Markets are overly optimistic about a volatile ceasefire
After 38 days of war and an oil price that had climbed roughly a third above preconflict levels, markets were primed for any good news. The announced ceasefire thus understandably triggered a relief rally on the JSE on Wednesday (“Iran ceasefire triggers JSE buying spree”, April 9). However, the scale of the bounce reflects a degree of optimism that is not warranted by the terms of the ceasefire.
The ceasefire announced on April 7 is a two-week pause, not a settlement, and the distance between those two things is considerable. Iran’s 10-point counterproposal includes demands for Iranian oversight of the Strait of Hormuz, the full withdrawal of US combat forces from the region, the lifting of all primary and secondary sanctions and compensation for war damages.
Within 24 hours of the ceasefire announcement, a discrepancy emerged between the Persian and English versions of Iran’s own proposal. The Persian text included the phrase “acceptance of enrichment” regarding uranium, language that was absent from the English versions shared by Iranian diplomats with journalists.
Throughout the first day of the ceasefire the Strait of Hormuz remained largely blocked, with sporadic fighting continuing across the region. Israel has stated the ceasefire does not apply to Lebanon, where it remained engaged in an active ground campaign and Hezbollah recorded its highest single-day attack volume since the conflict began on the day the ceasefire was declared.
The market’s read of the energy situation is incomplete. Oil at about $100 per barrel is not normalised, it is still a third above its prewar level. Energy infrastructure damage across the region is severe. The export capacity of the Ras Laffan LNG hub in Qatar, which produces roughly a fifth of the world’s liquefied natural gas, was reduced 17% in mid-March strikes, with full repairs expected to take five years. These structural capacity reductions will translate to long-term inflationary consequences regardless of the outcome of the Islamabad talks.
Iran’s own ceasefire acceptance statement was explicit that the agreement does not constitute the termination of the war. Markets appear to have read the headline and stopped there.
South African investors have good reason to hope for stability in the Middle East. The JSE’s sensitivity to oil-driven inflation and rand pressure is well understood, and a genuine, durable settlement would be consequential for our economy.
However, Wednesday’s rally priced in a resolution that has not yet occurred, on terms that have not yet been agreed, between parties whose stated positions remain irreconcilable on the most fundamental questions. The ceasefire is a volatile pause in an unresolved conflict.
