As the world grapples with the ongoing energy crisis, equity markets remain vulnerable to the ever-present risk of geopolitical tensions. The latest development in the Middle East, Iran’s proposed exclusion zone, could further constrain ship-to-ship transfers and exacerbate an already tight product market. According to Vitol’s Hardy, Hormuz flows are currently running at around 10 million barrels per day, with most of those being crude oil. However, the outperformance of Shanghai crude futures raises questions about China’s potential return as the marginal buyer, despite having reduced apparent demand in recent months.

While there are some grounds for optimism on diplomatic fronts, with Iran claiming that discussions with Oman are nearing an agreement, it remains to be seen if this will translate into a broader US deal or operational solution. The incentives to compromise are certainly there, but tangible progress has been limited so far. For Washington, the need for time to allow lower energy prices to feed through before political deadlines is crucial, while Tehran risks losing its source of leverage afterwards.