Iran war-driven supply shortfalls will soon start to appear
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U.S. stock futures were down Monday morning as markets absorbed weekend events that made it clear the Iran war is not over.
- The price of Brent oil futures, which took a historic plunge on Friday are now back up 5% to where they were before.
Why it matters: The economic fallout will likely intensify, as short-term measures to deal with the unprecedented energy shock no longer suffice.
- Whether that matters to markets is unclear.
The big picture: It's whiplash from where we left it on Friday. Stocks soared after Iran's foreign minister declared the Strait of Hormuz "completely open," and President Trump expressed confidence that peace was coming.
- But even then, such a proclamation seemed too good to be true: "The market priced peace. The oil system didn't," is how PSI Capital put it in a Substack Friday.
- Of the five "normalization" markers for the oil market that they are tracking — shipping through the strait, insurance prices, etc. — none was flashing a green light.
Catch up quick: Iran attacked several commercial vessels on Saturday after announcing it was once again closing the Strait of Hormuz, Axios' Barak Ravid reported over the weekend.
- The U.S. blockade is still in place. Transit through the strait is at a standstill.
- Yesterday, U.S. Central Command said it seized an Iranian ship, the Touska, which was trying to sail toward an Iranian port. It was the first time the U.S. navy took such action, notes Axios' Rebecca Falconer.
Zoom in: The energy shock is still making its way around the world. "Structurally, nothing has improved," JPMorgan commodities analysts wrote in a note Friday.
- Shortfalls will soon start to appear, warns HFE economics in a post Monday morning. This is about more than oil.
- The war has shut in supplies of urea (critical for fertilizer) and helium (for silicon chips).
The intrigue: Even as shortages are worsening, the price of physical oil is still below its high of $144 per barrel on April 7.
- That's partly because the oil reserves that governments around the world have tapped have helped keep a lid on prices.
- It's also because European refineries are now finding it so costly to buy and refine oil, that they are buying less of it.
- "Demand destruction is beginning to take hold in the region," the JP Morgan analysts write.
Yes, but: Despite the dire warnings, many analysts think that the back and forth now is mostly posturing and that a deal is likely.
- "Not because we believe that U.S. and Iran have found a solution, but because of the MAD (Mutually Assured Destruction) principle," notes Jefferies Monday morning. "We are at a stage where it is not in the interest of either [party] to carry on with the war."
What to watch: Vice President Vance is headed back to Islamabad for another round of talks scheduled for Tuesday.
- It's not yet clear that Iran will participate — and if it does, there are signs of fractures in leadership there, as the Critical Threats tracker, operated by the American Enterprise Institute, notes.
The bottom line: The markets keep moving up on headlines that front run reality.
