Time For A Break?
Oil market’s signalling another round of US-Iran talks, and possibly a ceasefire
This week hasn’t started well for world’s oil supply. Trump has cried vengeance for US soldiers killed in Iranian strikes, and Yemen’s Houthis have announced a blockade of Saudi shipping. That means flow of West Asian oil via both Persian Gulf and Red Sea could be hit in the short term. The supply shock could be worse than what we saw during March-June. Yet, instead of shooting up, oil prices cooled slightly early on Tuesday. And that’s thanks to backchannel diplomacy that hasn’t ceased amid US-Iran hostilities of the past fortnight.
It’s true that both sides have declared their ceasefire MoU from June is as good as dead, but efforts to salvage it are on. And if the market is right – it usually is because many billions of dollars are at stake – talk of a 10-day ceasefire to iron out differences can be taken seriously. Read the tone, not the words, on both sides. Iran’s foreign minister has told his country it’s wise to negotiate when you’ve made “battlefield and strategic gains”, but he’s also cautioned against risking people’s lives and the country’s future. It does sound like a pitch for impending talks. On the American side, Rubio has said they haven’t shut the door on diplomacy. This can’t be a coincidence.
Reports say Pakistan, Egypt, Qatar, and other regional mediators, have proposed that US and Iran stop their attacks for 10 days, and start talking again, so that normal shipping can resume. An Iranian minister is said to have already travelled to Islamabad for discussions. If this is true, Trump’s Iran war could end sooner than we imagine. And Trump would be only too glad with that, because US gasoline prices are rising again, stoking voter anger against his party months before midterm polls.
But if diplomacy doesn’t work soon, we’ll have to gird up for higher prices, because much of the cushion from the first four months of the war is now gone. US strategic reserve is depleted, and China can’t curb crude imports indefinitely. Plus, more than crude, shortage of refined fuels has become a global crisis. In the worst case, Goldman Sachs sees oil touching $120 a barrel again. But if peace prevails, it could fall below $70 before the year is out. Which is what US govt also predicted at the time of the June MoU. Like we’ve said before, hope for the best and prepare for the worst.
Disclaimer
Views expressed above are the author’s own.
