On June 18, Iran and the U.S. signed a memorandum of understanding intended to mark the beginning of the end of their military standoff. The deal included 14 points, among them the lifting of the U.S. naval blockade and other regional restrictions on Iran, while Tehran agreed to reopen the Strait of Hormuz.
Fast forward a couple of weeks, and things aren’t exactly going according to plan: Two commercial vessels were struck by Iranian missiles while transiting the Strait of Hormuz late Monday. Earlier, on Friday and Saturday, at least eight vessels sailing off the coast of Oman suddenly changed course. Four of them headed toward Iranian waters, including oil tankers, bulk carriers, and car carriers.
Could Tehran’s latest actions derail the memorandum?
Oil prices did move higher on the news, but not dramatically — Brent gained less than 2% on Tuesday. This suggests that markets are not pricing in a second energy crisis.
The same applies to Ukraine’s strikes on Russian energy infrastructure. While they have already reduced Russia’s domestic refining capacity, further attacks on major export terminals could tighten Russian oil supplies, pushing prices higher and injecting much more volatility into the market.
Why?
First, despite the latest attacks, neither side has returned to threatening to close the Strait of Hormuz again. Thus, the escalation could be seen more as an effort to gain leverage at the negotiating table than as preparation for a broader conflict.
Second, strategic petroleum reserves are not what they were before the energy crisis, but they are far from empty. Add in alternative shipping routes and the reality that some barrels are almost certainly moving outside official channels, and the immediate supply risk starts to look much less severe.
So, does that mean the Hormuz story is over?
Judging by the resilience of the S&P 500 and broader risk assets, investors seem to think the worst is behind us. That said, the risk of renewed escalation has not disappeared, and once the FIFA World Cup is over, there is no guarantee tensions will not flare up again.
If diplomatic efforts break down, the oil market could quickly find itself back in the spotlight.
For now, though, markets are betting on the optimistic scenario: the energy shock is behind us, inflation pressures continue to ease, and the Fed may not need to stay as hawkish as investors feared after Kevin Warsh’s first meeting as Chair.
This article was written by fld2def7467bed4c3ea8f718551648a571 at investinglive.com.
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