The fragility of the ceasefire in the Middle East has become an impenetrable barrier for energy prices globally. Investors are not only waiting for the end of the armed conflict (also), but the key is to ascertain the damage caused to oil and gas infrastructures, the time it will take to return to previous maritime traffic in the Strait of Hormuz, and an underlying inflationary impact related to a sector, the oil industry, which has been struggling in international markets for the past couple of years.
With all this as the geopolitical and financial context, the new normality of the world is a barrel of oil priced above $100, 30%-40% more expensive than the average before the outbreak of the war in the Persian Gulf a month and a half ago when it was at $72. Yesterday saw a tense start to the week, with nerves on edge, following the new ultimatum issued by the White House after the failure of peace talks with Iran in Islamabad (the capital of Pakistan). Donald Trump was said to be ready to eliminate in a "quick and brutal" manner any Iranian vessel attempting to challenge the US blockade in the ports and coasts of the Strait of Hormuz within his hyperbolic rhetoric that investors have become accustomed to. Not even the fear index, the VIX, which measures implied volatility on the S&P 500, reached above 20 points yesterday, the critical level indicating some nervousness in financial markets. Banks and investment funds have incorporated the president's rhetoric into their analyses and see hope in the start of negotiations because their underlying assumption is that Trump will back down before the war spirals out of control (remember the TACO -Trump Always Chickens Out- concept, which annoys the White House tenant. This was exactly what happened with the new tariff policy in the spring of 2025 when he also granted and extended a truce for several months, or in his eagerness to forcibly acquire Greenland.
With talks interrupted and threats of a US blockade against Iran, yesterday the price of oil surged by 8% during a session where it remained above $100, both the European and American barrels, trading at higher prices breaking a historical trend. Analysts attribute this shift between the two global crude benchmarks to West Texas being more affordable and investors paying a premium for it now that the market has entered crisis mode. It is worth noting that 20% of the world's oil and gas reserves, among other highly relevant raw materials for industry or agriculture, pass through the Strait of Hormuz. During the five days of ceasefire, it was estimated that around 40 ships were crossing daily, compared to the 100-135 before the war began, according to the consultancy Lloyd's List.
"Perhaps one should never have expected that a single round of talks would yield immediate results. The progress was merely the fact that face-to-face talks were held," acknowledged from the Irish asset manager Aberdeen Investments after the US and Iran broke off peace talks five days after the start of the ceasefire. Despite the exchange of accusations, the theory (currently up in the air) is that the ceasefire will remain in place until April 22, the deadline set by both governments to negotiate. European gas, the Dutch TTF, surged another 9% yesterday, closing at around 46 euros per MWh. This is 50% more expensive than the levels it traded at last February, and double the 15 euros per MWh that Europeans were paying for gas before Russia invaded Ukraine, also in a February, but in 2022.
"Did anyone really expect the Iranian conflict to be resolved in the first round of negotiations?" ask from Banca March. "The turn of events last week plunges us into a wild back-and-forth dynamic, where both parties seek to maximize their negotiating position," experts argue because neither the US is interested in oil prices suffocating American families' finances - it is worth noting that Donald Trump faces midterm elections next November - nor is it in Iran's interest to have an excessively long blockade at its ports that further strangles its weak economy.
According to analysts at Bank of America, the market is far from experiencing a crisis similar to that of the 1970s, the last time there was a significant shock to oil supply affecting prices. "Since then, the global economy has gradually become less dependent on oil: only a third of the oil is now used to produce the same amount of GDP," they stated in a note sent this Monday. In 1970, they estimate that every 10% increase in barrel prices had an impact of about 90 basis points on inflation. Today, they reduce that impact to 25 points.
However, Schroders asset managers point out that the "current oil price" is much more sensitive to any crisis after a "prolonged period of underinvestment" by energy companies, which have lost weight in financial markets as investing in oil had become unprofitable. But now the situation is changing, they anticipate, with rising demand for electricity and gas driven by broader decarbonization, artificial intelligence, and the growing need for data centers, all of which make every crisis in the world have a much more evident impact on oil prices.