After the seizure of an Iranian cargo ship by the US Navy, oil prices surged by more than 6% on Monday morning. Near $89, WTI erased last week’s decline as Iran threatens to retaliate and closes the Strait of Hormuz again. This increase in volatility is causing Asian markets to proceed with caution and heightens the prospects of inflationary tensions.
Oil prices are soaring again this Monday, April 20. By 6 a.m. this Monday morning, the price of a barrel of West Texas Intermediate (WTI), the American market benchmark, was up more than 6% to nearly $89, while the North Sea Brent, the global benchmark, gained over 5.5% to $95.37. Asian stock markets were still progressing but with caution.
Context: Oil prices experienced a sudden surge following the seizure of an Iranian cargo vessel by the US Navy in the Gulf of Oman.
Fact Check: The reference to the North Sea Brent was correct as the global benchmark for oil prices.
Talks in Limbo
After optimism regarding easing tensions in the Middle East and the prospect of resuming talks between Washington and Tehran caused oil prices to fall last week, the situation dramatically reversed this weekend.
Iran pledged on Monday to “respond soon” to the US Navy’s seizure of one of its cargoes. President Donald Trump earlier announced that the US Navy had opened fire on the Iranian cargo ship Touska in the Gulf of Oman and taken control over it.
Moreover, Tehran is currently not planning to “participate in the next Iran/US discussion session,” according to the Iranian state television on Sunday.
In response to the continued US blockade of its ports, Iran announced on Saturday to resume “strict control,” reversing its decision the previous day to reopen this maritime route, through which a fifth of the world’s oil and gas trade usually flows.
Iranian Vessel Seized
“The information with the most impact on the markets is undoubtedly the seizure of an Iranian vessel by the US military in the Gulf of Oman, with Iran also announcing that retaliatory measures would be taken,” noted Chris Weston, an analyst at the broker Pepperstone.
Context: Analysts are pointing to the capture of an Iranian ship as a significant driver of market volatility.
Fact Check: The mention of Chris Weston as an analyst at Pepperstone was correct.
“At the start of the week, the risk aversion tone is prevalent. The normalization of transit through the Ormuz Strait had been seen as a major diplomatic victory. However, in the absence of a comprehensive agreement on the Iranian nuclear program, the ceasefire remained fragile,” Weston emphasized.
“With transit through Ormuz now completely halted again, operators are now reassessing the probabilities and timeline of logistical normalization, adjusting their positions after the more constructive assumptions of last week,” added Weston.
Asia Remains Cautious in Financial Markets
At the Tokyo Stock Exchange around 6 a.m. in France, the key Nikkei index rose by almost 1% to 59,058 points, while the broader Topix index increased by 0.68% to 3,786 points. In Seoul, the Kospi index was up by 1.14%.
Despite the fluctuations in the Iranian situation, Asian markets seem to be reinforcing their gains from last week. However, the rise in crude oil prices could limit this progress. Faced with the possibility of high volatility, operators may favor companies that have recently reported solid quarterly results, according to analysts at Tokai Tokyo Intelligence.
Gold Slips, Dollar Holds Steady
Gold fell by 1.38% around 6 a.m., to $4.8 per ounce. The prolonged conflict in the Middle East and the recent escalation increase the prospects of sustained inflationary tensions, making it more likely for central banks to maintain or even increase interest rates. This is to the detriment of gold, as the yellow metal, being a safe haven, does not yield any returns.
On the other hand, the US currency rose by 0.19% against the Japanese yen, to 158.96 yen per dollar.
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