Oil: Markets price renewed Hormuz risks – Rabobank

Rabobank strategist Michael Every discusses rising geopolitical risks around the Strait of Hormuz after the apparent collapse of a US-Iran memorandum of understanding. Every notes both sides are now striking each other, with United States (US) strategy shifting to escorted energy flows. Despite this, markets currently assume the US can act militarily without significant Oil price pain, helped by Strategic Petroleum Reserve (SPR) use and weak Chinese Oil demand.

Hormuz tensions and Oil risk window

"The US-Iran MoU [Memorandum of Understanding] appears to have collapsed sooner than we had thought."

"With both sides striking the other, US efforts will turn to ensuring energy can flow through Hormuz ‘the hard way’ via escorting ships through it."

"For now, markets are saying the US can ‘comfortably bomb’ and ‘there is no pain’ even if the ‘MoU are receding’, mostly due to finite SPR drains and low Chinese oil imports."

"That gives the US a window for action: if it can keep enough oil flowing through Hormuz, which is our base case, it underlines military action can move markets in a desired direction; if it fails, we face a far larger energy crisis with far less in the tank as mitigants - or a geostrategic reckoning."