The political clock is ticking…persistently high energy and fuel costs could increase pressure to find a resolution

Abbas Owainati, Head of Portfolio Management and Asset Allocation at Raymond James, comments: “With shipping disrupted, oil prices volatile and tensions showing little sign of easing, three key timelines – the military, inventory and political clocks – are becoming the indicators investors need to watch in the Iran conflict.
 
“What had been described as a ceasefire is increasingly looking like anything but. Fresh US and Iranian strikes, continued disruption to shipping through the Strait of Hormuz and tanker traffic continue to raise concerns over global oil supplies. With crude prices rebounding above $80 a barrel this week and geopolitical risks remaining elevated, investors are paying closer attention to the military, inventory and political pressures that could shape the next phase of the crisis.

“While it remains difficult to get a complete picture of activity through the Strait, vessel traffic appears to be coming to a standstill. Current volumes are estimated to be far short of the 30–35 vessels thought to have transited the waterway last week and remain significantly below the roughly 50 vessels typically seen before the conflict escalated. That points to a genuine supply-side challenge developing in energy markets.

“The longer these disruptions persist, the more complex the situation becomes. No one can say with certainty how the crisis will unfold, but if current restrictions on shipping continue, inventory drawdowns could become increasingly significant as supply shortfalls compound over time.

“At the same time, the political clock is ticking. Persistently high energy and fuel costs could increase pressure on policymakers to find a resolution, while any further escalation risks adding to inflationary concerns and weighing on economic growth. For now, investors will be watching all three clocks closely, as developments in any one of them could have significant implications for oil markets and broader financial assets.

“These events will have long lasting impacts. Inflation pressures have built up in the system and may take months to fully alleviate. Investors have seemed to look through the noise on the whole but this past quarter has reemphasised the need to maintain diversification in portfolios. The elements of strong earnings and positive investor sentiment cannot be ignored. At the same time, we cannot be complacent about the key risks that exist.”