Oil prices have fallen back and stock markets are set to claw back some lost ground after Donald Trump raised hopes that Iran war disruption to the global economy would soon be over.
Brent crude oil, the international benchmark, tumbled below $90 a barrel at one stage early on Tuesday after climbing above $118 – a six-year high – in the previous session.
The key worry is the effective closure of the narrow Strait of Hormuz shipping lane just off the Iranian coast.
It’s currently off limits due to the threat of attack by Tehran’s forces in retaliation for the US-Israeli airstrikes that have targeted its leadership and key infrastructure.
President Trump gave mixed messages on the status of the war on Monday evening, after describing US objectives as “complete” and declaring that it “could be over soon”.
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How will Iran war impact the economy?
He added: “I will not allow a terrorist regime to hold the world hostage and attempt to stop the globe’s oil supply, and if Iran does anything to do that, they’ll get hit at a much, much harder level.”
The strait usually accounts for about a fifth of global oil and natural gas deliveries but they have almost ground to a halt over the past 10 days.
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It has stoked market fears that a new wave of energy-led inflation is on the way – a surge in the pace of price increases globally brought on by higher oil and gas costs that will affect everything from filling up at the petrol pumps and home heating to manufacturing industry and even fresh food production.
For the UK and wider Europe, it is already being seen through a leap in fuel prices, especially diesel.
Average pump costs have risen by more than 9p a litre since the start of the hostilities in the Middle East but some forecourts have passed on prices that are double that figure.
The government and competition regulator have warned the industry that any profiteering will be called out.
The G7 advanced economies, including Britain, plan to release reserves if needed to ease the squeeze from the loss of Middle East output and deliveries.
A short time ago Brent was trading at $92 a barrel in volatile trading in Asia.
Data from the trading platform IG showed the FTSE 100 was on track to open later around 0.4% higher.
That would recover all the ground lost yesterday following the 1.8% decline seen at Monday’s open.
Stock markets in other parts of Europe and in the US ended Monday’s session in positive territory after also starting the day with steep losses.
Sentiment remained stronger in Asia on Tuesday but market analysts widely described the mood as cautious.
Nigel Green, chief executive of the asset manager and consultancy deVere Group, said of the shifts: “Markets are beginning to trade the end of the conflict before it has actually happened.
“Oil dropping back below $90 and equities pushing higher tells us investors are already pricing a scenario in which tensions cool and supply disruptions remain limited.
“Financial markets are extremely forward-looking but, in situations like this, they can move ahead of geopolitical reality.”
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