The crude market was rattled this morning as Pakistan brokered a surprise agreement between Washington and Tehran, sending Brent crude tumbling by 12% to $68 a barrel. The deal, which lifts American sanctions on Iranian oil exports in exchange for nuclear concessions, floods an already fragile market with supply. For Britain, this is a double-edged sword: lower petrol prices will ease inflation, but the fiscal hawks at the Treasury will be watching gilt yields nervously.
The government's energy security strategy, which hinged on domestic production and green subsidies, now looks like an expensive hedge against a risk that just evaporated. Capital flight from the Gulf states could follow, but for now, the City is cheering the prospect of cheaper energy for British industry. The Bank of England will have to recalibrate its inflation forecasts, and the Chancellor might find some breathing room ahead of the autumn statement.
But let's not pop the champagne yet. This deal is fragile, and the history of US-Iran negotiations is littered with broken promises. Oil traders are already pricing in a risk premium for the next political flare-up.
