The “War Premium” in the Global Market—Sharp Swings in Oil, Gold, and Stock Prices

News of a ceasefire between the U.S. and Iran has stirred turbulence in financial markets, and various assets have shown intense, differentiated volatility.

Oil prices see violent swings: After news of the ceasefire broke, international oil prices initially fell sharply. WTI crude’s benchmark front-month contract fell 14.56% to $96.5 per barrel; Brent crude’s benchmark front-month contract dropped 11.85% to $96.32 per barrel. WTI crude briefly slid below $90.00, as Iran agreed to reopen the Strait of Hormuz for two weeks in exchange for a temporary ceasefire.

However, oil prices rebounded rapidly afterward. With Israel launching airstrikes in Lebanon and Iran closing the strait, oil prices rose again. As of April 9, the settlement price of WTI May crude oil was $97.87 per barrel, up 3.66%; the settlement price of Brent June crude oil was $95.92 per barrel, up 1.23%. Reuters reported that oil prices rose by more than 3% on Thursday, as doubts about the fragile ceasefire agreement raised concerns that energy supplies could continue to be disrupted.

Even more worrying is the extreme distortion in the spot market. Data from the London Stock Exchange Group shows that the spot price of Brent North Sea Forties crude—an on-the-spot delivery benchmark—was close to $147 per barrel on Thursday, higher than the peak reached just before the 2008 financial crisis, and far above the price of the international benchmark Brent crude oil June futures contract by about $50—this is a strong signal that the oil market is facing severe shortages.

Analysts widely believe that in the short term, oil prices are unlikely to return to pre-conflict levels. ING Group said that future oil price moves will depend on whether negotiations can achieve a durable agreement and whether the level of shipping through the strait can return to normal, and it expects continued volatility in the market during the negotiation period. UBS pointed out that it is still unclear when and to what extent shipping through the strait will recover; once passage through the strait is disrupted again, energy prices could rebound quickly. In addition, even under optimistic scenarios, repairing energy infrastructure and resuming production will still take weeks or even months.

UK-based Capital Economics predicts that with the ceasefire remaining effective, the average price of Brent crude oil in the second quarter is expected to be around $95 per barrel, falling back to about $80 per barrel by the fourth quarter. Michael Heg, an analyst at Société Générale, said that assuming the ceasefire succeeds and the situation is no longer tense, the lower bound for the oil price by the end of the year is expected to be about $85 per barrel. If countries begin stockpiling oil for reasons such as energy security, oil prices could rise further.

Gold prices keep rising: As a traditional safe-haven asset, gold is being sought after amid geopolitical uncertainty. Spot gold rose 0.98% to $4,766.16 per ounce; spot silver rose 1.62% to $75.34 per ounce. Gold prices once surged more than 2% and broke through $4,800 per ounce.

Stocks rebound strongly: The ceasefire news spurred a rebound in global stock markets. All three major U.S. stock indices rose collectively: the Nasdaq rose 2.8%, the S&P 500 rose 2.51%, and the Dow Jones rose 2.85%, with the Nasdaq and S&P 500 recording a six-session winning streak. Tech stocks climbed across the board, with Intel up more than 11%, Meta up more than 6%, and Google and Amazon up more than 3%. Chinese concept stocks also generally rose, with the Nasdaq Golden Dragon China Index up 3.05%. European stock markets posted their biggest gains in more than four years: the STOXX Europe 600 index rose 3.9%, recording its largest single-day increase since March 2022. Travel and tourism stocks led the rally, while the energy sector was the only sector to fall.

RMB exchange rate: Onshore and offshore RMB against the U.S. dollar once rose by more than 300 basis points, reaching new highs since April 2023. Experts say that, driven by easing tensions in the Middle East, China’s foreign trade environment is currently stable, exports have continued to grow at a high rate, and this provides strong support for the RMB exchange rate.

Concerns at the Federal Reserve: The Federal Reserve’s March meeting minutes show that policymakers discussed markedly different possible paths for the U.S. economy after the outbreak of the Iran war. Most officials are worried that a prolonged war could damage the labor market, which would require cutting interest rates; but many decision-makers also emphasized inflation risks, which could ultimately require rate hikes. “The vast majority” of officials believe that bringing inflation down to the 2% target level may take longer. At the March meeting, the Fed kept interest rates unchanged in the 3.5% to 3.75% range.
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