As we enter the thirteenth day of the month, it coincidentally marks thirteen days since the US–Iran conflict began. Developments have been moving at such speed this week that the situation may have shifted again by the time you read this. While a ceasefire would clearly be the best‑case scenario, the likelihood of that happening at the time of writing remains low.
On Monday evening, the US President announced that the conflict with Iran was nearing an imminent end. Markets responded quickly to this development: crude oil prices fell to $83 on Tuesday, a drop of more than 20% after having surged to a four‑year high the previous day. Prices softened further following a post on X from the US Energy Secretary claiming that the US Navy had escorted an oil shipment out of the Strait of Hormuz. This however proved inaccurate, the post was deleted, and the White House firmly denied that any such operation had taken place. The dip in prices was short‑lived, and oil soon rebounded above $95.
Weekend speculation that Mojtaba Khamenei would assume the role of Supreme Leader was confirmed at the start of the week. His absence from public view added to uncertainty around the direction he might take — whether he would double down on his father’s stance on the conflict or signal openness towards a ceasefire. Clarity came on Thursday, when his first statement, read on national Iranian news channels called for national unity and asserted that the Strait of Hormuz would remain closed to Iran’s adversaries. The message triggered an immediate market response, pushing crude oil back above $100.
Saudi Aramco, the world’s sixth‑largest company, is accelerating efforts to export around 70% of its usual oil shipments through the Red Sea port of Yanbu, in a move to bypass the Strait of Hormuz. At the same time, the International Energy Agency is preparing to release around 400 million barrels to help stabilise supply, although the timing of when these barrels will reach the market remains unclear. Japan’s Prime Minister, Takaichi, also announced that the country will release stockpiles from its national reserve — a significant move for an economy heavily dependent on Middle Eastern crude.
US inflation for February (year‑on‑year) held steady at 2.4%, in line with market expectations. Core inflation — which excludes energy and food — showed a similar pattern, remaining at 2.5%. The duration of the conflict will be an important driver of future inflation prints, as the recent surge in oil prices is likely to feed through to higher transport and production costs, ultimately filtering down to consumers. The Federal Reserve is also aware of the K‑shaped dynamics that have emerged within the US economy, and any re‑acceleration in inflation would disproportionately affect lower‑income households.
The US Federal Reserve is set to meet in five days, with markets pricing in a 99.5% probability of a pause. As ever, the post‑meeting commentary will be just as important as the decision itself, particularly given the heightened risks to inflation from recent geopolitical developments. The Fed has continued to operate normally despite the partial US government shutdown, which has gone largely unnoticed after almost a month. In Congress, policymakers have again failed to agree on a funding bill, with negotiations stalling over calls for stronger guardrails on federal immigration enforcement.
This Friday morning, the UK released its January GDP figures, showing that the economy flatlined on a month‑on‑month basis. Over the three months to January, growth rose by 0.2%, slightly below market expectations of 0.3%. Sharp declines in the hospitality and production sectors offset growth in construction. The recent cooling in hiring reflects the impact of higher national insurance contributions rather than displacement from artificial intelligence.
We have continued to witness broad based weakness in asset markets over the course of the week. There were expectations of imminent interest rate cuts from both the US Fed and Bank of England; those cuts now seem firmly off the table given the events in the Middle East. We’ve seen cyclical stocks come under pressure as concerns around economic growth begin to manifest, while energy stocks have held up relatively well. Looking forward any sort of ceasefire should be positive for a range of assets, while prolonged conflict will cause investors to reassess their base case for economic growth, inflation and interest rate policy.
A closing thought for today: on a rollercoaster, the real danger comes from jumping off midway. The same holds true in markets.
Nathan Amaning, Investment Analyst
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