In the early days of technical analysis many of us were besotted by the Elliot Wave Theory. Positing on recurring wave patterns caused by collective investor sentiment impulse, integrated with Fibonacci correlations, Elliot Wave would give an insight into developing trends. While elements of it still exist, the theory is now debunked by most because of the subjective values, applications and more importantly how the waves were read. The state of play in and around the Strait of Hormuz reminds us of the dangers of subjectivity and that the next wave of news will completely cancel the previous one. Echoing the five sub-waves within Elliot are US/Iran aggression, the US offramp, Iran obstinacy, the deal-no-deal between Oman and Iran and lastly the rogue fifth wave, which is unforeseen and could be a full US attack or US withdrawal or even the interjection of another player as yet not considered. Logic, other than the Iranian long game, seems bereft, leaving us with market psychology as reliable as the narrative unfurling from Washington.

Meanwhile, infrastructure damage is ever occurring. The Houthi attack on the 400kbpd Aramco refinery facility in Jizan over the weekend will put the processor out of action until the end of the month. Further north, the carnage being meted out in the Black Sea by both Ukraine and Russia shows no sign of abating and has led the foreign minister of Türkiye, Hakan Fidan, calling for a moratorium. As seen in the Guardian, he said, “to begin with, they targeted the ports and the military ships. Now, they are attacking all commercial shipping without distinction.” There is a continued expectation of surge in crude supply should Hormuz ever reopen and the Houthi threat in the Red Sea subside, but refinery capability and the delivery of finished fuels is once again brought to the fore. Refined products are always the ultimate driver of price within our market, and they are once again getting tighter in supply.
 

If you think it's bad now

Don’t look now, and if it is possible, the Middle East just became even more dangerous. It is a sorry sight when the US, normally the arbiter and trusted ally when dealing with global strife be it man-made or not, is rapidly losing its stock as a reliable actor. It is of course of Uncle Sam’s own doing. The current US President has run himself into a geopolitical cul-de-sac, and while Iran never envisaged the extent that the gift of power the Strait of Hormuz has turned out to be, it has proceeded to deploy its ‘joker’ card with adeptness, knowing that its opponent cannot afford to go ‘all in’. Iraq and Afghanistan saw the US twice-bitten and it is now definitely third-shy, with the sort of vacuum left in those countries after intervention paling into what might transpire in the hinterlands of Iran if the mullahs of Tehran were forcibly ejected by American ground troops. This does not even take into account the outrage that would ensue within the American public and indeed, its legislature. 

Tehran very much knows it, which is outlined by how it insists that if it indeed reaches a deal with Oman in opening Hormuz, it will only become of practice if the US “corrects its behaviour.” Iran’s supreme national security council elaborated on how Iran must never be threatened again, and the US must end the war with Iran and its allies in the region. It must lift the naval blockade of Iranian ports and withdraw its military from the area. It also must pay full reparations to Iran for war damage, lift sanctions and release frozen assets. Tehran is very free with its “musts” and hutzpah because it is winning this war of standoff.

If one needs convincing of the rapidly diminishing influencer currency grinding at American statesmanship, then look no further than the break of convention witnessed over the weekend by Israel. In a brazen case of ‘biting the hand that feeds you’, Benjamin Netanyahu rejected US President Donald Trump's 15-point plan for Gaza, stating that no military pull-out will happen until Hamas is genuinely disarmed. Additionally, and more worrying, being reported on social media, the Israeli Prime Minister not only publicly rebuffed diplomatic pressure from the US over Gaza but left a hanging comment on how war will only end when Israel decides, which if taken in a certain context might very well be aimed at Israel not joining with the US’s much sought offramp when departing from hostilities with Iran. 

Türkiye officials, as quoted on Reuters, said about its newfound alliance with Saudi Arabia and Pakistan was purely defensive and did not abrogate any existing agreements the ⁠countries had with other states. Named ‘The Mecca Joint Defence Agreement’, it is NATO-like in that if one of the member countries is attacked, it will be considered an attack on the collective. Why the three Sunni Muslim nations now feel it is appropriate in entering such an accord gives rise in speculation that not only do they feel less safe against the Shi’ite Muslim threat of Iran and proxies, and the cavalier attitude in which Israel shoots before asking questions, the new alliance must also feel the United States will no longer be able to defend its Middle East allies having been brought to heel by an obstinate Iran and its success with the modern new phenomenon that is drone warfare. If its military cannot protect its friends, and, as highlighted in yesterday’s note, the US continues to globally bully friend and foe alike with financial bottlenecks, it is time for further localising of geopolitics. 

Hindsight and greater minds will venture whether the US Empire is over, but even if not, the US standing in the world order is deteriorating on a daily basis and if the future offers posteriorly exhumed analysis, it might just be that this Iranian misadventure was the very last straw that broke the camel’s back. Who now then can stop conflict in an area with millennia of wrongdoing and memories to match? Potshots, skirmishes and war- ‘lite’ confrontations now seem so much more likely and with them the higher probability of whipsawing oil prices. Welcome to the new world disorder.

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