Rabobank Senior FX Strategist Jane Foley notes that while risk sentiment has improved and the Dollar’s safe-haven bid has faded, the physical Oil market tells a different story. With the Strait of Hormuz closed, she expects Oil flows to recover only to 80% of pre-war levels by late August, implying persistent inflation and demand disruption risks for energy importers.

Strait of Hormuz closure curbs flows

"It is, however, a different story in the physical oil market. The closure of the Strait of Hormuz suggests supply constraints are real and, RaboResearch forecasts that even if the war ends this month, oil supplies through the Strait will only be back at 80% of pre-war levels by late August."

"This suggests that the implication of the war for inflation and demand disruption is unavoidable."

"As energy importers, both the UK and the Eurozone are susceptible to the negative economic impacts of the spike in oil and gas prices. The terms of trade of both economies will worsen and inflation will rise."

"That said, within Europe some countries are more vulnerable to energy related price pressures than others, dependent on their energy mix. This has been reflected in bond yields across Europe in recent weeks."

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