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Pound stumbles as dollar soars
The US dollar is strengthening this morning as investors seek out the safety of the US dollar.
The dollar, which traditionally does well in times of crisis, has strengthened by 0.8% this morning.
The pound is down 1%, or 1.3 cents, at $1.3346.
But in the long run, the Iran attacks could spur the slow decline of the dollar’s global dominance…
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European gas prices surge
European natural gas prices have surged today, as the US-Israel war on Iran sparks fears of a major disruption to global energy supplies.
Benchmark futures climbed as much as 25% — the biggest increase since August 2023 — Bloomberg report, after tanker traffic through the strait of Hormuz was largely halted over the weekend.
Dutch front-month futures, Europe’s gas benchmark, were 20% higher at €38.44 a megawatt-hour in early trading in Amsterdam.
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Analyst: Oil prices could hit $100/bbl as Strait of Hormuz traffic halts
Analysts are warning that the US-Israel war with Iran could drive oil prices up to $100 a barrel.
Consultancy firm Wood Mackenzie is warning that higher oil and gas prices are certain, and that oil prices could potentially exceeding $100/barrell if tanker flows through the Strait of Hormuz are not quickly restored.
They say tanker traffic has been effectively halted, after Iran warned shipping away from the waterway and insurers withdrew coverage.
A map showing the Strait of Hormuz
In the current scenario, oil prices over US$100/bbl are possible if transit flows are not re-established quickly, according to Alan Gelder, SVP of Refining, Chemicals and Oil Markets at Wood Mackenzie.
Gelder explains:
double quotation mark“The key question is when do vessels re-establish export flows.
“No doubt, tanker rates and insurance will increase dramatically, but these costs would only be a small part of the oil price impact associated with a curtailment of oil flows if they last for more than a few days.”
Even in the optimistic scenario where Iran cooperates with the US, it could take a few weeks for export flows to re-establish themselves, Gelder added, saying:
double quotation mark“During that time, oil prices are heavily risked to the upside.
The most recent comparison is during the early days of the Russia/Ukraine conflict, when the fear of loss of Russian supplies drove the oil price to over US$125/bbl.”
Brent crude last traded as high as $100/barrel in 2022, early in the Russia-Ukraine war.
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Introduction: Geopolitics drives up oil prices and hits stocks
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Conflict in the Middle East has triggered fresh geopolitical uncertainty, with investors weighing up the prospect of disruption to oil supplies that would hurt global growth and drive up inflation.
The US-Israeli strikes on Iran which began last weekend have sent investors racing to drive up the price of oil and push down stock markets.
Brent crude, the international benchmark, jumped by 13% when trading began overnight, hitting $82 a barrel, a 14-month high. It’s now up 9% at $79.12 a barrel.
This follows reports that Tehran had warned tankers in the strait of Hormuz that no ship would be allowed to pass through. Around 20% of global oil passes through the strait, so any disruption could lead to supply shortages and higher prices.
Insurers have also warned ship owners they would cancel policies and raise coverage prices for vessels travelling through the Gulf and the strait.
Jim Reid of Deutsche Bank explains:
double quotation markThe spike comes as tanker traffic via the Strait of Hormuz has largely stopped with Iran having attacked three oil tankers over the weekend, though Iran’s foreign minister said on Sunday that Iran was not seeking to close the strait.
There is a view that ahead of the mid-terms, the US administration will do what they can to ensure Iran struggles to block the Strait for long. Investors will also be watching the extent of damage to Iran’s oil export facilities.
In Tokyo, the Nikkei 225 fell by nearly 2.4% as traders in Asia responded to the weekend’s developments, before a partial recovery to 1.35% down in late trading
Other markets have fallen too, with Hong Kong’s Hang Seng down 2%.
There were losses on Middle Eastern markets yesterday, with Saudi Arabia losing 2.2%, Bahrain down 1%, and Kuwait suspending trading altogether.
Here’s the latest:
The agenda
7am GMT: Nationwide: February House Price Index
9am GMT: Eurozone manufacturing PMI for March
9.30am GMT: UK manufacturing PMI for March
9.30am GMT: Bank of England mortgage approvals and consumer credit
12.30pm GMT: Bank of England policymaker Alan Taylor speaks at the Norges Bank monetary policy regulation conference
2pm GMT: ECB President Lagarde speaks at the ECB International Women’s day event
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Updated at 02.38 EST
