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•    Three weeks after the US-Iran conflict began, there is no clear resolution in sight.
•    Meanwhile, US-China tensions persisted even though talks had resumed.
•    Central banks are caught between the energy shock and the risk that inflation expectations might de-anchor.

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In recent weeks, virtually all the attention of financial market participants has been focused on the conflict in the Middle East, with the state of trade flows through the Strait of Hormuz taking centre stage. Indeed, the Strait is a key choke point for maritime traffic. 

It has now been nearly three weeks since the conflict between the United States and Iran began—another geopolitical crisis in a world where the dividends of peace seem to have vanished for good. With every geopolitical incident, it is usual for superlatives to be thrown around to describe the gravity of the situation, but in this specific case, it is no exaggeration to say that this is the most significant crisis in the history of the oil market. The closure of the Strait of Hormuz had long been a tail-risk scenario in the minds of all investors—and perhaps in Donald Trump’s as well. But the U.S. president’s decision to overthrow the Iranian regime by eliminating its Supreme Leader on the very first day of the conflict has pushed Tehran to effectively block the world’s most important maritime chokepoint. Before the war, nearly 20% of the world’s oil supply passed through there. For nearly three weeks now, the world has lost nearly 12 Mb/d of oil flow, which is by far the largest supply disruption in history, far exceeding the 5 Mb/d lost during the two oil crises in the 70’s or the 4 Mb/d that disappeared during the two previous Gulf Wars in the 80’s and 90’s. 

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•    Mojtaba Khameinei’s appointment as Iran's supreme leader marked another notch higher in Middle East tensions.
•    Last Monday, Donald Trump claimed US operations in Iran had already made significant progress and that they could end soon.
•    China, meanwhile, is still in remarkable export health.

Edmond de Rothschild Asset Management announces the appointment of Cédric Van Kerrebroeck as Sales Representative Belgium, effective on March 2nd. In his new role, Cédric will be responsible for developing new business with professional clients in Belgium and for managing and strengthening relationships with existing clients and consultants across the country. He will cover wholesale and retail segments, as well as selected institutional clients and life insurers. Based in Brussels, Cédric reports to Nicolas Bonardo, Head of Distribution France and Benelux, Edmond de Rothschild Asset Management.

•    Tehran is maintaining a firm stance and seeking to rapidly increase the economic and geopolitical costs for its adversaries, targeting energy infrastructure and maritime routes as a priority.
•    If the crisis persists, a sustained rise in energy prices could simultaneously weigh on household purchasing power, business costs, and margins.
•    For now, the stock market reaction remains limited, but the rise in implied volatility (particularly for oil), the upturn in inflation expectations, and the persistence of a high geopolitical risk premium reflect growing concern.

As we feared in our note published on Friday, Donald Trump acknowledged the inability to reach an agreement on his own terms on the nuclear issue and decided to launch a large-scale military operation against Iran. The elimination in the early hours of the conflict of Supreme Leader Ali Khamenei, along with 48 other political and military leaders, confirmed that the objective of the United States and Israel was indeed regime change and not just the destruction of Tehran's nuclear and ballistic capabilities. While the world has seen many phases of tension between the two sides since 1979, this is an unprecedented escalation whose consequences will be profound and lasting for the entire region and undoubtedly for the global geopolitical balance, as it appears that this intervention is also a message sent to China, of which Iran was a partner, as Venezuela was before it.

•    Germany’s final fourth-quarter GDP reading showed a 0.3% rise QoQ, a sign that private consumption was strong, government spending on the rise and investment recovering.

•    Several Fed members moved to a more restrictive position by reiterating the need to have more solid proof of disinflation before cutting rates again.

•    US-Iran talks continued in Geneva but with no progress; Tehran rejected the US demands.