Waiting mode

The economists at the Dallas Fed have published a study that, among other things, presents the impact on oil and US inflation of 3 quarters of continuous blockade in the strait of Hormuz. You can see see the results regarding oil in the chart below. $110/barrel for 1 quarter, up to $167 if it remains closed for 3 quarters. CPI could reach 5% annualized. That is a warm welcome to Kevin Warsh at the Fed. That is almost a guarantee of economic recession for the U.S. and Europe. The Trump administration knows this, and thanks to Pakistan, it appears that Iran and the U.S. will have another round of talks this week. Little by little, some of the conditions the U.S. offered Iran have leaked, and even though it is indeed a tough negotiation, positions may be closer than it appears. Iran knows about the economic consequences of the closure of Hormuz. The U.S. knows the damage it has done on Iranian soil, and China is getting diplomatically involved. China needs Iranian oil. And it may be offering something to Iran to get out of the conflict. The problem seems to be the lack of decision making leadership in Iran, since most of them have been killed. Oil is down almost 3%, gold is up and US equity index futures are flat. We’re on a waiting mode.

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