While not exactly matching the astounding moves seen in crude oil prices of late, the US Dollar has attached itself, limpet like, to the fortunes of what happens in the black stuff. The obvious reason being that higher prices in oil give gateway signals for likewise higher inflation, and therefore probable hikes in interest rates to combat increases in all manner of prices which are beholden to the fortunes of oil. Yesterday’s announcement of a dubious ceasefire in the latest Middle East war brought a repricing of bets on interest rates on how the US Federal Reserve, the most important of central banks, might now show a more dovish lean if oil prices continued to fall. Patently not the case. The USD Index (DXY) has rallied this morning, not only from the overnight reaction to several instances of breaking of the ceasefire and a lack of shipping flow through Hormuz, but on the release of the Federal Open Market Committee’s minutes. Concern abounds within the FOMC on persistent inflation, which is backed up by the New York Fed, as reported by Reuters, in its latest Survey of Consumer Expectations that inflation a year from now is seen at 3.4 percent, up from 3 percent last month. In fact, some economists are forecasting outlandish readings of an increase by 0.9 percent February to March in the United States, way beyond the 2 percent target of the FED. Whatever the final costs of this war might be, and not just the dollars and cents in hardware, one of them will be higher inflation and the central banks of the world now stand hawkishly ready to pick up their portion of this costly tab.

Massive moves, massive fake

Hindsight is a wonderful thing, but history is more judgemental. How this latest ‘little excursion’ into Iran by the US will be viewed in the history annals of the future will not be very flattering, particularly if not much changes from here. Poke fun, satirise or whatever backhanded language one might use at present, the world is made much poorer by this campaign of vanity from the President of the United States. 

We have always been of the opinion that the biggest policer of anything Trump might embark on in international interference are the prices of oil and the stock market. US citizens are being made poorer on a daily basis by rising gasoline prices at the pump and shrinking values in stock market portfolios or pensions based around them and of course the threat to inflation and arguably the more important state of confidence. There are pockets of geography where prices are very much higher, but the average retail price according to GasBuddy for regular Gasoline in the US has increased by 60c/gallon over the last month and in the S&P 500 the end of March saw the broad-based bourse shrink in value by as much as 500 points, something need be done.

According to NBC, A Reuters/Ipsos poll conducted March 27-29 showed 60 percent of Americans disapproving of strikes against Iran, while 35 percent approved, it would be interesting to see what a fresh poll might reveal particularly when their President said on Tuesday before he committed another TACO that, "a whole civilization will die tonight" if Iran failed to meet his latest deadline. It is galling to write only from a US perspective. This President pays scant regard to the affairs of international economics and even supposed allies. All bourses are posing recoveries, but jamming oil communications tanked the Nikkei and Kospi in the Far East, tanked the Sensex and Nifty in India and tanked the DAX, CAC and FTSE in Europe, along with the rest of global stock indices. Even if the Strait of Hormuz were to stay permanently open from now and there was no spoilage to oil producing infrastructure, the damage to the global economy will remain profound. Whatever considerations the central bankers of the world list as the most important, this war will be uniformly top of the leaderboard. 

It is also galling that the US President is claiming some sort of victory in how Hormuz is now open. We, along with the rest of the sane world, join in by stating the obvious that it was open six weeks ago, thank you very much. But we all ask as to what sort of ‘open’ is Hormuz now? Is it one where the US will escort ships through, or one where the Iranians will police which vessels can make the traverse? And what of the shipping fee? Is there now to be toll shared between Oman and Iran for each ship that makes the journey, and will that be a round-trip or single charge? Pre-war traffic saw well over 100 ships per day make navigation through the narrow passageway and it would be interesting to know which type and size of ship are to be tariffed. There could very well be the bizarre outcome that Iran will end up receiving more income from its shipping tax than from oil exports. 

How this sits with maritime law might just end up seeing a day in court. Under normal protocols, when a strait between two parts of the high seas is used for international navigation, ships enjoy unrestricted passage during peacetime, so long as the transit does not threaten a coastal state’s security. Imagine how this can be manipulated. Also, and loosely attached, on Tuesday, the UN Security Council failed to adopt a resolution aiming to boost security in the Strait of Hormuz to “coordinate efforts” defensively, to contribute to ensuring the safety and security of navigation there, including the use of escorts for merchant and commercial vessels. Unsurprisingly, China and Russia vetoed and with it took away the ability for a forceful clearance of any obstacles that might hinder the passage of trade.

Away from the Strait, there is a difference in attitude to the plight of the war in Lebanon. In Pakistan’s draft of the ceasefire agreement, it presumes that that Israel’s invasion would be covered by the abstention in fighting. In contrast, Israel believes that the ceasefire is for everything ‘but’ its attack on Hezbollah. Oil prices might dump, stock market indices might fly, but the nitty-gritty of what all this means is a long way from being discovered and this ceasefire is a cosmetic makeover and the equivalent of putting lipstick on a pig. Clarity through thoughtful study is impossible in this news wracked times, but as sure as eggs is eggs, none of this is over and historical tomes of the future might not even mention this hiatus because there is nothing here that makes us think it will stick.

Overnight Pricing