Deutsche Bank Research’s Jim Reid and team highlight that Brent Oil fell sharply last week as traffic through the Strait of Hormuz increased, easing inflation concerns and rate-hike fears. However, they note Brent is modestly higher today, with Iran-related tensions still fragile despite a tentative de-escalation agreement between the US and Iran ahead of talks in Doha.

Hormuz tensions and inflation implications

"Tensions in the Iran conflict have continued to escalate since Friday, with a series of tit-for-tat strikes around the Strait of Hormuz despite a fragile ceasefire framework. The latest flare-up began with attacks on commercial shipping, prompting successive US strikes on Iranian-linked targets, while Iran responded with missile and drone attacks on US-linked sites in the Gulf, including bases in Bahrain and Kuwait."

"Over the weekend, the conflict intensified further with additional strikes on vessels and military targets, leading to heightened maritime security risks and the Joint Maritime Information Center raising the threat level in the Strait to “substantial.” However, overnight developments suggest a tentative de-escalation, with the US and Iran reportedly agreeing to halt further attacks ahead of renewed technical talks in Doha this week."

"Both sides are said to be standing down for now, allowing shipping flows to continue, although disputes over key provisions of the memorandum of understanding—particularly around control and potential costs for transit through Hormuz—mean the situation remains fragile and risks to regional stability persist."

"The equity sell-off came despite Brent crude prices (-10.65%, -4.34% on Friday) falling back to below their pre-war levels at $71.99/bbl, as flows through the Strait of Hormuz continued to ramp up."

"The oil price decline has eased fears about an inflation shock and aggressive rate hikes."

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