Oil

Oil is up 8% this morning. The strait of Hormuz has not been officially closed, but following U.S. and Israeli strikes on Iran, Iran’s Revolutionary Guard Corps (IRGC) began broadcasting VHF radio warnings to vessels stating that “no ship is allowed to pass the Strait of Hormuz.” Consequently, Ship-tracking data shows a 70%+ plunge, with tanker transits near zero in recent days, hundreds of vessels anchoring or holding outside the strait. Insurers have withdrawn coverage or jacked up premiums, making passage commercially unviable for most operators. In the chart below, you can see predictions of what would hapoen to the price of oil if the strait is closed fo 1 month. $10-15 price spikes that will be a direct hit to US inflation, at a time where the president needs lower rates. We can almost read the next FOMC meeting policy statement: Due to the Iranian conflict, risks of higher inflation are on the upside, and the committee has decided to leave rates unchanged. It will hurt the European economy as well, as natural gas is also rising and the use it to warm themselves during winter. Nobody wants a long conflict, neither the US, nor Iran, or any other country. There seems to be no natural winners, perhaps relative ones. This conflict could become another Ukraine, with a long and painful path, with huge humanitarian and economic cost. Markets are starting to react to that.

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