Iran exit from talks puts $100 Brent in sight

Brent oil looks set to move above $100 and potentially stay there
for a while. That scenario would change the game for investors.

This is the warning from Nigel Green, CEO of the global financial
advisory giant
deVere Group, after reports that Iran has halted negotiations with the United
States and threatened to close the Strait of Hormuz, sending oil
prices sharply higher and raising fresh doubts about how quickly the
conflict can be brought under control.

The latest escalation comes as markets are being forced to confront
a possibility many had been reluctant to fully embrace: that the
conflict could last far longer than expected, keeping pressure on
energy prices and inflation worldwide.

Nigel Green says: “Iran pulling out of talks changes the picture.

“The market has spent months assuming there would be a diplomatic
exit. Today that assumption looks much harder to defend.

“Oil is already reacting, and I think it goes higher. I can’t see
this being resolved quickly.”

Oil prices surged after Iran’s state-affiliated Tasnim news agency
reported that Tehran would stop indirect negotiations with
Washington and move toward closing the Strait of Hormuz in response
to what it described as violations of the ceasefire agreement.

The development has heightened concern because the Strait of Hormuz
remains one of the world’s most important energy corridors, carrying
around one-fifth of global oil consumption and a significant share
of international LNG supplies.

The reports also referenced the Bab el-Mandeb Strait, another
strategically important maritime route linking the Red Sea with the
Gulf of Aden.

Nigel Green says investors have repeatedly looked beyond military
escalation because they believed negotiations would eventually
resume.

“Investors have been remarkably willing to look through the
setbacks.

“Every time tensions increased, the prevailing view was that
diplomacy would eventually catch up.

“At some stage markets stop giving negotiations the benefit of the
doubt.”

Despite months of conflict, crude prices have remained below levels
normally associated with severe supply disruptions, reflecting
confidence that the fighting would ultimately remain contained.

This confidence is now facing its toughest test.

The significance extends far beyond the oil market itself.

A sustained move above $100 crude would risk reigniting inflation
concerns just as many major central banks have been moving towards
lower interest rates. Higher energy costs tend to ripple quickly
through economies, affecting transportation, manufacturing, business
costs and household spending.

Nigel Green says the latest developments could force investors to
reassess some of the assumptions that have supported markets this
year.

“One of the reasons markets have remained resilient is because
investors have expected inflation pressures to continue easing.

“A prolonged period of higher oil prices complicates that outlook.

“It raises questions about inflation, interest rates, corporate
profitability and consumer demand at the same time.

“That’s why this matters beyond the energy sector. Investors aren’t
only watching oil. They’re watching what higher oil could mean for
the broader economy.”

Nigel Green says one of the biggest risks is that markets have
underestimated how long the conflict could last.

“The consensus view has been that the war would be contained and
eventually brought under control.

“I think many investors have been expecting something measured in
weeks rather than months.

“If we’re still discussing suspended negotiations and threats to
major shipping routes later in the summer, that expectation will
come under serious pressure.”

The deVere CEO believes energy markets are beginning to signal a
reassessment of that outlook.

“Brent looks set to move above $100 and potentially stay there for a
while.

“The market can absorb disappointment for a period of time. But
eventually repeated disappointments change expectations.

“If confidence in a diplomatic solution continues to weaken, oil
prices have further room to move higher from here.”

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