Oil may start flowing this week, the market fallout could last for months
Even if the Strait of Hormuz opens on Friday as Trump says following a peace deal, normal levels of transit will take months to resume, meaning the war will hang over inflation, monetary policy and asset prices.
This is the warning from Nigel Green, CEO of deVere Group, the global financial advisory giant, as the US and Iran agreed to strike a deal to end their conflict, with US President Donald Trump saying the Strait of Hormuz oil shipping channel would also “completely reopen” by the end of this week.
The pact, which Trump said was “all signed” on Monday, will extend a ceasefire for another 60 days.
Nigel Green comments: “Investors are treating the reopening of Hormuz as though somebody flicks a switch on Friday and everything goes back to normal on Monday.”
The Strait of Hormuz carries around 20 million barrels of oil and petroleum products every day, equivalent to roughly one-fifth of global consumption. It’s also a critical route for around a fifth of the world’s LNG trade.
Even if the waterway formally reopens this week, industry executives have warned it could take weeks or months before confidence returns and normal traffic volumes resume.
“Oil markets don’t need the Strait to be closed to remain nervous,” he explains.
“They only need uncertainty. Tanker operators, insurers and traders have all been reminded how vulnerable this route is. This risk premium doesn’t disappear because politicians sign a document.”
The deVere CEO believes markets may be underestimating two separate risks.
The first is that a reopening does not immediately restore normal energy flows.
The second is that the ceasefire itself remains fragile.
“This is a 60-day extension, not a permanent settlement.
“Investors should remember that ceasefires and peace agreements in the region have a long history of breaking down. Markets are pricing relief. They’re not fully pricing the possibility that tensions flare up again.”
Brent crude surged during the conflict as traders assessed the possibility of a prolonged disruption to one of the world’s most important energy corridors.
While prices have retreated from their highs on news of a deal, Nigel Green argues the inflationary consequences may prove more persistent than investors expect.
“Every central bank governor in the developed world will be watching energy prices.
“A sustained increase of $10 to $15 per barrel in oil doesn’t stay in the oil market. It works its way into transport costs, supply chains, manufacturing and ultimately consumer prices.”
The timing is particularly important because investors have increasingly positioned for lower interest rates during the second half of the year.
A prolonged period of elevated energy costs, naturally, complicates those expectations.
“Only a couple of months ago, the dominant market narrative was disinflation, lower rates and stronger growth.
“Hormuz has introduced a new variable.
“If energy prices remain elevated through the summer, central banks may have less room to cut than markets currently assume.”
The consequences extend well beyond oil.
Europe and much of Asia remain heavily dependent on Gulf energy exports. Higher shipping costs and higher insurance costs could affect everything from industrial production to consumer spending.
Nigel Green notes that market leadership could also shift if energy prices remain higher for longer.
Energy producers have already benefited from the disruption, while sectors heavily exposed to fuel and transportation costs face a more difficult backdrop.
“Investors became accustomed to a world where energy security was largely taken for granted.
“Recent events have shattered that assumption.
“Geopolitical risk is back as a major driver of asset prices, inflation expectations and market volatility.”
Nigel Green concludes: “The peace deal is positive, as is the reopening of Hormuz. But investors should avoid the temptation to assume the crisis is over.
“The Strait may – or may not – reopen this week. Either way, normality is much further away.
“Even the most optimistic scenario leaves the global economy dealing with higher energy costs, lingering supply-chain disruption, and uncertainty over whether the ceasefire actually holds.”