Halpenny stresses that the extension of Trump’s pause only on attacks against energy assets, combined with Iran’s limited tanker gestures, suggests the Strait of Hormuz will stay constrained. MUFG expects Brent crude Oil to drift higher, with a severe scenario of USD 120–160 per barrel raising the risk of a larger risk-off episode and increased global recession concerns.

Oil supply constraints and risk-off

"Given the pause until 6th April only includes attacks on energy assets, the conflict looks set to extend further and the longer the Strait of Hormuz remains closed the greater the energy supply problem will become."

"There was some gesture from Iran by letting ten tankers through but given the Strait of Hormuz is a key part of Iran’s leverage there seems little prospect of a more meaningful flow of traffic being allowed through any time soon."

"So crude oil prices look set to continue drifting higher which raises the prospect of a bigger episode of risk-off as global recession risks rise."

"In a more severe scenario of Brent crude oil trading in a range of USD 120-160pbl and equity markets taking a bigger hit, the DXY could advance closer to the 105-level (+7%-8% from pre-conflict level)."

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