Between the Trump's tweets on Strait of Hormuz being open along with Iran's foreign ministry assertion that as long as US military blockade continues, SoH remains shut for all practical purposes. Today we have not seen any increase in SoH traffic. In fact there has been many U-turns of ships trying to cross SoH. So, while a deal appears to be in sight that may bring an end to the current round of US-Iran hostilities and relief to energy markets, it’s unlikely to result in a full or lasting peace. Israel does not appear party to negotiations and continues to regard Iran as a threat. Trust between the US and Iran remains low and already there appears to be different interpretations of key terms (e.g., Hormuz), all pointing to enduring tensions. Today we are witnessing Iran’s move to restrict vessel traffic through the Strait of Hormuz in response to the continued US naval blockade, undermining expectations of an imminent peace deal touted by Trump. We believe there are various threats to the market assumptions of a near term deal. These risks can be categorised into Israel, Trump himself, SoH traffic conditions & fundamental differences in Iran & US positions on Iran's nuclear facilities. We also believe Iran's neighbours namely UAE, Kuwait, Bahrain and to an extent Saudi do not want an Iran toll on SoH traffic. The current events can escalate further if Iran asks Houthis to attack vessels transiting the Bab al-Mandeb Strait, the southern exit route from the Red Sea and one of the two exits that Saudi Arabian crude exports can currently take. We continue to expect Brent in the range of $85-120 for next few weeks. We definitely do not see Brent sustaining below $85 as crude prices might be supported by purchasing for strategic reserves, a focus on resource nationalism and hoarding, and the logistical lags caused by the disruption.
