New Inflation Concerns

Ceasefire in Jeopardy: Iran Cancels Peace Talks

In the war, now in its eighth week, thousands of people have lost their lives since it began on February 28.(Bild: EPA/ROLEX DELA PENA)

Concerns that the ceasefire between the U.S. and Iran might collapse grew on Monday. This is due to new tensions following the U.S. seizure of an Iranian cargo ship. A new economic shock is already looming.

The Iranian government has rejected a new round of negotiations that Washington wanted to initiate before the ceasefire expires on Tuesday. This is due to Washington’s “excessive demands,” as reported by Iranian state media.

“You cannot restrict Iran’s oil exports and at the same time guarantee security for others,” wrote Iran’s First Vice President, Mohammad Reza Aref, on social media. Trump had threatened Iran that the U.S. would destroy every bridge and power plant in the country should Tehran reject his terms.

In the war, now in its eighth week, thousands of people have lost their lives since it began on February 28.(Bild: EPA/ROLEX DELA PENA)

New financial shock looms
Weighed down by a stronger dollar and the recent escalation in the conflict between the U.S. and Iran, the price of gold fell by more than one percent on Monday. The price of one troy ounce dropped to $4,762.09, reaching its lowest level since April 13.

Everything the stock markets celebrated on Friday is now a thing of the past.

Portfolio-Manager Thomas Altmann

The strong gains on the stock markets on Friday are likely to be followed by heavy losses at the start of the week in light of the renewed escalation of the situation in the Middle East. The Euro Stoxx 50 opened with a sharp drop of 1.38 percent to 5,974.30 points. About an hour after the market opened, the DAX fell by 1.38 percent to 24,360.70 points. “Everything the stock markets celebrated on Friday is now null and void,” commented portfolio manager Thomas Altmann of QC-Partners.

Energy prices rose
In addition, energy prices rose again: The price of European natural gas rose significantly on Monday following Iran’s reversal of its decision to reopen the Strait of Hormuz. On the Amsterdam stock exchange, the price of the benchmark TTF natural gas futures contract for delivery in one month rose by nearly six percent to 41.02 euros per megawatt-hour (MWh).

The tensions also drove up oil prices and reignited inflation concerns. A barrel (159 liters) of North Sea Brent crude rose by 7.26 percent to $96.94. 

Pakistan is acting as a key mediator in the conflict.(Bild: AFP/FAROOQ NAEEM)

Federal Reserve Governor Christopher Waller stated that the conflict would likely fuel short-term inflation. Market participants fear a prolonged disruption of shipping traffic in the Persian Gulf.

Meanwhile, mediator Pakistan appeared to be preparing for the talks. In the capital, Islamabad, public transportation was restricted and security measures were implemented. The U.S. delegation was scheduled to arrive there Monday evening, one day before the expiration of a two-week ceasefire.

U.S. Navy fired on Iranian freighter
On Sunday night, Tehran accused the U.S.of violating the ceasefire. The reason cited was the firing on an Iranian merchant ship in the Gulf of Oman. The ship is said to have attempted to break through the U.S. blockade. “We have complete control of their ship and are checking what’s on board!” President Donald Trump raged on social media. An Iranian military spokesman called it “armed piracy” and announced a swift response. The ship had reportedly been en route from China. 

The Most Severe Shock to Energy Supply in History
In addition to causing immense human suffering, the Iran War triggered themostsevereshock tothe global energy supply inhistory. It began with U.S.-Israeli attacks on Iran and an Israeli invasion of Lebanon, to which Iran responded with missile and drone strikes.

In addition, the U.S. is maintaining a blockade of Iranian ports, while the government in Tehran is blocking shipping traffic through the strategically important Strait of Hormuz. According to data from the analytics firm Kpler, more than 20 ships passed through the strait on Saturday shortly before the renewed escalation. This was the highest number since March 1.