Rabobank strategist Michael Every highlights escalating geopolitical risks in the oil market following the apparent collapse of a US-Iran memorandum of understanding regarding the Strait of Hormuz [1]. According to Every, both the United States and Iran are now engaging in strikes against each other, prompting a shift in US strategy towards escorting energy shipments through the critical waterway [1].
Despite these heightened tensions, markets currently appear to believe that the US can take military action without causing significant oil price increases, a view supported by ongoing releases from the Strategic Petroleum Reserve (SPR) and weak Chinese oil demand [1]. Every notes, 'For now, markets are saying the US can ‘comfortably bomb’ and ‘there is no pain’ even if the ‘MoU are receding’, mostly due to finite SPR drains and low Chinese oil imports' [1].
The analysis underscores that oil price stability is contingent on the US's ability to keep energy flowing through Hormuz. Should this strategy fail, Every warns of the potential for a much larger energy crisis and significant market disruption, as the available mitigants such as the SPR would be depleted [1].
Rabobank's base case assumes the US will succeed in maintaining sufficient oil flows, but the situation remains fragile, with the risk of a 'geostrategic reckoning' if energy transit is disrupted [1].
CONCLUSION
Rabobank's analysis suggests that while oil markets are currently stable, this stability is precarious and depends on the US's ability to secure energy flows through the Strait of Hormuz. Any failure in this strategy could trigger a major energy crisis and significant market volatility.