Energy and bond market reaction
Brent crude, the international benchmark, dropped by more than 6.5% to as low as $105.55 a barrel on Monday, which is the lowest level in more than two weeks and the lowest price since 16 October. This decline followed news that contacts between Iran and the US to end their eight-month war are continuing. Iranian foreign minister Abbas Araghchi told the state media outlet IRNA that "consultations through mediators are very intensive." Everything depends on the political rationality of Washington. The drop in the oil price sparked hopes of a break in the inflationary pressures gripping the global economy. This market shift caused government borrowing costs to fall, as the yield on 10-year UK bonds dropped 10 basis points, or 0.1 of a percentage point, to the lowest level since 22 September. The decline in oil prices also sent shares in airline companies higher. United Airlines jumped 7% in New York, while IAG, the parent company of British Airways, rose 4.2% in London.
Diplomatic mediation and political tension
Over the weekend, Qatari officials tried to negotiate the release of more than $6bn (£4.5bn) in Iranian assets so that Tehran might allow the strait of Hormuz to reopen. Investors cheered reports on Monday that Iran’s supreme leader, Mojtaba Khamenei, had granted "powers" to his government in its talks with the US to end the Middle East war. Chris Beauchamp, the chief market analyst at the investing and trading platform IG, said the news is "manna from heaven" for stock markets, but he noted the risk that Trump will try "one last throw of the iron dice" after the midterms. Donald Trump took a belligerent tone while telling voters in Iowa on Sunday that Iran would receive "the hammer" unless there is progress. He said during a campaign rally in the run-up to the US midterm elections, "The only reason why I’m not finished with Iran is I want to be nice. I want to try and save all those lives if I can … But at some point we’re going to have to give them the hammer." Trump’s belligerent tone is a serious obstacle to the ongoing diplomatic process.
