Oil prices fell and stock markets regained some lost ground after Donald Trump raised hopes that the disruption of the Iran war to the global economy would soon end.
Brent crude, the international benchmark, fell below $90 at one point early Tuesday after rising above $118 – Six years maximum – In the previous session.
A major worry is the effective closure of the narrow Strait of Hormuz shipping lane. Iranian the coast
Iran latest: Trump’s key messages on war intentions
It is currently off limits due to threats of strikes by Tehran’s forces in retaliation for US-Israeli airstrikes targeting its leadership and key infrastructure.
President Trump On Monday evening he gave mixed messages on the state of the war, after describing US intentions as “absolute” and announcing that it “could be over soon”.
He said: “I will not allow a terrorist regime to hold the world hostage and try to cut off the world’s oil supply, and if Iran does anything to do that, they will be hit much harder.”
The strait normally accounts for about a fifth of global oil and natural gas deliveries, but they have largely ceased over the past 10 days.
This has fueled market fears that a new wave of fuel-led inflation is on the way – price increases driven by higher oil and gas costs globally will affect everything from petrol pumps and home heating to the manufacturing industry and fresh food production.
For the UK and wider Europe, this is already being seen through higher fuel prices, particularly diesel.
Average pump costs have risen to more than 9p a liter since the start of the war in the Middle East but some forecourts have posted prices as double that.
The government and the competition regulator have warned the industry that any profitability will be called out.
The G7 advanced economies, including Britain, plan to release reserves if needed to ease the squeeze from the loss of Middle East production and supplies.
Brent traded at $90 a barrel on Tuesday in volatile trade in Asia.
The FTSE 100 opened 0.5% higher at 10,300, recovering all the ground lost yesterday after a 1.8% drop at Monday’s open.
Stock markets in other parts of Europe and the US ended Monday’s session in positive territory after starting the day with steep losses.
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Sentiment remained strong in both Asia and continental Europe on Tuesday, but market analysts widely described the mood as cautious.
Nigel Green, chief executive of asset manager and consultancy DeVere Group, said of the transfers: “Markets are starting to trade the end of the conflict before it actually happens.
“Oil falling below $90 and equities pushing higher tells us that investors are already pricing in a scenario where pressures are cooling and supply disruptions are limited.
“Financial markets are very forward-looking but, in situations like this, they can move ahead of geopolitical reality.”
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