The markets have delivered their verdict, and it is brutal. Oil prices have slumped back to levels not seen since before the escalation of US military action against Iran, as it becomes increasingly clear that the much-feared supply disruption has failed to materialise. For a brief moment, the speculators had their day.
The rumour mill churned and the black stuff spiked on fears that Hormuz would become a shooting gallery. But the reality, as it so often does, has punctured the bubble. The strikes, it transpires, were surgical enough to avoid the oil infrastructure, and the global tanker flows have barely hiccuped.
This is a lesson in market efficiency, if an expensive one for those who bought the hype. The Brent crude benchmark has shed over 8% in the last 24 hours, settling near $72 a barrel, a level that makes the cost of production in the Permian Basin and the North Sea look positively generous. The real story here is not just the price action but what it says about the resilience of global supply chains.
The US strategic petroleum reserve, the cushion that has been inflated with such care over the past year, now looks like an expensive insurance policy against a risk that never materialised. The bears are circling, and they have the data on their side. American shale production continues to ramp up, OPEC+ discipline is fraying at the edges, and demand growth from China is showing signs of fatigue.
The inflation hawks will be watching this closely. A sustained drop in energy costs would take the sting out of the cost-of-living crisis, but it also complicates the central banks' task of keeping expectations anchored. Lower headline inflation might be a relief for households, but it could also embolden the fiscal spenders who see any breathing room as an excuse to open the taps.
For now, the market is sending a clear signal: the geopolitical risk premium has evaporated. The question is whether it will return. The Middle East remains a powder keg, and one errant drone could reverse all of this in an instant.
But for the moment, the rational optimist prevails. The bottom line is that supply has beaten fear. And that is a win for the global economy, if a hollow one for the traders who were betting on chaos.
