UBS On-Air: Paul Donovan Daily Audio 'The bias to optimism reasserts itself'
5/25/20263 min
Iran confirmed progress in talks with the US, lending credibility to US President Trump’s weekend social media posts. A deal still seems some way off, but progress is enough to fuel markets’ inherent bias to optimism and oil prices have fallen. Reopening Hormuz would not return oil prices to pre-war levels. However, the impact of any Iranian tariff on tankers using the strait (probably around USD 2 million per shipment) would be an economic rounding error for global inflation.
Transcript preview
First 90 secondsPaul Donovan· Host0:01
Good morning. This is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's seven o'clock in the morning, London time, on Monday the twenty-fifth of May. Iran has confirmed that talks with the United States are making progress, and that has lent credibility to some of US President Trump's weekend social media posts. Oil prices have fallen as a result. Any reopening of the Strait of Hormuz would not lead to pre-war oil prices, which is something consumers will notice. However, the increasingly likelihood that Iran is able to charge a tariff on ships passing through Hormuz is not likely to be too disruptive to global markets. While some countries' ships may be excluded from Hormuz, this is a global market overall and would balance. Excluding ships is a political gesture, but economically meaningless. If oil from specified Gulf states was to be blockaded, that would be more significant. The tariff that has been talked of at two million dollars per tanker is just a rounding error in terms of the global oil price and would not have a meaningful economic impact outside of Iran. The boost to Iranian tax revenues would make a difference within Iran. European Central Bank