Risk appetite has shown resilience as global markets begin the week, yet geopolitical pressures have intensified once again. Over the weekend, prospects for U.S.-Iran negotiations suffered a significant setback. The U.S. President called off plans to send envoys to Islamabad for talks with Iran, citing what he described as serious internal conflict and disarray within Iran's leadership. On Sunday, Iran's foreign minister briefly returned to Islamabad, where Pakistan has been actively mediating to restart ceasefire discussions. However, the U.S. President indicated that future talks might shift to phone consultations. Reports indicate the Iranian diplomat has since departed for Moscow.
According to a U.S. official and two informed sources, Iran has presented a new proposal to the United States: reopening the Strait of Hormuz, ending hostilities, and postponing nuclear negotiations to a later date. Against the backdrop of lingering uncertainty surrounding this critical energy waterway and the Iran conflict, oil prices edged higher on Monday, reinforcing the risk premium in energy markets. The international benchmark Brent crude futures rose about 2% to $107.60 per barrel, while U.S. crude futures increased 1.89% to $96.18 per barrel.
Goldman Sachs now anticipates oil prices will remain elevated for a longer period and has raised its year-end price target for Brent crude from $80 to $90 per barrel. This revision reflects supply disruptions in the Persian Gulf that are proving more persistent than previously expected. In a report issued Monday, the investment bank noted that the timeline for normalizing exports from the Gulf has been pushed back to the end of June. Coupled with a slower pace of production recovery, this is causing a sharp tightening of supply. Goldman estimates that global inventories were drawn down at a record rate of 11 to 12 million barrels per day in April.
This outlook is echoed by other market observers. An investment strategist stated that so-called "fat tail" risks—referring to the probability of extreme events—still lie ahead rather than being in the past. Even if shipping eventually resumes through the Strait of Hormuz, the lag in supply restoration and persistently low inventories suggest the market will remain tight. A global investment management firm projects that $80 per barrel for Brent will likely serve as a floor this year unless full shipping normalcy is restored.
Experts warn that the longer the strait remains disrupted, the more severe the economic impact will be. Rising oil prices could eventually suppress demand, particularly in energy-importing regions.
In equity markets, resilience has been surprising so far. Global markets have recouped losses seen immediately after the outbreak of hostilities, with major indices hovering near all-time highs despite energy shocks. Analysts suggest this reflects a tug-of-war between geopolitical risks and strong structural drivers, especially artificial intelligence (AI). One strategist noted that the market is essentially balancing two forces: the "left tail" risk of geopolitics against the "right tail" opportunity of AI commercialization, with the latter currently dominating.
However, some caution that market sentiment may be becoming overly exuberant. While the primary trend remains upward, the same strategist expressed respect for the trend but reluctance to chase the rally at current levels, citing overheated sentiment and crowded positioning. Historical patterns suggest such excesses often signal weaker future returns.
Other institutions view volatility as a buying opportunity. A senior investment strategist from a major bank suggested that while short-term market turbulence is possible, he expects a U.S.-Iran agreement could be reached within weeks, leading to resumed shipping. He indicated that any near-term fluctuations would offer investors chances to add risk assets within a diversified portfolio.
Historical precedent also shows that markets can recover quickly from supply shocks. An economist pointed out that during the 1956 Suez Crisis, oil prices doubled and equities fell, but stocks rebounded swiftly to new highs after the canal reopened.
Asia-Pacific equities generally advanced on Monday, with key indices in Japan and South Korea reaching new peaks. U.S. stock index futures remained largely stable, indicating limited spillover effects from the weekend's developments. Government bond markets held steady, with the U.S. 10-year Treasury yield rising 1 basis point to 4.322% and the Japanese equivalent increasing over 2 basis points to 2.463%.
Beyond crude oil, broader commodity markets are beginning to show deeper, more lasting impacts, particularly in natural gas and food supply chains. Liquefied natural gas (LNG) is one under-discussed area; European benchmark gas prices are about one-third higher than pre-conflict levels, with roughly one-fifth of global LNG supply disrupted. Higher gas prices directly increase fertilizer production and agricultural costs, raising the risk of delayed but persistent food price inflation.
Pressure on food supply chains tends to manifest with a lag, meaning the Consumer Price Index (CPI) won't immediately reflect the impact. Key areas to monitor for secondary effects in the coming quarter include agricultural inputs and shipping insurance.
Supply disruptions have also extended beyond oil to affect commodities such as helium, aluminum, and sulfur. This amplifies inflationary pressures on industrial supply chains, complicating policy responses even if central banks currently appear inclined to look past the shock. As one strategist summarized, the bull market structure remains intact, but the market is struggling to balance genuine technical strength against an energy shock that has not yet been fully digested.
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