US President Donald Trump commenced Tuesday with a confident posture regarding Iran, asserting on CNBC’s Squawk Box that Iran had “no choice” but to accept a “great deal” and initially dismissing the need to extend a two-week ceasefire. However, less than ten hours later, the President announced an indefinite ceasefire, pending a “unified proposal” from Iran’s leadership. This policy reversal comes amidst a backdrop where the Strait of Hormuz remains shut, contributing to a rapidly unfolding global energy crisis.
While oil prices continued their upward trajectory on Wall Street, with Brent crude rising 3.8 per cent to $US92.13 a barrel, markets appear to be taking some comfort in the President’s apparent intent to secure a deal. Despite a slight dip on Wall Street, significant investor gains from the past fortnight largely remain intact. However, historian Niall Ferguson suggests markets may have miscalculated the swiftness of a resolution, arguing that with regime change unachieved, the US is left with negotiations, but Iran is unlikely to capitulate, recognising the considerable leverage gained by keeping the Strait closed.
Ferguson posits that the path forward will be protracted. He draws a parallel to the 1973–74 oil embargo, which took over four months to resolve, suggesting the current negotiations could also take longer than Mr Market currently believes. Given the unlikelihood of deploying ground forces, the US strategy rests heavily on peace talks, but Iran may employ tactics akin to the North Vietnamese playbook, prolonging discussions.
This prolonged uncertainty casts a shadow over the Australian economy, which could find itself in a dire position should the Strait of Hormuz remain blocked for several more months. Wednesday brought fresh profit warnings from Cochlear, an Australian bionic ear maker, and health group EBOS. These companies, specialising in hearing implants and a wide array of healthcare products and services respectively, join others like Westpac, NAB, Qantas, and Virgin Australia in flagging adverse effects from the conflict, whether through escalating costs or increasing bad debts, indicating this procession of warnings is likely just beginning.
