How would the reopening of Hormuz reshape markets?

Investing.com -- Reports of a potential U.S.-Iran deal are prompting analysts to weigh what a reopening of the Strait of Hormuz would mean for oil prices, inflation and equity markets, with the broad consensus suggesting the impact would be significant but uneven.

Capital Economics cautioned that even if the strait reopens, oil prices may not quickly return to pre-conflict levels, and inflation in some advanced economies could still climb to 3% to 4%.

But the firm argued that "markets may still be overestimating how far central banks would ultimately need to tighten in response to another energy shock," noting that the current macro backdrop differs materially from 2022.

Barclays analyst Emmanuel Cau told investors in a note this week that a confirmed deal targeting the reopening of the strait, combined with a subsequent drop in oil and rates, could broaden equity market performance and help European stocks break out of a three-month trading range.

Cau noted that energy shocks "in recent decades have not had a lasting impact on oil, with prices falling sharply once the dust settled."

Javier de Berenguer, investment manager at MAPFRE, said the market is currently less focused on oil risk than on missing the AI rally.

"The risk investors are factoring in is being left out of AI," he said. However, he warned that if the conflict drags beyond July or August, markets would shift from pricing oil risk to pricing scarcity risk, a scenario that could trigger a recession.

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