The global economy is watching with bated breath as reports emerge of a potential 15-point peace plan to be presented to Iran, sparking hopes of a ceasefire in the Middle East. According to reports from The Guardian, the US has sent a framework for peace to Iran, which has led to a surge in stock markets and a dip in oil prices. The price of oil has fallen by 4% in the early hours of Wednesday, with the Brent crude benchmark sinking below $100 a barrel.
Positive sentiment may also have been bolstered by reports that Iran had announced it was permitting “non-hostile” ships to pass safely through the strait of Hormuz, a move that could help to reopen the vital shipping lane. This development has significant implications for global trade, as the strait is a critical waterway for oil and gas shipments. As Amelie Derambure, a senior multi-asset manager at Amundi, noted: “The mood is on the positive side. [The] market is trading now the idea that peace talks or a ceasefire could be on the way.”
Iran’s de facto closure of the strait of Hormuz has all but halted global shipments of oil and gas, sparking what the International Energy Agency has called the largest ever disruption to oil supply. Just four vessels were recorded as having transited the strait on Tuesday, the latest available data from S&P Global showed, although others may have done so with their transmitters switched off. This represents less than 3% of the historical average daily traffic level of 138 vessels registered before the war.
Global Response to the Crisis
More than 30 countries, including the United Arab Emirates, the UK, France, Germany, Canada, and Australia, have signed a joint statement agreeing to work on “appropriate efforts” to safeguard the Hormuz channel. However, Iran’s foreign affairs ministry has told the UN security council and the International Maritime Organization that “non-hostile” vessels – defined as those not taking part in or supporting “acts of aggression against Iran” – are permitted to pass through the strait.
A third of the world’s fertilisers also pass through the waterway, and a senior official at the World Trade Organization (WTO) has warned that disruption to fertiliser supplies is threatening global food security as a result of the impact on food production. The WTO’s deputy director general, Jean-Marie Paugam, told Agence France-Presse: “Fertilisers are the number one issue of concern today. If there is no more fertiliser, there is an impact on quantities but also on prices. The effect compounds the following year: harvests shrink and prices rise.”
Impact on Global Markets
Volatility in global markets since the outbreak of conflict in the Middle East has also affected the price of gold, traditionally seen as a safe haven asset during troubled times. Gold’s historic run – where it moved above $5,000 an ounce for the first time in January – appears to have come to an end since the outbreak of the Iran conflict. After holding steady in the first days of the war, gold has fallen by approximately 13% to about $4,550, calling into question the metal’s traditional role as a financial safety net.
Separately, the boss of the world’s largest asset manager has said a prolonged conflict in the Middle East could lead to a rise in oil prices to $150 a barrel that would trigger a global recession. Larry Fink, the chief executive of BlackRock, which controls assets worth $14tn (£10.4tn), told the BBC that if Iran remained a threat and oil prices remained elevated, there would be profound implications for the global economy.
