The extraordinary optimism in US stock markets continue to not only amaze as a study, but also to achieve record highs in the S&P and Nasdaq once again. Even before results are made public, the mega caps of Alphabet, Meta, Amazon, Meta and Netflix all rose by between 1 and 3 percent yesterday. Garnered by the prospect of a good results season, particularly from tech stocks, and a propensity to believe the US will carve out a trade deal with its two most important partners, Japan and the European Union just on the mere say-so of Commerce Secretary, Howard Lutnick.

The idea of a deal with Japan is made more real due to the impact of the weakening of the existing government. Commentators suggest there will be a less hawkish approach to not only monetary policy, but importantly for stock market investors, a trade deal. It does, however, seem such a friendly outlook is misplaced with EU. Many of the bloc’s constituents were getting used to the idea of a 10% baseline tariff, but the letter of 30% and the utterings of a minimum 15% over the weekend have brought about new belligerence. The Wall Street Journal reports EU officials are now drafting retaliation plans that go beyond tit-for-tat tariffs. Those include new digital service levies, procurement restrictions, and the potential use of the E.U.’s “anti-coercion instrument,” which can target US services and block its ambition in European business tenders among other penalties.

It remains that our market is the place for expression of doubt with a very subdued opening this morning. The move lower might have seen more momentum if it were not for the continued performance in Distillates which continues to be aided by low stocks. We look at the Middle East below, but not even a joint statement of 28 nations calling for an end to the Gaza war is able to elbow its way into oil price consideration.

Too soon to de-escalate Middle East risk

We well remember the many instances of times we labelled market moves and the effect of early morning Tweets in Trump I as ‘unprecedented’, but the pace of edicts and the market movements in the first six-months of Trump II surely match the overused superlative. Our market is showing signs of fatigue in the recent days of price action, confounded by trying to make straight lines of reasoning from the spaghetti of global events or the threat of them. Our brothers and sisters in oil can be forgiven in yearning to spin revolving doors on the way to wherever they holiday, but they leave behind a litany of unfinished business. None more so than the eerily, sudden disposition to ignore the Middle East. There has never been an equilibrium in the millennia of torment from the region, but with any immediate threat perceived to oil flow interruption subsiding, not giving due regard to the singular influence that might have Brent take a run at $100/barrel is premature.

The sponsor of this recent bout of geographical upheaval, namely the Hamas attack into Israel, and the ensuing months of revenge being played out daily in Gaza does not see an end in sight. On Sunday, Israel’s armed forces spokespersons informed that its army would launch another campaign into Gaza. This time into the central region, which has not been invaded since this new war began, where its city of Deir al-Balah received an evacuation order from that IDF that people should evacuate immediately and move towards al-Mawasi on the Mediterranean coast. The ensuing bombing and ground assault is an aggressive move and one that Israel has previously shied from because, and according to various sources, it believes that up to twenty of the unreturned hostages were held in the city. What will now unfold might well be another humanitarian catastrophe, and even though there are soft expressions of concern from Israel’s western allies, it continues to run with a carte-blanche attitude. Yesterday’s 28-nation joint statement included a warning that, "the suffering of civilians in Gaza has reached new depths. The Israeli government's aid delivery model is dangerous, fuels instability and deprives Gazans of human dignity”, might fuel diplomatic tension, it will not stop Israel.

While the main benefactor for military opposition, Iran, licks its wounds, and only ineffectual accusatory language seen from other countries, there will be growing sympathy and support elsewhere for Gazans which might see greater instances of opposition from whatever functional militias there are and yet another spiral. The farcical Hamas ceasefire talks should now be all but dismissed and with Houthi’s once again attacking ships about to enter the Red Sea, the very reasons oil prices rallied after Hamas’s October 7, 2023, attack on Israel remain very much contemporary.

As for Iran, its nuclear programme will be the subject of discussion with European nations in Istanbul this Friday. The E3 countries of Germany, France and the UK have warned that the ‘snapback’ trigger, where UN sanctions immediately return in accordance with the 2015 Joint Comprehensive Plan of Action (JCPOA) is very much in the reckoning if Iran fails to deliver on nuclear compliance. The heightened relevance of the snapback is due to the ten-year anniversary of the JCPOA on October 18, 2025, and whether it will be extended. The reversion mechanism can be triggered by any of the E3, Germany needs a proxy, or China and Russia (the US was withdrawn from the JCPOA by President Trump) and if done so, all UN security Council members must enforce it, including inspecting ships, planes, and transport related to Iran if necessary to prevent the transfer of materials that could support Iran’s nuclear and ballistic missile programs.

This has infuriated Tehran which threatens to not only withdraw from the Nuclear Non-Proliferation Treaty but to accelerate its uranium enriching processes. Whether or not it still has the capability to push from the 60% current enrichment level to that of 90% weapons-grade is unclear after the attacks by Israel and the US on nuclear sites. The airstrikes have made Iran a more belligerent negotiating foe and while it must do all it can to head off a full imposition of UN sanctions, its sovereignty has been violated. The last time Iran met the E3, nothing materialised, and the very next day Israel began bombing the nuclear sites. There is little to suggest this time will be any different. Therefore, if the ‘snapback’ is triggered and Iran escalates its nuclear programme, it is a reasonable assumption that Israeli and US jets will once again come calling. Oil supply infrastructures in the Middle East may have an unwritten immunity from attack, but in desperate times and escalation, can that be guaranteed?

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