Crude oil prices have fallen nearly 20% in a month following a ceasefire announcement and the reopening of the Strait of Hormuz. According to a chief global economist, the tenuous US-Iran peace deal negotiations are the key market risk, preventing stability despite lower oil prices. Finalizing a durable agreement is seen as critical to easing global financial conditions and market volatility.
Brent and Crude oil prices have fallen almost 20% in a month after the ceasefire announcement and the opening of the Strait of Hormuz. Despite some progress, the US-Iran peace deal remains the biggest concern for Wall Street as the negotiations are tenuous and extending beyond the imagined timeline. This uncertainty is causing volatility in the broader markets, despite oil prices slumping towards the $70 level.
Leaders from both sides are prone to delivering blitzkrieg statements if the negotiations do not go their way. The markets are still reeling from the conflict, and the final peace deal is still in the making. Ryan Sweet, the Oxford Economics Chief Global Economist, stated that until a peace deal is finalized, the stock market will remain volatile even if oil prices further drop.
“A peace deal that holds would produce a cascade of easing conditions: energy disinflation, central bank optionality, looser financial market conditions and relief for emerging markets,” Sweet wrote to clients. “However, an agreement without a follow-on peace deal would be volatile and impossible to sustain.” The goalpost for signing the peace deal has been moving back and forth for two months.
Every knot is linked to the peace deal, and is no longer about the prospects of oil prices. Sweet wrote that “All these risks are connected,” and that “The key question is how the peace deal in the Middle East unfolds.” This has kept the global markets on their toes, as the flipside is a costly affair. It could take longer for the US and Iran to ink the deal, as both sides are in disagreement.
