Although the effect of the agreement was immediately felt in the markets, analysts anticipate that it will take months or even years for the end of the conflict to be felt in consumers’ wallets.
The move to end the conflict between the United States and Iran has been met with enthusiasm by financial markets, but businesspeople and economists warn that the economic recovery will be slow and that the effects of the war will continue to linger. feel for several months or even years.
Almost four months after the start of the conflict in the Middle East, US President Donald Trump announced on social media an understanding that provides for the cessation of hostilities and the opening a 60-day period for negotiations about the Iranian nuclear program. The reaction was immediate: the price of oil fell, the stock markets rose in value and investors showed signs of greater confidence.
Prices will take time to come down
However, despite the crash, the price of oil remains above pre-conflict values. In the February 27 session, which was the last before Operation Epic Fury, North Sea Brent closed at $72.48 and West Texas Intermediate was at $67.02. Close to closing time this Monday, the value of Brent fell to 82.53 euros per barrel and WTI skidded to 79.88 euros. Accounts done, the prices are still 10 and 12 dollars higher of the value recorded before the war.
“When the day comes, the reopening of the Strait of Hormuz will be an extraordinary event: the resumption of production from around 10,000 oil wells, responsible for approximately 15% of world productionwho had been paralyzed for 100 days and counting. Nothing even remotely like it has been tried—ever. The oil industry does not have an instruction manual for this; you will learn in practice”, defended Javier Blas, specialist in international economics, in a Bloomberg publication published on the 8th.
Neil Shearing, chief economist at the Capital Economics group, stresses that it is not yet known whether the latest agreement “represents a fragile truce or a lasting solution”. “Even though ships now have safe passage, oil tankers are in the wrong place, oil production/refining facilities need to reach maximum capacity and doubts about the cost and availability of insurance for ships crossing the Strait will persist”, he tells .
Another of the sectors most affected by the conflict was fertilizers, which are a by-product of oil. Maurizio Carulli, global energy analyst at Quilter Cheviot, believes the agreement “should help alleviate immediate pressure on fertilizer markets”, but that the effect will not be instantaneous.
About a third of traded fertilizers and large volumes of natural gas, used in the production of nitrogen fertilizers, pass through the Strait of Hormuz and the “persistent damage to energy infrastructure” will take time to repair. The reduction in food prices will also take time to be felt because “the harvest has already started in several parts of the world, so the resumption of deliveries of nitrogen and phosphate fertilizers it will be too late” to be felt this year.
Rising interest rates should calm down
The European Central Bank spent almost three years last week trying to contain the rise in inflation caused by the rise in oil prices.
Before the agreement is signed, investors expected two more interest rate increases in the coming months. With the cessation of attacks between the United States and Iran, now anticipate just one more climbwith a marginal probability of a third increase.
“If this news is confirmed by developments in the coming days and the signing of a memorandum of understanding, it’s good news. We can only celebrate”, declared Christine Lagarde, president of the ECB, on France Culture radio, who stresses that “the whole issue of uranium enrichment still needs to be debated, agreed and concluded” before long-term forecasts can be made.
Joachim Nagel, president of the Bundesbank and member of the Governing Council, advises caution. “There is no relief in sight in the near future. On the contrary: even if the Strait of Hormuz becomes navigable again soon, it would take months for oil supplies to return to normal”, he points out, noting that all options remain open at the next BC meeting scheduled for July 22nd and 23rd.
Scenario for Portuguese companies still uncertain
Despite the initial relief, business representatives in Portugal emphasize that the agreement is far from meaning an immediate return to normality.
Luís Miguel Ribeiro, president of the Portuguese Business Association, considers that the understanding constitutes “a positive sign”, but remembers that the economic damage will persist. “The consequences of conflict on supply chains, energy trade and financing do not disappear the moment the agreement is signed. These are structural adjustments that take time to be absorbed”, he tells .
According to him, the reduction in geopolitical risk should contribute to a gradual decline in energy prices and to the unblocking investments that were suspended during the crisis. Still, he warns that the destruction of energy infrastructure in the Gulf will continue to limit supply for some time.
Aurélio Caldeira, general director of the Portuguese Association of Companies in the Electrical and Electronic Sector, also calls for caution because the agreement is “still very fragile”. The manager anticipates a recovery at different paces. “Financial markets can react positively over a horizon of days or weeks, but the real economy, industry, commerce, employment and investment will require several quarters or years to recover”he explains.
