No clear path yet

It is getting clearer by the day that Trump wants to get out of the war with Iran as soon as possible. The level of frustration is increasing rapidly, and patience is running thin. The latest announcement coming from the White House indicates that the U.S. may be ending the war without reopening Hormuz. This can be a tactic to test the public opinion on the matter or it could be just another maneuver to create confusion. In the chart below, you can see the price of West Texas crude oil and its behavior with the president’s post regarding negotiations, escalation, etc, but as we have seen recently, the market has learned from the erratic posts, and the initial reaction is followed by a rapid adjustment to reality. If this latest post was indeed true, leaving the war without opening Hormuz will probably trigger a big global slowdown or even a recession. Countries like China will learn that the U.S. will retreat if the conflict extends in time, pressured by the costs of the conflict and the weight of public opinion. It will be perceived as a humiliating experience. And therefore it’s unlikely. What’s more probable is that he doubles down again and puts marines on Iranian soil, at least to take control of the strait, while they work out a “deal” to leave asap. Markets are waiting for the next leg to make a determination of wether to keep correcting or to rebound and celebrate the end of the conflict. No spirits in sight just yet.

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