In this “Fireside Chat,” Gavyn Davies, Founder and Executive Chairman and Andy Bevan, Partner and Economic Advisor, discuss the following:
- The announcement of the two-week ceasefire in the US-Iran war led to relief in markets and an initial steep drop in the price of oil
- Significant disagreement about the terms of a durable agreement remain, however, and a return to normal oil supply through the Strait is unlikely for a prolonged period
- The risk of a much larger upward spike in the price of oil is diminished but futures pricing looks optimistic for the balance of this year
- The proposal for a toll on shipping in the Strait is controversial – it could generate significant revenue for Iran but it would not be of great significance to the global oil market or in its wider economic effects
- From an economic perspective, it is much more important to focus on the outlook for physical supply of oil than the debate over any toll
- Higher oil prices will quickly passthrough to headline inflation rates – the Fed will look through the short-term impact provided longer-term inflation expectations remain stable
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