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UK market commentary from deVere Group.
Oil is becoming the biggest constraint on Washington’s Iran
strategy.
As Brent crude pushes back toward $100 a barrel following fresh US
strikes inside southern Iran, financial markets are increasingly
betting the White House cannot afford a prolonged energy shock
without risking renewed inflation, weaker consumer sentiment and
broader economic fallout, says Nigel Green, CEO of global financial
advisory
deVere Group.
“Markets increasingly believe economic pressure will force diplomacy
to move faster than military escalation,” says Nigel Green.
“Washington can project strength militarily, but sustained
triple-digit oil creates economic consequences the US simply cannot
ignore.”
The comments come after fresh US strikes on Iranian targets, which
they called “self-defence”, and renewed threats around the Strait of
Hormuz pushed energy markets back into focus.
At the same time, President Donald Trump said talks with Tehran were
“proceeding nicely,” while warning failure to secure an agreement
could send the situation “back to the battlefront and shooting, but
bigger and stronger than ever before.”
Yet despite the military escalation and increasingly aggressive
rhetoric, oil has failed to enter full panic mode and equities
remain relatively resilient – a sign investors still believe
diplomacy ultimately wins because the economic consequences of
sustained triple-digit crude are too severe for Washington to
tolerate.
“Markets are treating escalation as negotiating leverage, not a
signal of prolonged war,” says Nigel Green.
“That distinction matters enormously for investors.”
The deVere CEO says markets increasingly believe the White House
wants negotiating leverage, not a prolonged conflict that sends oil
decisively above $100 and reignites inflation across the global
economy.
A sustained move above $100 crude risks feeding directly into
gasoline prices, inflation expectations and Treasury yields – three
pressures markets are watching simultaneously.
“Expensive energy acts like a tax on households and businesses,”
notes Nigel Green.
“It weakens consumption, pressures corporate margins and creates
renewed inflation risks at exactly the wrong moment.”
The inflation implications are especially important for investors
already highly sensitive to interest rates, borrowing costs and bond
yields.
Another oil-driven inflation spike could quickly tighten financial
conditions globally and create fresh instability across equities,
debt markets and currencies.
“Bond markets are becoming an increasingly powerful geopolitical
constraint,” says Nigel Green.
“Investors are watching Treasury yields almost as closely as
military developments in the Gulf because another major energy shock
risks reigniting inflation fears very quickly.”
Reports suggesting a potential US-Iran agreement may be close have
reinforced the broader market view that both sides remain under
mounting pressure to secure a deal despite ongoing military
confrontations.
Media reports, citing senior US officials, claimed on Monday that
negotiations were “95% there,” while Secretary of State Marco Rubio
stressed that the Strait of Hormuz “has to be open, one way or the
other.”
Nigel Green argues markets are increasingly signalling confidence
that economic realities will ultimately outweigh military
escalation.
“The White House understands sustained $100-plus oil damages
consumer confidence, complicates monetary policy and threatens
economic momentum,” he says.
“For all the military posturing, the economic incentives still point
toward eventual de-escalation.”
Nigel Green says investors increasingly believe economics – not
military rhetoric – will determine how the crisis evolves from here.
“Financial markets are sending a clear signal: the global economy
cannot absorb a prolonged oil shock without consequences,” says
Nigel Green.
“Investors increasingly believe economic reality will ultimately
force a deal before escalation spirals into something far more
damaging for markets, consumers and the broader US economy.”
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