Count on more wild fluctuations in the global economy as observers grapple with what this cease-fire entails, or even if it persists at all.
“A single regime has decided to exert control over a 21-mile passage, and as a result, we are living through the worst energy crisis the world has ever seen,” The Atlantic’s Amos Hochstein wrote in an essay published on Tuesday. Take that, OPEC! The shuttering of the Strait of Hormuz throttled the world’s access to the commodities that transit that waterway, but that may be the least of the world’s problems.
It will take “years to repair” the Gulf region energy infrastructure that Iran has attacked with drones and missiles over the last month. Indeed, “$100 oil could be here to stay,” Barron’s analysts contended. The damage will require billions of dollars in repairs, and the global energy market may not see much relief even then. If Iran’s “toll booth” strategy in the Gulf persists indefinitely, American maritime hegemony will be a thing of the past, and China will have a green light to blockade Taiwan. The future looks bleak.
At least, it did 24 hours ago. Within minutes of Donald Trump’s announcement that Iran and the U.S. had agreed to a temporary pause in hostilities, Brent crude futures fell by 16 percent, with prices dropping to $93 per barrel. West Texas Intermediate Crude futures dropped by 19 percent, driving the price down to $92 per barrel.
This does not signal a return to the pre-war status quo — commodities prices remain far higher than they were on February 27. But neither is it a reflection of the generational disaster that would cripple the global economy for the foreseeable future. And there are certain to be more wild fluctuations in the near term as observers grapple with what this cease-fire entails, or even if it persists at all.
The rapid movement of international markets has been indicative of the volatility that accompanies what is, in fact, a guessing game about the conditions that will prevail in a month, six months, or a year from today. But the signal the markets have sent throughout this conflict is consistent. When Trump says he’s wrapping up the war, prices go down. When the fighting continues and looks set to continue for some time, they go up. In sum, the markets were less of a reflection of what traders thought Iran could do or was doing. Instead, markets moved based on what America and Israel could or would do.