US-Iran Negotiations: A Cycle of Reversals

Conflict update:The US-Iran conflict has entered a volatile new phase defined by continuous military and diplomatic reversals. Following a brief reopening, Tehran abruptly closed the Strait of Hormuz again. In parallel, a second round of negotiations in Islamabad has suddenly ceased and the ceasefire is now under acute strain after the US Navy seized an Iranian cargo ship, prompting Iran to launch a drone attack against US military vessels.Oil and gas:Driven by continuous policy reversals, the oil market has faced massive volatility. Brent dropped to a low of $86/barrel after Iran fully opened the strait last Friday but surged back toward $96/barrel following the abrupt closure over the weekend.CDS:CDS spreads from GCC countries have fallen significantly since the war began, reflecting a more optimistic market outlook for an eventual resolution of the crisis.Stock/other Markets:Driven by optimism over a potential end to the conflict, the Dubai market rebounded, increasing around 8% from April 1 to April 17. And yet, stock markets on April 20 reacted negatively to the re-closure of the Strait (with around 2% fall for Dubai’s stock market).Investment flow:     The flow data painted a similar picture, with substantial foreign capital inflows totaling more than $600 million into the Saudi and Dubai markets in last week. Real economy:     Physical shipping traffic remains severely suppressed at roughly 8-12 vessels per day since the opening of the Strait was really short-lived.