Markets bet Trump can’t afford $100/b oil

Oil is becoming the biggest constraint on Washington’s Iran strategy, as Brent crude pushes back toward $100 a barrel following fresh US strikes inside southern Iran, according to the CEO of a leading independent financial advisory. Markets are increasingly betting the White House cannot afford a prolonged energy shock without risking renewed inflation, weaker consumer sentiment and broader economic fallout, said Nigel Green, founder and chief executive of deVere Group. “Markets increasingly believe economic pressure will force diplomacy to move faster than military escalation,” he said. “Washington can project strength militarily, but sustained triple-digit oil creates economic consequences the US simply cannot ignore.” The comments come after fresh strikes on Iranian targets, which the US called “self-defence”, and renewed threats around the Strait of Hormuz pushed energy markets back into focus. At the same time, President Donald Trump said talks with Tehran were “proceeding nicely,” while warning failure to secure an agreement could send the situation “back to the battlefront and shooting, but bigger and stronger than ever before.” Yet despite the military escalation and increasingly aggressive rhetoric, oil has failed to enter full panic mode and equities remain relatively resilient — a sign investors still believe diplomacy ultimately wins because the economic consequences of sustained triple-digit crude are too severe for Washington to tolerate. “Markets are treating escalation as negotiating leverage, not a signal of prolonged war,” said Green. “That distinction matters enormously for investors.” The deVere CEO said markets increasingly believe the White House wants negotiating leverage, not a prolonged conflict that sends oil decisively above $100 a barrel and reignites inflation across the global economy. A sustained move above $100 crude risks feeding directly into gasoline prices, inflation expectations and Treasury yields — three pressures markets are watching simultaneously. “Expensive energy acts like a tax on households and businesses,” Green added. “It weakens consumption, pressures corporate margins and creates renewed inflation risks at exactly the wrong moment.” The inflation implications are especially important for investors already highly sensitive to interest rates, borrowing costs and bond yields. Another oil-driven inflation spike could quickly tighten financial conditions around the world and create fresh instability across equities, debt markets and currencies. “Bond markets are becoming an increasingly powerful geopolitical constraint,” said Green. “Investors are watching Treasury yields almost as closely as military developments in the Gulf because another major energy shock risks reigniting inflation fears very quickly.” “Markets are sending a clear signal: the global economy cannot absorb a prolonged oil shock without consequences,” he concluded. The post Markets bet Trump can’t afford $100/b oil appeared first on Financial Mirror.