Oil topping $100 amid Red Sea attacks is rattling markets, affirms the CEO of one of the world’s largest independent financial advisory organisations.
Nigel Green of deVere Group’s comments come as Brent crude touched $100.64 a barrel on Thursday, a jump of 7%, after Houthi rebels claimed to have struck two Saudi oil tankers in the Red Sea.
US crude rose to $91.83, up 5.8%. The Bab el-Mandeb Strait, which carries around 7% of global oil supply according to Oxford Economics, is now under direct threat alongside the Strait of Hormuz.
Wall Street felt it within minutes, with the S&P 500 and Dow Jones Industrial Average both falling 1% at the open and the Nasdaq Composite down 1.8%.
He says: “Two of the world’s busiest shipping corridors are under threat in the same month, and markets are only just beginning to work out what that means.
“The timing is awkward for the Federal Reserve, which meets on July 29. Inflation had climbed for three straight months to 4.2% in May, its highest level in years, before cooling to 3.5% in June largely because gasoline prices fell nearly 10% during the brief ceasefire between the US and Iran.
“With that ceasefire now collapsed and oil back above $100, the drop which gave the Fed room to relax may already be reversing.”
He says: “The Fed will find holding steady a harder case to make than it looked even a few weeks ago.”
Gasoline carries significant weight in the monthly inflation data, which means a sustained rise at the pump does not stay confined to household budgets. It flows straight back into the same reading the Fed will be watching on July 29.
He says: “Airlines and retailers strike me as more exposed here than their current share prices suggest.”
There is a structural question sitting underneath the day’s trading as well. With both Hormuz and Bab el-Mandeb compromised at the same time, the usual assumption that one disrupted route can be absorbed through another looks considerably less safe than it did a few weeks ago.”
He says: “Anyone who built a bond portfolio around the idea that rate cuts were coming soon probably needs to revisit that view. This looks less like a short-lived spike and more like a genuine reopening of the inflation question.”
Currency markets typically to react quickly to this kind of escalation, often before the underlying picture is fully clear, and safe-haven demand for the dollar has historically picked up once a crisis starts touching physical supply rather than sentiment alone.
He says: “I’d rather investors think through what happens if this doesn’t stay contained to two chokepoints.
“A third disruption, or insurers stepping further back from war-risk cover, would take oil somewhere higher than today’s levels, and that’s worth having a view on now rather than after it happens.”
He concludes: “Single-session moves of this size are uncommon. A confirmed attack producing a 7% jump in one day is something markets have historically seen only occasionally, even during volatile stretches, which is partly why the reaction has been so immediate.”
