We are 40 days into the Middle East conflict, with disruptions across the Strait of Hormuz, keeping oil above US$100 per barrel. But with just 88 minutes to spare before his deadline, Trump announced a two-week ceasefire with Iran.
Markets loved this.
The S&P500 jumped 2.5% and oil dropped below US$95 per barrel amidst reports that the Strait of Hormuz (responsible for 20% of global oil flow) would reopen during the two-week ceasefire. Formal negotiations brokered by Pakistan are centred around two objectives, however one appears to be more important, according to Trump:
Trump was also asked if the deal would include the reopening of the Strait of Hormuz, in which he replied:
While Trump announced on Tuesday that they had reached an agreement, no official deal has been signed, with media describing the agreement as “extremely shaky and brittle.” There’s further doubt as Israel continued to strike Lebanon after Trump’s announcement, reminding markets to not celebrate too early since satisfying all stakeholders remains a significant hurdle.
For Australia, an end to the Middle East conflict would ease fuel prices, take pressure off the RBA and reduce the risk of further rate hikes. However, it’s important to recognise that Tuesday’s ceasefire is only a two-week pause. If a permanent resolution can’t be reached, then the share market’s rally could reverse just as quickly.
Overnight, that fragility was exposed.
Following the collapse of 21-hour peace talks in Pakistan, Trump announced the US would begin blockading the Strait of Hormuz, a move widely seen as an escalation rather than de-escalation. Iran has warned any attempt to enforce the blockade would be treated as a breach of the ceasefire and an act of war.
For markets, this flips the narrative again. Oil prices now face renewed upside risk, inflation expectations could reaccelerate, and the brief rally in equities may prove short-lived.
