Commerzbank’s Michael Pfister discusses how changing expectations for the US-Iran deal are impacting oil and dollar price movements. Hopes for a quick agreement have recently pushed oil prices lower and weakened the dollar, but he stressed that damage to regional energy infrastructure and storage constraints mean oil prices are likely to remain high for months even if the Strait of Hormuz reopens sustainably.

Resolve hopes rather than lasting damage to supplies

“Attitudes can change that quickly. We have discussed at length on these pages in recent days the potential consequences of a renewed escalation in the conflict with Iran. But yesterday, hopes for a quick end to the conflict were reignited.”

“First, there was news that the head of the Pakistani army was flying to Iran today to announce the final version of the agreement between the US and Iran. Shortly afterwards, the American president also mentioned that we were in the final phase of negotiations. As expected, the market reacted with falling oil prices and a weaker US dollar.”

“Even if the Strait of Hormuz were to open permanently in the coming days, the effects would likely last for months. Many energy facilities were damaged and storage facilities in some Middle Eastern countries have been full for weeks, forcing production cuts. It will take time for production to return to pre-war levels. As a result, the price of oil is likely to remain elevated.”

“However, it is also possible that no agreement will be reached and the current ceasefire in the Strait of Hormuz will continue. Either way, today is sure to be an exciting day.”

(This article was created with the assist of an artificial intelligence tool and has been reviewed by an editor.)