Market resilience amid the oil shock: Daniel Varela’s analysis in Tribune de Genève
Oil shock: why markets remain resilient.
Despite rising geopolitical tensions in the Middle East and oil prices holding above USD 100 per barrel, financial markets continue to show surprising resilience.
As disruptions in the Strait of Hormuz raise tangible risks for the global economy, investors appear to be favouring a scenario of relatively swift normalisation.
Insights from Daniel Varela, Chief Investment Officer at Piguet Galland, shared in Tribune de Genève, help shed light on this situation.
A real oil shock, but already priced as temporary
Since the start of the conflict, energy prices have remained elevated, while international institutions continue to highlight the potential economic consequences.
As Daniel Varela explains:
“Today, equity markets – in the United States, Europe and Asia alike – remain positioned for a favourable outcome to the conflict and a return to normal conditions in oil markets. The risk of a global recession is clearly not priced in.”
A central assumption: a rapid political resolution
One of the key factors underpinning market resilience is the belief that a prolonged escalation is unlikely.
According to Daniel Varela:
“A majority of market participants simply believe that the window for further escalation is closing, not least because of the upcoming events facing President Trump – the country’s 250th anniversary, the World Cup and the midterm elections in November…”
At the same time, economic pressure is also building on Iran:
“Its oil storage capacity is full. It will have to shut down production wells, without any certainty that they can be restarted.”
Another key element is the current level of oil prices. While elevated, they are not yet considered sufficiently high to significantly disrupt developed economies.
As Daniel Varela points out:
“It would take a prolonged period at USD 120 or 130 per barrel.”
Finally, another factor is currently shaping market perceptions: the momentum of artificial intelligence. Massive investments in this field are reinforcing growth prospects and helping to push the oil shock into the background.
Read the full article in Tribune de Genève (in French only)
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