The fragile optimism surrounding the potential resolution of the US-Iran conflict has been tempered by warnings from top analysts, who caution that the road to normalisation will be long and complex. Despite initial investor enthusiasm following the announcement of a peace deal, market experts are urging caution, citing the significant headwinds facing major UK oil companies like BP and Shell. The proposed agreement has sparked a surge in European stock markets, with indices such as Germany's DAX and France's Cac 40 rising by 1.4 per cent and 1.1 per cent respectively on Monday.
However, the UK's FTSE 100 struggled to keep pace, initially rallying by 0.8 per cent before easing to a 0.3 per cent gain. This underperformance is largely attributed to the impact on major UK oil companies, whose share prices are being hampered by a dip in oil prices to under $84 a barrel. The two firms - BP and Shell - boast market capitalisations of £83bn and £180bn respectively, significantly influencing the broader index.
Chris Beauchamp, chief market analyst at IG, noted that investors are "cheering the news, hopeful that things can return to something approximating pre-war normality fairly soon." However, this optimism is tempered by warnings from other analysts. Tamas Varga of TP ICAP's PVM Oil associates described the situation as far from straightforward, suggesting that while the conflict might be nearing an end, the "pre-crisis status quo may never be fully restored, or at least not for a long time." Neil Wilson, UK investor strategist at Saxo Markets, added that "the realisation will dawn on markets that unwinding the Gordian knot of US-Iran relations will take time – energy prices will decline slowly rather than suddenly."
Adding to the complexity, Iran's chief negotiator, Mohammad Bagher Ghalibaf, cast doubt on peace prospects on Sunday night. He stated that a recent strike on Lebanon by Israel indicated the US was not fulfilling its commitments, questioning their will or ability to do so, and suggesting there was "no point" in continuing negotiations. The full details of the proposed deal, which is scheduled to be formally signed in Switzerland on Friday, are yet to be confirmed.
The US-Iran conflict had a significant global economic impact, with Brent crude – the international benchmark for oil prices – temporarily breaching $138 a barrel. This led to considerable pressure on energy costs worldwide. In the UK, petrol prices hit an average of 159.43p per litre, directly affecting British households. The conflict also contributed to a three-year high in US inflation, reaching 4.2 per cent, largely due to spiking energy prices.