Why the markets believe Washington’s statements on Iran

The incredible thing is that the international financial markets continue to behave quite rationally despite the Trump administration’s ambiguous communication. Is there an agreement with Iran to reopen the Strait of Hormuz? The price of oil falls. Does the deal fall through? Prices rise. Yesterday, the US Treasury Secretary, Scott Bessent, stated in an interview with CNBC that a new agreement between Washington and Tehran is expected to be reached today. Crude oil prices immediately fell back to $80 a barrel, whilst optimism reignited on Wall Street, fuelled by anticipation of the results from the Big Tech firms. In short, the age-old pattern persists whereby investors attach current value to statements by US policymakers, even though these are becoming increasingly unreliable. “The markets are keeping a cool head but are factoring in the possibility that the scenario could change again,” comments economist Riccardo Trezzi. “At the moment, international investors consider it credible, to a certain extent, that the United States and Iran will reach a truce. If they were certain of this, the price of oil would already have fallen to $70 a barrel; instead, it stands at $80. This means they attribute a certain margin of uncertainty to Bessent’s words.” The US Secretary is a former hedge fund manager and is well aware of the impact that certain public statements can have on the investment world. For example, he announced that the United States will do everything in its power to help Japan stabilise and support the yen, which has weakened in recent times. It is no coincidence that there is talk of a new wave of ‘monetary’ activism on the part of the White House.

How much speculation is there in all this on the part of Trump and his inner circle? “We need to distinguish between the different plans,” continues Trezzi. “Regarding the situation in the Middle East, I’d say there’s a great deal of confusion rather than speculation. Although it’s no secret that, in a broader sense, the US President’s family pursues objectives of private enrichment that would be incompatible with the role. As for the reopening of the Strait of Hormuz, the confusion is fuelled by the fact that Israel’s role is never clarified; it continues to pursue its own interests and represents a variable that could at any moment undermine the agreements reached.” According to the economist, there are investors, with a more speculative approach, who do not mind this situation of global chaos. “But they represent a minority because institutional investors, on the other hand, seek stability and predictable economic scenarios. One need only look at US Treasury yields, which have risen to record levels, to realise that the relationship of trust with this US administration has been damaged, and it is hard to see how it can improve if the US public deficit is set to approach 7 per cent this year.” And it is precisely the fear of an investor exodus that, Trezzi explains, is prompting Bessent to call on the Fed to intervene to mitigate Japan’s currency crisis. “The aim is to prevent one of the largest holders of US debt from selling bonds in a market that is already struggling to absorb them.”

There are now so many variables at play in the global turmoil, dominated by fears of further energy shocks and surges in inflation. According to a report by Goldman Sachs, China’s low crude oil imports are one of the main reasons why oil prices are no longer so high, despite the current situation being the most severe oil supply shock ever recorded. In other words, Beijing, relying on substantial reserves, is said to have implemented a strategy aimed at dampening volatility in hydrocarbons. “Conversely,” Goldman notes, “China tends to amplify volatility in critical metals, where it can use its dominance of the supply chain as leverage in its technological and geopolitical competition with the United States.” Beijing therefore wields the price lever depending on how it wishes to influence the global stage. Yesterday brought confirmation that Chinese ships continue to pass unhindered through the Bab el-Mandeb Strait in the Red Sea – another strategic chokepoint where oil traffic, including that from Saudi Arabia, risks coming under attack from the Houthis – demonstrating just how well-established relations with the Yemeni militias are.