Market scenarios could get ‘ugly’ if Strait of Hormuz doesn’t open soon, says Michael Every
The share market has had its best day in a month on renewed hopes the US and Iran will reach an agreement to reopen the Strait of Hormuz.
Investors bet on financials and miners, while energy stocks were down and as the price of oil retreated.
Rabobank’s global strategist Michael Every says the bank’s base case for global energy supplies is that there’s a slightly greater than 50 per cent chance the Strait of Hormuz will reopen within the next few weeks. However, he says if the Strait of Hormuz doesn’t open in that timeframe and “as we start to move towards really a critical tipping point in terms of global energy supplies, then all the scenarios that open up get much more ugly, both macroeconomically – in terms of markets – and geopolitically, because it shows that Iran is prepared to really just sit there and let the world suffer, rather than reopen and do a deal … and the US equally for its part, isn’t prepared to back off, isn’t prepared to walk away because it’s so important to them, and they’re prepared to keep Hormuz closed longer.”
He says despite this, the market all-time highs around the world compared to the reality of the potential for oil to run out within a matter of weeks or months, are ‘completely incompatible’.
“Apart from headlines which say fighting has restarted again, which tends to rock markets, the overall trend seems to be that they (investors) will do whatever it takes not to accept how serious this is,” he says.
And out of all of this, Michael Every says, the US is a net winner, even though they’re seeing higher inflation, they’re exporting more energy than anyone else.
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