Viewpoint: War shows signs of ending and ZAR looks better

One positive outcome of the past week’s events has been the retreat in oil and gas prices. News of a cease-fire in Lebanon lent credence to speculation that geopolitical tensions in the Middle East were abating and that peace was indeed on the horizon.

Although unfettered access to the Strait of Hormuz has not yet been agreed to, it appears that talks between the US and Iran are headed in that direction.

EU and Gulf State authorities believe negotiations between Iran and the US will be extremely complex and may last several months.

However, the markets only need to know that the talks are progressing and that the current ceasefire will be extended for as long as necessary to conclude the peace deal.

Evidently, the market sees this scenario as realistic, as evidenced by the right-hand chart, which shows significant backwardation.

If the scenario painted by the futures market proves accurate, the impact of the energy price crisis will not find meaningful traction in the second round effects on inflation, and the impact on financial markets will be limited.

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