Monday Market report: Investors on edge as oil shoots higher given fragile Iran situation
Susannah Streeter, chief investment strategist, Wealth Club: “Fresh worries are percolating about the fragility of the Iran ceasefire, sending oil prices higher and keeping investors on edge. The euphoria unleashed after the Strait of Hormuz reopened on Friday has dissipated, now that the key waterway has slammed shut again and the US military has reportedly launched an attack on an Iranian cargo ship. Fresh peace talks look uncertain, however, there is still an underlying expectation that a deal will be reached, with both sides clearly keen to bring an end to the conflict. But they are dealing with a physical, not just a metaphorical, minefield, with ordnance believed to be scattered across the Strait, impeding any will there is for a full reopening of the passageway to ships.
Hopes for an imminent resumption of trade, especially energy shipments, have evaporated, and that’s causing fresh jitters, with Brent crude, the benchmark, trading more than 5% higher, around $95 a barrel. The FTSE 100 is on the back foot in early trade as uncertainty swirls. Deep reserves of patience are needed, but with some industries such as airlines staring at jet fuel shortages, these are tense times, and valuations reflect this. Although indices in Asia remained steady, with investors still focused on expectations for negotiations to resume, stocks on Wall Street look set for a stumble, with S&P 500 futures indicating a small retreat from record highs.
There’s a fresh warning about the stark impact of the war in Ukraine on the UK economy. The closely watched economic forecast from the EY Item Club estimates that Britain will flirt with a recession, and that unemployment is set to rise to 5.8%, up from the current five-year high of 5.2%. Although the UK economy was in a more resilient shape than expected in February, with growth coming in at 0.5%, there is real concern that the UK will be hit hard by the repercussions of the Middle East conflict. Company insolvencies in March have already jumped markedly compared to last year, and profit warnings are coming thick and fast. Companies are set to be hit by the triple whammy of higher energy bills, suppliers passing on higher costs, and consumers tightening their belts. Plus, there’s huge uncertainty ahead about where interest rates could go, with hopes for rate cuts replaced by expectations of a rate hike instead this year. Although Chancellor Rachel Reeves has promised an expansion of support for energy-intensive industries, the outlook looks difficult for others, especially in consumer-focused sectors faced with a barrage of bills and weakening demand. Firms are battening down the hatches in this unpredictable climate, with hiring set to soften. A separate survey by Deloitte has highlighted this, showing finance chiefs are reining in their spending plans.
Housebuilders have flagged a highly uncertain outlook and pressure on margins, but nevertheless, the Iran war doesn’t appear to have dented enthusiasm in the housing market just yet. It has been showing resilience, despite concerns about higher borrowing costs down the line. Data from Rightmove indicates that average asking prices for newly listed homes were up by 0.8% in April. This may be put down to over-optimistic sellers, however, sales agreed and buyer demand still appear to be close to last year’s levels. It’s likely that a shortage of properties on the market may also be helping keep prices buoyant. Although mortgage deals are a lot pricier, a relaxation of stricter borrowing limits following the loan-to-value cap review is allowing buyers to take on bigger mortgages, which may also be helping demand. Mortgage searches in March also hit their highest level in 2026, according to the latest snapshot by Twenty7tec, the mortgage sourcing software provider. There’s clearly a lot of shopping around for the best deals as property hunters keep their homebuying dreams alive.
With energy prices set to stay elevated, even if a longer ceasefire is secured, governments are under pressure to shore up supplies, ease the pressure on companies and consumers, and stabilise the public finances.
The crisis appears to have accelerated Germany’s plans to expand and privatise the Gazprom unit which Munich seized from Russia after the Ukraine invasion. Higher gas prices and trading revenue, given volatile prices, are likely to be part of the reason for the move now. The Gazprom business was rebranded to SEFE (Securing Energy for Europe) and is crucial for the region’s natural gas supplies, owning a quarter of Germany’s gas storage capacity and 4,200 kilometres of pipelines. To finance its expansion, the plan is to raise €1.5bn to €2bn ahead of a sale or possible initial public offering on the stock exchange.”