Iran Deal May Not Ease Oil Market Woes

Investors are fixating on an Iran deal that may not have much impact. The US President has signaled a willingness to let economic pressure mount against Iran, potentially backing away from further military strikes after Tehran issued demands for opening the Strait of Hormuz.

The oil market's reaction to even slight hints of progress in negotiations suggests investors are attaching too much significance to what a diplomatic understanding between the U.S. and Iran can accomplish. Regardless of the deal details, large shares of global oil, gas, helium, aluminum, and fertilizers will remain at risk due to regional stability issues.

With midterm elections approaching, President Donald Trump wants to get out of this quagmire as fast as possible with something that looks like success. However, it's unclear whether more bombing will unlock significant Iranian concessions.

A narrow understanding to reopen shipping may be welcome news but won't last long due to Iran and Oman controlling the strait. Shipping companies may still need to pay 'tolls' or bribes for safe passage, and Iran's hard-liners are gaining power, insisting on developing nuclear weapons and having active regional proxies.

Deal or no deal, any agreement will be a Band-Aid on a deeper wound. The U.S. will likely make fresh threats of military attacks, and Iran will respond by closing the strait again. Prices for oil to helium will rise once more.