Uneasy Gulf calm keeps USD resilient

The initial announcement by the Qataris that a deal had been struck between Iranian and Omani negotiators was met with a more cautious optimism that the MoU back in mid-June. That deal was well anticipated, with Crude futures falling 14% in the 3 days leading up to the June 17^th signing, before going on to soften 10% further in the 10 days following. Crude futures did drop 10% last week but are actually back above $80bbl as of present.

Likely, this owes to the full details of the deal gradually coming to light, such as that this is just an interim deal for “4-6 months” and that it does not “represent a full reopening of the Strait”. Indeed, the deal, which has still only been agreed in principle, only represents an agreement to “manage traffic” through the Strait in a way that allows for a partial resumption of exports.

Moreover, little needs to be said about the credibility of a “4-6 month deal” when the MoU only lasted 3 weeks. Naturally, Iranian strikes on tankers exiting the strait closer to the Omani side of the Gulf, in the face of Iranian demands of not only total control of their side of the strait, but a great authority over the Omani side too are what caused the collapse of the MoU. Whether anything has changed this time around is very difficult to know.

Reducing this complex concoction down to practical FX commentary is difficult, but should this latest deal prove to hold over the next 3 weeks, and Oil again commences to exit the Gulf, we may expect to see USD softer. Mistrust over both sides' willingness to fully commit to peace within the market is keeping USD’s safe haven value alive whilst also keeping the Fed in a hawkish mood. Should we see average US Gas prices drop back below $4 a gallon, USD may go from retreat to rout.