Rabobank’s Senior Market Strategist Benjamin Picton highlights that the Iran war and threats around the Strait of Hormuz are sustaining significant risk for Oil markets. Picton notes that Iranian retaliation could target Gulf energy infrastructure and that any perceived US climbdown would leave Iran controlling Hormuz flows, including potential Chinese Yuan (CNY) pricing, an outcome seen as unacceptable for the United States.

Hormuz tensions sustain energy risk

"Destruction of oil and gas infrastructure takes us closer along the spectrum towards worst-case scenarios where energy and other commodity supplies remain throttled indefinitely."

"So, can we expect an imminent TACO (Trump Always Chickens Out) with the hoped-for snapback in oil prices and risk assets? The short answer is ‘probably not’."

"Even if the US were to lay down arms, there is no guarantee that Iran would respond by allowing the Strait of Hormuz to re-open. That means that the US would risk it’s own Suez moment as it effectively loses the war while failing to secure the flow of energy to global markets."

"Such a scenario could be interpreted as the end of the USA as global hegemon, and would see Iran retain control over oil flows through Hormuz with toll payments extracted and demands that cargoes be priced in CNY likely enforced."

"Iran also made some conciliatory moves late last week by allowing Indian LPG cargoes to transit the Strait and by indicating that a similar arrangement may soon be reached with Japan. This relieves some pressure on energy markets in the short term, but it remains a drop in the ocean and Asian demand-side curtailment is likely to continue until Hormuz can be re-opened one way or another."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)