‘Crossroads’: Oil prices hold firm as markets sour on Trump’s peace talks
The price of oil held firm on Tuesday morning as markets faced a “crossroads” following the latest bait-and-switch from President Trump amid the crisis in the Middle East.
Brent crude, the international benchmark for oil, broke $100 again in early trading in Asia after a four per cent gain.
Prices have dipped a touch but remained up over two per cent, stretching above the $98 mark as global markets optimism on the war in Iran coming to an end dims.
The FTSE 100 had a jittery opening before settling into the red down 0.4 per cent at 9,850.11p.
“The euphoria around Trump’s Truth Social post hasn’t really lasted, with markets sceptical that the president can TACO easily and get away with it this time,” Chris Beauchamp, chief market analyst at IG, told City PM.
Investors coined the term TACO – ‘Trump Always Chickens Out’ – in the aftermath of Trump’s ‘Liberation Day’ tariff onslaught last April, where the President rowed back on the policy within days.
Trump’s latest intervention has pushed back the 48 hour deadline for Iran to re-open the Strait of Hormuz or see its power plants “obliterated” to Friday after the President cited “productive” peace talks.
But Iran has rejected any notion of these talks, with state media claiming the President had backed down in the face of threats. Though later, the Iranian foreign ministry said it had “received points from the US through mediators and they are being reviewed”.
Markets ‘swinging between two very fat tails’
Neil Wilson, investor strategist at Saxo, said: “We’re swinging between two very fat tails right now – massive escalation and prolonged conflict on the one and a total cessation of hostilities and return to a new normal where Iran becomes more aligned with global markets.
“This is not easy for markets to adequately price in real-time.”
He added it “very much looks like a crossroads” with the options of further escalation or a “credible path to a ceasefire”.
“In either scenario the market focus will now turn from the effect on energy prices to the hit to growth.”
On Sunday, the Institute for Fiscal Studies (IFS) warned surging oil and gas prices from the crisis in the Middle East could help contribute to a £20bn shortfall in UK public finances.
The IFS said a rise in inflation linked to higher energy prices could add up to £10bn to the cost of servicing the UK’s stock of index-linked debt.
Much of the economic consequences of the war has centred around the Strait of Hormuz – a vital waterway which around a fifth of the world’s oil supply flows through.
Beauchamp said: “Oil prices are certainly doubtful, given the extended disruption that continues in place every day that Hormuz remains closed.”
He added a “real bounce” in markets could come from the reopening of the straits.