Iran put a proposal on the table at the end of the United Nations General Assembly week. It centred on ending the war across several fronts, lifting the naval blockade, removing sanctions, ending restrictions on Iranian oil exports and releasing frozen assets, in exchange for reopening the Strait of Hormuz.
Trump rejected it within hours, posting that he did not like it and that it was totally unacceptable. Tehran responded that its offer had been generous and responsible.
Brent rose more than 3.5 per cent on the Monday, climbing past 105 dollars and extending toward 108. Two days later it settled about 2.5 per cent lower as traders focused on signs of recovering crude exports. By Thursday it was close to flat while investors assessed talks and Gulf export volumes. Across the same week the price absorbed a rejection, a mediation effort, a denial, a troop announcement and a reserve release plan, and moved on each one.
This is what a commodity looks like when it has stopped pricing supply and started pricing sentences.
The strait itself has become the entire conversation. Before the war began on 28 February it carried about a fifth of the world’s oil and liquefied natural gas. Traffic since has fallen to a trickle, and the diplomatic question is not whether the oil exists but whether the water can be crossed.
There is an operational lesson sitting inside this that has nothing to do with geopolitics.
When a price starts responding to statements rather than to volumes, every participant downstream loses the ability to plan. The airline cannot set a fare for next summer. The haulier cannot quote a contract. The cafe cannot sign a twelve month supply agreement for anything that arrives by sea, which in most kitchens is a great deal more than people realise. Nobody is short of the product. Everybody is short of a number they can rely on.
The instinct in that environment is to wait for clarity, and it is almost always wrong, because clarity in this kind of situation does not arrive gradually. It arrives in one announcement, after which the price has already moved and the opportunity to act on the old price has gone.
The alternatives are duller and better. Shorten your commitments so that being wrong costs a month rather than a year. Build the cost increase into the price now rather than absorbing it in the hope of a reversal. Split supply across routes that do not share a single failure point, even at a worse headline rate, because the premium you pay for the second route is the cheapest insurance available.
Oil markets are reacting sharply to every diplomatic and military development, which is a polite way of saying that the barrel has become a mood ring worn by several governments at once.
The physical thing has not changed. Only the sentence it is attached to.
Source: Reuters, “Oil prices settle slightly higher on supply worries as Trump rejects Iran proposal”
