Damper for the markets: oil recovers after US and Iran debunk peace news

A message about a peace deal between Iran and the United States turned the markets upside down yesterday. The oil price dropped sharply, while Bitcoin (BTC), stocks and gold went up. The news was only quickly debunked and oil has already straightened out most of its fall.

Qatari media reported yesterday that Washington and Tehran would provisionally agree to a compromise between mediators Qatar and Pakistan. A day earlier, a breakthrough was predicted for this week.

Brent oil, the European indicator of oil prices, reacted immediately. From the highest level in five months, the price fell by more than 5 percent in a few hours.

That relief didn't last long. The Bloomberg news agency later reported that reports of an impending agreement were inaccurate. It relies on a diplomat who is involved in the conversations.

Then Brent scrambled up quickly. The price closed at $108.79 per barrel, just 0.69 percent lower than a day earlier. About four-fifths of the fall had already been made up for.

For investors, it's about more than the price at the pump. Brent has become about 80 percent more expensive this year due to the war, and that is reflected in inflation. In the eurozone, it rose to 3.8 percent in September, the highest level in three years.

Energy became 18.9 percent more expensive, but the prices of services also creeped up, to 3.2 percent. The expensive oil seeps through to the rest of the economy. The European Central Bank (ECB) therefore raised interest rates in June and September.

The US Federal Reserve followed suit in September with the first rate hike in more than three years. That's bad news for investors, as more expensive money makes risky investments less attractive.

The S&P 500 and Bitcoin (BTC) are both still at higher prices than yesterday at the beginning of the month. Precious metal gold and silver are slightly lower.

It is not the first time that good news about the Iran war has been quickly brought down. You would think that the market would therefore take hopeful signals less and less seriously, but nothing turns out to be less true.

In practice, an agreement is still a long way off. Iran told Pakistani army chief Asim Munir on Tuesday that there will be no talks with Washington as long as Tehran does not see its demands met.

Speaker of Parliament Mohammad Baqer Qalibaf pointed to seven conditions that have been known for a long time, such as the lifting of the US blockade of Iranian ports and the oil sanctions. Until then, the Strait of Hormuz will remain closed, Foreign Minister Abbas Araghchi said.

In the background, the threat of new escalation is growing. According to the Financial Times, Israeli Prime Minister Benjamin Netanyahu had his army prepare a major bombing raid on Iran for the weekend of October 10.

That attack did not go ahead because US President Donald Trump does not want another war before the November 3 midterm elections.

The White House confirms that line. “The United States will not attack Iran at any time before the midterm elections,” deputy spokeswoman Anna Kelly told the paper.

Kelly's promise thus extends until November 3. One of the insiders summed up the situation for the FT: “There will either be a deal or an attack." If that attack comes, a new jump in the oil price above 110 dollars is lurking.