Several analysts said Iran would likely not close the waterway because Iran itself uses the strait to move its own crude, mostly to China, and it needs the revenue made from such sales of oil.
“It’s a scorched earth possibility, a Sherman-burning-Atlanta move,” said Tom Kloza, chief market analyst at Turner Mason & Co. “It’s not probable.”
Neil Newman, managing director of Atris Advisory Japan, said hope remains that the Israel-Iran war could be a short conflict, with the thinking being “the one big hit by the Americans will be effective and then we’ll get back to sort of business as usual, in which case there is no need for an immediate, panicky type of reaction.”
Of course, not everyone is sure about Iran’s next move.
Andy Lipow, a Houston analyst covering oil markets for 45 years, said countries are not always rational actors and that he wouldn’t be surprised if Tehran lashed out for political or emotional reasons.
“If the Strait of Hormuz was completely shut down, oil prices would rise to $US120 to $US130 a barrel,” said Lipow, predicting that that would translate to about $US4.50 a gallon at the pump and hurt consumers in other ways.
“It would mean higher prices for all those goods transported by truck, and it would be more difficult for the Fed to lower interest rates.”
The Federal Reserve has been hesitant to lower interest rates this year because it’s waiting to see how much President Donald Trump’s tariffs will hurt the economy and raise inflation.
Inflation has remained relatively tame recently, but a rise in oil and gasoline prices would put upward pressure on it. That in turn could keep the Fed on hold because cuts to rates can fan inflation higher, along with giving the economy a boost.
A preliminary report on Monday suggested tariffs are pushing up prices for US businesses, whose overall activity is growing by more than economists expected. The data from the survey “corroborate speculation that the Fed will remain on hold for some time,” according to Chris Williamson, chief business economist at S&P Global Market Intelligence.
In the bond market, Treasury yields eased after Fed Gov. Michelle Bowman said she would support cutting rates at the Fed’s next meeting in just a month, as long as “inflation pressures remain contained.”
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The yield on the 10-year Treasury fell to 4.30 per cent from 4.38 per cent late Friday. The two-year Treasury yield, which more closely tracks expectations for the Fed, dropped to 3.82 per cent from 3.90 per cent.
On Wall Street, Elon Musk’s Tesla was the single strongest force pushing the S&P 500 higher after jumping 9.4 per cent. The electric-vehicle company began a test run on Sunday of a small squad of self-driving cabs in Austin, Texas. It’s something that Musk has long been touting and integral to Tesla’s stock price being as high as it is.
Hims & Hers Health tumbled 32.3 per cent after Novo Nordisk said it will no longer work with the company to sell its popular Wegovy obesity drug. Novo Nordisk’s stock that trades in the United States fell 5.7 per cent.
In stock markets abroad, indexes fell modestly across Europe after finishing mixed in Asia. France’s CAC 40 sank 0.7 per cent, and Hong Kong’s Hang Seng rose 0.7 per cent for two of the world’s bigger moves.
AP
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