August M
When major global conflicts finally start to ease, the relief is usually felt everywhere from international stock markets right down to local petrol pumps.
According to RBC-Ukraine, untangling the economic knots tied by months of tension is rarely as simple as signing a piece of paper.
Too good to be true
A preliminary peace deal between the US and Iran recently sent optimism through global energy markets. Oil and gas prices took an immediate dive, bringing quick relief to consumers at the pump.
But energy experts are already warning that the celebration might be premature. Politico reported that deep logistical bottlenecks and severe infrastructure damage mean millions of barrels of oil will not return to Europe overnight.
According to research firm Kpler, the conflict knocked out a staggering 12 million barrels of oil per day from global supply. Even under perfect conditions, a supply deficit of 2.6 million barrels will drag on until late August.
Economists remain highly skeptical about a quick fix. Oxford Economics chief economist Daniel Kral pointed out that the current price drop has its limits, telling Politico, “We’re nowhere near out of the woods,” when assessing the market.
Hidden underwater traps
A massive physical obstacle still blocks the way forward. During the conflict, Iran heavily mined the vital Strait of Hormuz shipping lane, and specialists say clearing those waters could take anywhere from a few weeks to six months.
Until those shipping lanes are safe, maritime insurance companies will keep their premiums sky high. This hidden cost will automatically push up the final price of fuel for regular consumers.
“In this regard, today’s market reaction seems to be too good to be true,” remarked Carsten Brzeski, the global head of macro at ING. He believes current optimism is based mostly on the fact that Tehran finally confirmed the deal.
Shipowners are also hesitant to move. A Kpler survey revealed that 118 loaded tankers are currently stranded in the Persian Gulf, and most owners refuse to sail if new transit tariffs are introduced.
Stiff gas competition
The trouble does not stop with oil. Europe is currently locked in a fierce bidding war with Asia over liquefied natural gas as nations rush to rebuild their stockpiles before the winter cold sets in.
With China returning to the market and El Niño driving up cooling demands across Asia, European buyers will likely have to pay a steep premium to secure energy cargoes, keeping bills stubbornly high.
Sources: RBC-Ukraine, Politico, Kpler
