The diplomatic theatre in Doha today serves as a stark reminder that even in a world of high finance and market efficiency, the greatest volatility often stems from geopolitical risk. US envoys are meeting with mediators, but the conspicuous absence of Iranian officials tells us everything about the current state of play. This is a hedge fund manager's nightmare: a negotiation where key counterparties refuse to sit at the same table.
British diplomats are reportedly pushing for a breakthrough, but the market's reaction has been characteristically tepid. The FTSE 100 barely flinched, and Brent crude oil futures remain range-bound. Why?
Because investors have seen this film before. The 'will they, won't they' of the Iran nuclear deal has become the financial equivalent of a bad sequel. The real action is in the gilt market, where yields are creeping up on fears of further government spending sprees.
A nuclear deal might bring temporary relief, but the long-term fiscal hangover is what keeps me awake. Capital flight from the region continues apace, with Asian and European markets hoovering up the slack. Central bankers must be watching with bated breath: a deal could ease inflationary pressures by boosting oil supply, but it would also require a shift in the aggressive monetary tightening cycle.
The bottom line? Until the Iranians are in the room, this is just noise. But when they finally do sit down, expect the sort of volatility that makes currency traders weep.
