Oil Blockages Persist Despite 'Fragile' Ceasefire, Peace Deal Could Push Prices Lower, Macquarie Says
A potential peace scenario in the US-Iran conflict could drive oil prices lower and make the Great British Pound the most attractive trade opportunity, Macquarie strategists said in a Wednesday note.Macquarie said the US-Iran ceasefire remains fragile despite recent market gains, with oil flows still disrupted by blockades and Strait of Hormuz tensions, raising risks of renewed conflict if talks fail."The ceasefire itself has not alleviated the blockage in the flow of oil. Indeed, that's been made worse by the US blockade," strategists said.Macquarie said a peace scenario alongside easing oil prices would likely reverse the recent hawkish shift in central bank outlooks.The firm highlighted the Bank of England as most exposed to a reversal, favoring receiving nine- to 12-month Sterling Overnight Index Swap or GBP London Interbank Offered Rate positions if peace emerges.Macquarie said traders are weighing both escalation and de-escalation scenarios as reports of renewed US-Iran talks support sentiment, with even a temporary ceasefire extension seen reducing risks of a broader conflict.Oil prices fell and equities rose on optimism around potential peace, though continued US military deployments in the region are limiting further declines in crude by signaling readiness for renewed conflict, Macquarie added.Crude prices remain elevated due to the continued blockage of the Strait of Hormuz, with unresolved mine clearance and ongoing US sanctions on Iranian exports raising risks of renewed military action, according to Macquarie.Macquarie said the blockades aim to weaken Iran's economy, but warned Tehran could retaliate by targeting Saudi oil flows via proxy attacks, potentially disrupting up to 4 million barrels per day.Macquarie added the ceasefire remains fragile despite recent market gains, with oil flows still disrupted and risks of renewed conflict.The firm said market-implied odds of a lasting peace have declined, with probabilities of a deal by May 31 falling to 47% from 59% as US military deployments signal ongoing tensions.Macquarie said in a peace breakout scenario, oil and natural gas prices would likely decline, making lower energy costs a key condition for a sustained de-escalation outcome.Macquarie said a peace scenario could push central banks, led by the Bank of England, to reverse hawkish shifts.Markets still expect Bank of England and European Central Bank rate hikes, with GBP Overnight Index Swap pricing about 38 basis points of tightening, Macquarie said.The USD Overnight Index Swap curve implies roughly an 11 basis point rate cut by the Federal Reserve by year-end, signaling a comparatively more dovish stance.Macquarie said the divergence in rate outlooks stems from the Bank of England taking a more hawkish stance due to stronger concerns about rising inflation from higher oil prices.It added UK inflation expectations have risen more than in the US, pushing the Bank of England and European Central Bank toward tighter policy compared with the Federal Reserve.Macquarie said the Federal Reserve has acknowledged risks from higher energy prices, though Chair Jay Powell signaled uncertainty around how long inflation pressures may persist.The firm said the Bank of England has taken a more hawkish stance, warning that rising energy costs are already lifting consumer prices and could further drive inflation through wages and household bills.It added that the European Central Bank has also flagged inflation risks, particularly second-round effects, though its policy outlook has shifted less aggressively than the Bank of England.Macquarie said structural differences explain the divergence, as the US is a net energy exporter, while the UK and Europe rely heavily on imports, making them more exposed to sustained energy price shocks and inflation.