Iran war: Oil banking on phantom deal

Oil markets are pricing in a potential US-Iran peace deal that has not yet materialized, despite recent reports of attacks on commercial shipping in the Strait of Hormuz. The United Kingdom Maritime Trade Operations (UKMTO) agency warned on Monday that other vessels should exercise caution as they transit the area, indicating heightened regional maritime risks.

This comes as there have been ongoing peace negotiations between Iran and the United States, following President Donald Trump's comments that a deal with Tehran is possible. Treasury Secretary Scott Bessent stated that a deal could be signed by today, while Secretary of State Marco Rubio reported progress in talks with Iran and Oman.

However, market analysts caution that optimistic assurances like these have been made before, only for tensions to flare up shortly thereafter. Consequently, recent diplomatic overtures should be viewed with skepticism. Two analysts from ING Bank argue that the recent drop in Brent crude prices may be overdone, given the ongoing uncertainty. They note that this situation has been repeated in the past, only for hostilities to escalate days later.

Currently, the Strait of Hormuz remains largely stagnant, with vessel tracking data showing only 15 ships passing through the chokepoint on Monday, according to maritime intelligence firm Windward. While this represents an increase from the six vessels recorded the previous day, overall traffic remains heavily restricted and far below pre-conflict levels.

Approximately one-fifth of global seaborne oil supply once passed through the Strait of Hormuz before the US and Israel launched a joint military attack against Iran on February 28. ING Bank's analysts state that, for now, tanker movements through the Strait of Hormuz remain highly constrained, leading to a tightening of the global oil market.

Oil prices have experienced significant volatility during this period, oscillating between diplomatic breakthroughs and missile attacks, even as actual cargo shipments continue to be largely disrupted. Analysts express the real risk that any deal could unravel quickly, as seen with a previous Memorandum of Understanding.