Oil Nears $100 as US-Iran Peace Hopes Fade After Fresh Strikes

Global investors are clinging to hopes that a US-Iran peace deal could be close, but optimism may be waning after fresh US strikes in the Middle East. Brent crude oil is creeping back towards the $100 a barrel mark, up 2.5% today at $98.57 a barrel, having dropped below that $100 mark yesterday for the first time in a fortnight.

US Strikes Raise Doubts

US and Iranian negotiators are in Doha to discuss a potential end to the three-month war, following Donald Trump's declaration last weekend that a peace deal with Iran “has been largely negotiated.” However, yesterday US forces attacked missile sites in southern Iran and boats trying to lay mines, creating doubts that a deal is genuinely close. These actions were described as “defensive” and not an end to the ceasefire with Iran.

Jim Reid of Deutsche Bank suggests the US attacks were “a warning shot that the ceasefire is fragile,” adding that “net net, optimism is still elevated that an agreement can be made to end the war. We have been here before, of course, but it has felt for some time that the move towards peace has been three steps forward and one or two back.”

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Bond Market Signals

There are encouraging moves in the government bond market too. The yields on US debt have dropped today as prices rally, lifted by hopes that a peace deal will reopen the Strait of Hormuz and ease inflationary pressures hitting the world economy. Wall Street, which was closed yesterday, is on track to open higher.

Markets have become more “risk-sensitive,” reports Daniela Hathorn, senior market analyst at Capital.com, who cautions: “Markets are still leaning optimistic, but the tolerance for negative headlines is shrinking. If negotiations stall further or the Strait disruption worsens, the reaction across oil, yields and equities could become much sharper than it has been over the past few weeks.”