall there is still hope that the truce with Iran will hold, it’s becoming clear just how complex achieving a longer-lasting deal in the Middle East will be. The US may have ceased attacks on Iran, but Israel has continued to strike Lebanon, prompting accusations from Tehran that this violates the terms of the ceasefire.
That means, right now, that the Strait of Hormuz, the chokepoint for global energy supplies, remains largely obstructed, with oil tanker traffic suspended once again after Israel’s renegade action. A delegation led by US Vice President JD Vance is heading to Iran this weekend to try and recover the situation and reopen the Strait to tankers.
Even if shipments resume, the risks won’t disappear overnight. Tankers may be forced to navigate mined waters and a heightened military presence, all of which will keep insurance premiums high and freight costs elevated.
The conflict is already piling on financial pain for consumers, especially motorists. Diesel has jumped above £1.90 a litre – a rise of around 50p a litre in some areas of the UK since the outbreak of the war. Petrol is also up by around 30p a litre. Anyone travelling longer distances on motorways during the Easter holidays will be stung more aggressively, with diesel prices hitting £2 a litre at some service stations.
If the ceasefire holds, prices should start to come down a little, but given how fragile the situation is, we are likely to see volatility for weeks, if not months. Significant damage to key energy infrastructure across the Gulf region is set to keep prices elevated until repairs can be completed, which for some facilities could take years.
Some oil-producing nations, like Saudi Arabia, have more capacity to ramp up output, but it will only be gradual given the huge disruption suffered and will depend on how quickly they can shift the oil. With the Strait of Hormuz set to be on a go-slow at best, even if the ceasefire holds, this will take considerable time to filter through to prices at the pumps.”