Webinar: Oil, Iran and the markets: what happens next?

The question is about your views on the pound. The Bank of England with restrictive interest rates, 375 as a policy raise, quite high within the G10 space. Chris. Yeah sure, so actually the pound has been pretty resilient up in space so it's keeping the pounder quite supported but we're finally starting to see some really Until this week. And I think that goes back to. Some independent weakness coming through. Big news yesterday, of course, with Wes Street and the Health Secretary resigning. He didn't formally fire the gun on the leadership race. but he did say that he wanted to participate. in probably with a broad set of candidates and now It does look like there's a by-election happening which will allow one of the candidates, the more left of the party, Andy Burnham, to enter the race. Hello and welcome everyone. Well, it is now 11 weeks. but that by-election I think doesn't take place for the next six to kind of eight weeks or so. since the US and Israel launched a joint strike on Iran. triggering the effective closure of the Strait of Hormuz through which So I think this is going to be unresolved. probably for two to three months. I think what they want to do is have a new about a fifth of the world's oil and gas supplies flow. potentially a new sort of Labour Party leader ahead of the conference in September. Since then, of course, oil prices have risen more than 50%, but the impact has been felt well before. And Keir Starmer, the current prime minister, has said he'll run as well. Beyond commodities, we've seen a reaction in global growth expectations, inflation expectations. So I think what this means is a lot of volatility for the pound over the next potentially two the outlook for interest rates and of course it's had an effect on financial markets too. to three months or so. I think it could get worse. All of which we'll be looking at today with our guests. one of the reasons maybe Sterling has been doing quite well as well is that we actually had So let me introduce our speakers to you. We have Warren Patterson. He is our head of commodity strategy. Q1 GDP yesterday and James Smith, our UK economist. has written about this and think there's some seasonal factors making it look coming to us from Singapore. far too good at 0.6 quarter and quarter Chief International Economist James Knightley here in London. that growth could weaken later in the year. Global Head of Markets, Chris Turner. The Bank of England market is pricing currently, I think, about 60 basis points of tightening this year. We think they're only going to do 25. And our credit strategist, Tim Rahill, is also joining us. from Amsterdam. I'm Rebecca Byrne. If you have a question, there is a questions tab. So if you bring it all together over the next two to three months, I think. and just put it in there. We will get to them at the very end. But for now. You could see another sort of 2% to 3% weakness in the pound. We have a poll for you. We want to know... I think with the gilt markets as well, I mean, we've got... Mikio Takara, Rate Stretches, wrote a great... whether oil flows through the Strait of Hormuz will return. piece this week talking about how bank of england active gilt sales quantitative to normal in the second quarter. the the the first quarter the second quarter the third quarter the fourth quarter or sometime next year tightening is already adding an extra 60 to 70 basis points to the gilt market but But maybe you get another 20 to 30 basis points rise in gilts on this uncertainty about. So those are your options. And we will come back to them because it takes a couple of minutes for the results to come back. whether Andy Burnham is going to first of all win the by-election and then win the leadership race but I think Come through. Let's get straight to Warren, because Warren, your base case implies a fairly rapid... we're going to be focusing now a lot more on the polls here normalization in oil flows, improving sort of through May and June. All right, so just one more question, I think, for Warren, because it's kind of an interesting one. and returning close to normal by July. But given the current impasse in negotiations, Let's take a scenario where this war is just another never-ending war. and we are heading towards an oil price above. What is driving your optimism? $150 a barrel forever. I mean, look, it's very difficult to guesstimate when we'll start. What does that mean for demand destruction? Can we? seeing um you know a more meaningful sort of Is it possible? recovery and flows through the Straits of Hormuz, right? Well, obviously, I mean, in the immediate term, given there's just so much uncertainty. So forecasting the profile of the recovery. You need to see demand destruction, right? Because you need the markets to balance. We would draw down inventory. when it finally happens is even more difficult. it's an inventory situation where it's very tight so naturally you need to see demand destruction. We're assuming that we will see flows, as you said, picking up over the remainder of this month. We've already been seeing that. But it doesn't mean that we need to see... and and through june um and then sort of almost back to sort of pre-war levels in q3 but The mind destruction. Forever, right? Because basically, Let's do it. what will eventually happen is we will see a supply response. you know largely looking at it we're basically of the view that will be below pre-war. And I guess everyone will turn to the US. US shale usually has through until the end of this year basically and that sees Brent averaging $104 a barrel relatively short lead times. this quarter, but then we finished the year. And so if you've got $150 crude. at around $92 a barrel. You are going to see a pretty aggressive supply response coming through from the US. I suspect that would mean So we're assuming flows from the Persian Gulf to be about 50% of pre-wall levels by the end of the year. very strong 2027 supply growth coming through from the US. of this month and then 35% and by the end of June. Now... And then sort of in the medium to longer term from other producers as well, right? Where sort of that. if we look at what pre-wall flows through whole moves were. times even longer. They were about 20 million barrels a day. And let's not also forget, you know, Persian Gulf oil producers are looking for work around. But that doesn't mean that we're going to see 10 million barrels a day. I mean, just today on the headline, on the news wires, you had reports that of oil flowing through it by the end of this month, right? Because don't forget... We also have about 5 million barrels a day which has been diverted by pipeline. the UAE is basically looking to complete a new pipeline to avoid the straight up. So getting to that sort of 50% number. Paul Moos and he'll be ready by 2027 so would mean home use flows of just around 5 million barrels a day. And then also, let's not forget. So there will be work done on the supply side to basically get the market back into sort of the that there is still some oil coming through the strait. balance and that will bring prices back down. So I don't think sort of $150 Just very limited amounts at the moment. If we look at it this week, we've seen more tankers passing through the straight. will be sustainable in the long run. All right. Thank you so much. We're just about out of time. with Orion allowing more vessels to navigate it. And we have even seen traders offering Persian Gulf. the other side of the Strait of Hormuz. And this is all happening whilst we obviously still have this standoff between Iran and... and the US. But I think at the end of the day, even if we start to get one or two additional very large crude carriers sort of passing through the Straits of Hormuz. That still works out to something like 2 to 4 million barrels of oil, right? So it, we, you know, just a few cargos coming through can sort of start making quite a. Big, big change. But I think maybe the more important thing for the market. is that we may see vessels more willing to leave. the Persian Gulf, but they might be a lot more reluctant. to come back into the Persian Gulf. particularly if we still have the standoff lasting a few months. or if we have a very fragile sort of peace deal. And that means the potential for quite an uneven. recovery in oil flows. in the months ahead. Okay, let's see if the audience agrees with you. Do we have those? poll results and here we go it looks like 34% think that it could be sometime next year before we see. Flows return to normal 31%. I think it could be fourth quarter. But at what point does the market... start to shift to pricing a more extreme. supply scenario. If we move towards the end of this month and into June without sort of any meaningful improvement in flows. then I think the market really has to start pricing in a much more sort of aggressive disruption. Also, you know, if there's no progress in talks, we then have to maybe be concerned. about sort of re-escalation which means the potential for further damage to energy infrastructure in the region. and possibly the conflict broadening. And when I talk about that, I'm thinking, you know, not only do we see straight up home moves. Oil flows sort of continue to be constrained. but possibly then we start seeing the Houthis in Yemen. targeting Saudi exports from the Red Sea. I think under this sort of scenario where basically you're seeing disruptions persist and potentially intensify, sort of as we go into sort of the peak summer demand period. you'll then really need to see prices. picking up quite, quite, quite a bit. And essentially our view there is then. basically we could see sort of record prices through the summer months. Given the scale of the disruption, Warren, that we've seen so far, it's kind of surprising that oil prices haven't risen even more. What's been holding them back? I think there's several factors which have which has held back a bit. Firstly, I mean, there still seems to be this optimism in the market. I mean, even with the... the sort of repeated disappointments we've had. with it looking at times that were close to a deal and then just to fall short of that so So I think that's sort of... optimism maybe it's wrongly placed it has been sort of holding the market back to a degree Then if we look to the US, we have seen US oil exports. surging to record highs since the war started. If I look at sort of average exports over the last four weeks. They're up 2.7 million barrels a day year on year. So that's offered some relief to the market. The issue though is that these exports are coming through from from from inventory um rather than than from from us supply growth so So it's a temporary solution for the market. Then there's China. It's been pretty well telegraphed, obviously, over the last 12 to 18 months. China's sort of restocking or stock building. That's worked out great for them, right? Because now they can sort of tap that inventory. rather than importing at these higher prices. And that's exactly what we're seeing. If we look at... Chinese oil imports in April. They TwentyThree million barrels a day year on year. So again, that's really help the market take some pressure. off it. And then finally, I mean, we all look at crude oil prices. Yes, they've done a lot. We can look at brands. It's up more than 75% year to date. We're trading above $100 a barrel. But look at refined product prices. Gas oil is up closer to 90%. percent um and that's trading near hundreds barrel jet fuels trading over 160 dollars a barrel i mean just following the wall, the start of the wall, we have seen these prices actually exceed $200. as a barrel so the strength in refined product prices has meant that crude oil prices have basically not had to go as high as maybe many would have imagined. in order to drive quite a bit of demand destruction, which we are already starting. to see particularly in Asia. Now, you think that gas markets are underpricing. the scale of the supply disruption. This is obviously hugely important. For Europe, which relies heavily on imported gas, what are you expecting for gas? Yeah, I mean, with the gas market, obviously, we've lost 20% of global LNG supply. and there's very little slack in the system. You know, we have very limited new export capacity starting up this year. And unlike the oil market, the gas market doesn't really have that luxury. of strategic reserves that can be tapped into. And let's not forget, Europe's basically exited. the last winter with storage at its lowest levels since 2022. So for now, though, it seems as though we have seen some demand destruction and some Infantry drills in Asia. which has really helped contain the market to a degree. but at some point we're going to have to see Asian buyers coming into the spot. market, refill inventory, replace lost contracted volumes from the Persian Gulf. And that's when I think you could start seeing a lot more competition. between Asian buyers and Europe. and possibly You could see, you know, sort of towards the end of this quarter, but certainly going into Q3, if this is still going on then. Our base case, which As you mentioned, it's fairly optimistic. We have TTF averaging 55 euros. this quarter and then 45 euros. over the second half of 2026. But clearly, there's quite a bit more upside. if these disruptions persist into Q3. Q3 and really into that period where you expect to see quite quite strong stock building not only in Asia but obviously clearly strong injections that are needed in Europe to hit sort of storage targets. ahead of next winter. Okay, thanks very much, Warren. We're going to take a look at... Now what all this means for the global economy, but first another poll for you. We want to know what you're more concerned about for the US economy specifically, more concerned that high fuel costs will lead to. higher inflation, weaker growth, or both equally. We will come back to. the results in just a minute but James These surging fuel costs seem to have had an impact on consumer confidence. But when you look at overall economic activity, it doesn't look so bad, does it? But will that last? Yeah, no, it's really interesting. So the business surveys have also softened. Such as the Institute for Supply Management, Activity and Services and Manufacturing and as you say, Consumer Confidence. supposedly at all-time lows, which is quite remarkable given the events we've seen over the last 50 years. for people to say they're actually feeling worse now than at any point in that last 50-year period. But for now, the latest retail sales numbers suggest there isn't that pressure. to cut back on spending elsewhere. But as you say, I think that pressure will build. You know, we've seen gasoline prices rise from below $3 a gallon in the United States to above $4.50. So a huge increase and it's a very visible price. and it does impact psychology quite heavily. And when we talk about the US consumer, we always talk about the K-shaped economy and talk about about how high-income households doing very well boosted by the wealth gains they've seen over recent years. but there's more pressure on the lower and middle income households who don't have the wealth. They are worried about their jobs. and they are feeling more price pressure, partly from tariffs. There's this perception tariffs could still... still bite them but those fuel costs are are going to be putting more and more pressure on them financially. And in an environment where we've not got that much job creation, Wage growth not doing very much either. I think we are going to see them run the risk. that a big chunk of the US consumer sector does feel more pressure and does have to come and face tough choices. So that sounds to me like you're saying this is not just an energy story when it comes to... Inflation, there are spillover effects. Potentially, yes. You know, so far... in terms of the inflation numbers, it has been gasoline. It has also been airline fares as well. So But the thing is, Europe and the US and Asia are all a little bit different. So in the US's case... We've got a price story where gasoline prices are going up, but we've not got a supply. My problem, we've not got this concern that we're going to be running out. of products. So it's a much, it's much more... I guess, focused supply shock than it is elsewhere. And certainly, when we look back and compare it with 2021-2022 post-pandemic it's a much much narrower supply shock and also we don't have the demand impetus. that we had back then. Remember back then we had all these stimulus checks, we had surging employment, surging wage. growth. And therefore that demand to make inflation broad and persistent doesn't appear to be there. at this point in time. Hence, we do think... inflation is more likely to be transitory this time around. But the problem is, the longer these problems last... the greater the chance you do see those spillover effects. so fertilizer, food prices, but also manufactured imported goods as well. If you do start to see production capacity constrained in Europe and Asia because of a supply supply shortage of energy product. That could therefore translate much more painfully into US inflation. Okay, do we have those poll results? Let's see what's our audience. is more concerned about for the US economy looks like sort of both equally. 46.5%, but higher inflation also, a good chunk of people, 44%. think that fuel costs will lead to higher inflation. This rise in inflation has shifted perceptions. about what the Fed is going to do, isn't it? So what are you expecting? Yeah, so before this, the general expectation was that the Fed would continue moving policy that little bit closer to neutral. The general sense is a neutral Fed. Funds rate in the US is about three, a little bit above 3% versus the 3.75. we're currently at. But this environment is going to mean more inflation. potentially a little bit weaker growth as well. So we've got a situation where financial markets are now pricing stable rates through this year with perhaps a 50-50 chance of a rate hike. next year. We're still in the camp that we do think that the... that rate cuts are more likely than rate hikes. over time. But in this current environment where you've got growth holding out, inflation rising, equities at all-time highs, and you are still adding jobs. we're not going to see anything imminently. But the Fed is different to most central banks. Most central banks have got one target. Get inflation to 2% and keep it there. And that's why we are expecting some rate hikes in parts of Europe and parts of the world. Asia as well, but not too many. In the US, that dual mandate of... Price stability, but also maximizing employment. means they've got to optimize very different goals. And in that environment, we think we're going to have stable rates for quite a long period of time, probably through to the end of the year. the year, but we still think a forward-looking Fed. we'll be thinking if we have got relief as warren outlined in terms of the energy situation the Flows starting to come through, not necessarily in prices just yet. for the second half but we think forward-thinking Fed would still be anticipating the prospect that they can move policy closer to neutral in time so we're looking for a 25 cut in december 25 in March. Now, of course, we do have a new Fed chair, Kevin Walsh. It's its first day today, I think. Now, we know, you know, Powell came under a lot of pressure. Pressure to cut interest rates, I assume. Walsh might as well but this is a decision by committee right it's not just one man so but does his appointments kind of shift the balance between the dogs and hawks Well, I think it's interesting. In the last meeting, we had three Fed officials effectively firing a warning shot. across Kevin Walsh's bow saying, you know, we're much more neutral than you are. We're not going to be. falling easily into line in this idea of rate cuts. Now, Now, to be fair, I think Kevin Walsh recognises that you can't cut. rates in the current environment. It would run the risk that the Fed's inflation-fighting credibility is severely damaged, and that could lead to... to longer dated yields in the US rising. And that would be really detrimental. Because it would push up government borrowing costs, it would push up mortgage rates and household borrowing costs and push up corporate borrowing costs. really weighing down on economic growth. So he wants to preserve that credibility in the near term. But there is a longer term aspiration to get rates low and I still think that that can be achieved. All right. Thanks, James. Let's go back to you, our audience. Now we're going to turn the focus back to the impact. on financial markets. And our poll question is, are financial markets... underpricing the risk of a prolonged conflict in the Middle East? Your options are yes. significantly underpricing the risks somewhat as a degree of complacency. or know the risks are broadly priced in. And we'll come back to those results in just a minute. But now we're going to go to. to Chris and Chris you say that you know in general FX markets have been taking kind of a glass half view of all of this but who are the winners and losers? Yeah, I think people are looking at this 2022 playbook, you know, the energy shock. So it's not as severe as in where we sit right now. but um now you look at who are the net energy exporters who are the net energy importers um You've also got the the overlay the investment overlay which is the the AI super cycle, which is keeping equity markets very well bid. And that's actually keeping foreign exchange volatility relatively low. given everything which what's going on at the moment. So if you combine, let's say, the commodity side, who are the big experts? borders, places like Norway. obviously with oil, Australia has this great sort of energy mix. you know and metals as well which is kind of really important at the moment with the kind of AI story as well as, I think, their interest rates, which... because I say with low volatility the carry trade is very important as well and in Australia and Norway they've both hiked rates during this crisis they've got rates well above kind of 4% which kind of helps out as well. So they're the winners at the moment. And the losers, I think... I think at the moment the yen is under a lot of pressure and you've actually had the The Bank of Japan come in and sell about 70 billion dollars of FX. to try and support the yen and you can see why the yen is under pressure You know, one, because it's a big energy importer, as kind of Asia is as well. The other because they've got very low interest rates, they're not benefiting from the carry. But I think perhaps one of the most important points is. you need to see tough, hawkish central banks fight off this inflation shock. keep inflation expectations under control. The Bank of Japan didn't hike at the last meeting in April. And there is a sense that the politicians might be leaning on them to keep rates quite low. And so with big... negative real interest rates that's not a good look for the current for a currency in the current environment and I think the yen is a loser and will continue to be and that's why we're probably Just started a long campaign from the Bank of Japan to try and hold to the end near 160. Now, the euro doesn't really benefit from high yields or energy exposure. So what's been driving the strength? Then you were duller. Yeah, I would describe it, I suppose, a bit more as stability rather than strength. I mean, we went into the crisis. about 118 and we have we're not haven't drifted too far away from that just yet we're just coming under a little pressure right now. I think one of the big points is actually, I'd say two major points. One is Warren's talked about gas prices. I mean we haven't seen the surge in gas we saw in 2022, what it means for electricity, what it means for government's forced to you know come out with energy subsidies and kind of hit the kind of the fiscal side as well. So the shock has been a bit smaller. for Europe. Also as well I think it's important from the ECB we've seen sort of a tough sounding ECB they're sounding like they are going to hike rates in June which is our Cool. So that's kind of welcome as well. Yes, so I wouldn't necessarily like the euro is kind of strong and it's Starting to come under a little bit of pressure but equally were not quite as bad as we were in 2022. The ECB stance is important. Okay, fair enough. You're broadly bearish on the dollar long term, but you say that higher energy prices could obviously keep the Fed sounding hawkish. So is the risk actually that the dollar stays stronger? Yeah, I mean it's Friday and Eurodollar is coming under a bit of pressure. quite good today obviously this short term or medium term implication I would say a bit of context. At the start of the year, I think everyone was negative on the dollar. We had 50 basis. point of easing pricing from the fed there's a sense of with um slightly perhaps erratic foreign policy making from the US Greenland etc. Venezuela, the whole concept of de-dollarization. there's been no real further evidence of de-dollarization we look at things like hedge ratios investors haven't been increasing dollar hedge ratios from the data we can see. no signs of an exodus from kind of US kind of asset markets. and I think it's important really we know what happens to kind of US interest rates and I think right now we are starting to see. The market shifting as James has pointed out, you know, activity has been holding up quite well Inflation, signs inflation is kind of coming through. and the market is starting to price a more hawkish Fed and I think that's important for the dollar. So actually real interest rates as we can see from this kind of chart you know they're pretty steady at the moment I think You know, going back to the point about Kevin Walsh, if he were to come in and push a more dovish agenda, even though inflation expectations were high and people were worried. I think that would be a dollar negative. But for the time being... Real interest rates are staying relatively supported. and the dollar may stay supported for the next couple of months or so. But by year end, I think when we move towards midterms and risk premium comes back into the market. if, as James says, there are signs of the Federal Ease Policy. in December, then I think the dollar will be under pressure again. And we've got a 120 year end target for euro dollar. Okay, thanks very much, Chris. Do remember to put your questions in the question tab. I can see there are quite a few coming in. We will get to them shortly, but right now we're going to go over to Tim Rahill, who is. in Amsterdam for a look at the credit markets. Tim, despite the worries about inflation and... growth, a more hawkish shift from the Fed. and all of this geopolitical uncertainty. stocks have been doing very well. Credit spreads have remained pretty tight. What is driving this resilience? Yeah, I think in one word, what's driving this is yield, right? So... So what we saw already kind of in March at the beginning of the conflict, we saw that little bit of widening and spreads. but it was quite contained right so it wasn't any major sell-off And then the minute we saw headlines around... around peace talks, everything snapped back down and retraced back down to essentially the tight levels where it was prior to the conflict. And I think the yield angle is one of the big drivers there. So naturally over the past couple of months we have seen that rise in rates. We have seen that slight elevation across the whole rates curve, which adds that element of additional yield attraction then to credit markets. like yes credit spreads are still tight but now we have another 60 70 basis points or so of yield So inflows stay very strong. We still see money flowing in from mutual funds, from ETFs, from constant maturity funds. there's still a lot of cash ready to be put to work within the market so we're still seeing that really strong strong demand with and credit that we were seeing already at the start of the year and even last year. this Goldilocks environment essentially that we're still in. is essentially continuing and we say thank you very much for the additional yield. And we still continue to buy, buy, buy within that. within the credit space. And also, you know, from looking at the past couple of months, the primary market, because have remained active right even when markets are a little bit more volatile or even when we saw a bit of widening there was still a substantial amount of supply coming to the market and it's still being met with this very very strong demand. We're still seeing these books well oversubscribed. strong amount of demand there. We're still seeing relatively no low. new issue premiums Yes, it did take up a little bit at times of some volatility, but essentially the demand picture is still there. Still there and still very very strong Is this resilience in credit markets sort of concentrated in sectors that support credit markets? benefit from higher oil prices and high rates like energy and financials rather than being broad-based. yeah there was like a touch of outperformance in certain sectors but ultimately this was quite broad right i mean this was like you know the initial widening and the subsequent retracement and where spreads are now. It's very uniform. Everything kind of moved in tandem with itself. Yes, we saw a touch of outperformance from the likes of energy, oil and gas, utilities, some financials, etc. etc that would benefit a little bit but it was quite marginal So we saw some underperformance from. you know, the likes of autos, some of the consumer sectors. real estate in particular when when rates started rising we saw that bit of underperformance again But again, marginal, right? So we really haven't seen that much that type. diversion than between sectors. But I think that can change if we are seeing a bit more of a severe scenario. come out of the conflict, then you might see that little bit more diversion between sectors. All right. Thanks, Tim. Shall we see if we've got the results of the poll again, which is where we asked... Are financial markets underpricing the risk? of a prolonged conflict. Sort of interesting, so 45%, almost 46% say yes. significantly under pricing the risk. and 46% say it's sort of a degree of complacency. What do you think, Tim, you know, if this crisis drags on? and has a more serious impact on the economy. would credit continue to be so resilient? I think the poll kind of says it quite nicely, right? It's a bit of a divide between those two. because at the moment, the markets are very much pricing in, let's say, best case scenario that we have. Let's go to our base case, which is... that we do see a deal coming through. As Warren mentioned as well at the start, we do see the flows returning. through the straight of removes and things can start improving then. And then you have a continuation within credit anyway of this Goldilocks. environment where things stay tight. Boss If we are to see a little bit more of a prolonged conflict or perhaps even a re-escalation, then I think we're certainly underpricing this because the risks are still there. are still a lot of uncertainties lingering overhead here. And if you're looking at where credit markets are trading, it's still quite tight, right? It's in the Goldilocks period, right? So If we're to see a little bit more severity coming out, then we might have to reprice a little bit wider, depending on that severity. That would come with some widening of spreads. But again, that's going to be contained because of this demand picture that we see. We might have to see a touch less supply if Mark. markets are becoming a little bit more volatile perhaps a little bit more new issue premiums are going to be required within the primary markets. But ultimately, The markets are just so highly demanded. There's still so much cash ready to be put to work. So it's hard to see anything really swinging this. significantly wider within a sell-off. But, you know, it depends, of course, on the severity. where I do see some of the bigger risks for markets overall and particularly credit. if we do have this, let's say, a more prolonged conflict or re-escalation. and we have more fears coming out of of inflation and higher rates etc. Etc pressure starts getting put on this this private credit story We talk about private credit already quite significantly in many reports. but essentially our base case is that it's not exactly a systematic risk, it's more of a shakeout. There is some underlying companies that are perhaps going to default. And yes, there's some potential risk on runs and some questions being asked. around the ratings of these underlying products. But essentially... for now it should be relatively contained but if we have this more severe scenario where rates are higher for longer, there's more economic uncertainty or... or perhaps weakness, that puts additional pressure on this private credit space. And then we could see a lot more spillover then into other markets. markets. So you have the likes of the insurers that are very exposed. to private credit, you have a lot of the... the US regional banks that are heavily exposed to these sort of products you have the actual european banks but you have a general spillover then into markets and you'll have to have a general repricing then wider. in a worst case scenario. All right. Thanks very much, Tim. Now we want to take. some of your questions. Do bear in mind we are not geopolitical analysts and I don't think anybody really knows what's What's going to happen? But there is a question for you, Warren, about the possibility of Iran putting a toll on vessels. passing through the Strait of Hormuz is that possible, what could that mean? I mean, it would set an ugly precedent, right? I mean, it goes against international maritime law. You're meant to allow the free passage of vessels if we were to see something like that. happening. What's to say that we're not going to see that happening around other key choke points around the world right so i think there will be a real reluctance to to go down that path. Also, you know, the US has threatened sanctions. against any shippers who pay that toll. But I think ultimately, the longer that this goes on for, it will start pushing more and more. possibly towards saying, you know what? We can secure that supply by paying. What a dollar a barrel for oil, I think If you sort of look at it from a cost point of view, you'll say, well, paying $1 a barrel. Makes sense, right? at the end of the day because, you know, you pay one dollar more but eventually if you're seeing a lot of oil coming through there flat price will come under quite a bit of pressure. So from that perspective, yes, it would make sense. But I think just from a from a legal perspective and the risk of sanctions it probably will be frowned upon. Okay, another question for you, Warren. Given that the United Arab Emirates has formally withdrawn from open... pack, what would a free oil market mean. Free all market the first time in 100 years mean for the global oil supply if OPEC ceases to exist. I mean, firstly, I think the writing's been on the wall for quite a while. Quite some time when it comes to sort of the UAE's exit from OPEC, right? I think they've been... frustrated for a number of years now. the fact that they've been producing Well below their production potential or their output potential, right? They've essentially been producing a million barrels a day below their production target they have plans to expand capacity capacity to five million barrels a day next year so they really want to take advantage of that. So I think it's in that sense, it's not too surprising. The timing of it's been pretty. pretty well obviously sort of for coming around sort of during this There's this massive supply shop that we're seeing in the market. So it's had very, very little impact on. on on on on prices now in terms of opec as a whole their exit yes they're they're They're a big producer. They're the third largest producer with an OPEC. But still. Post exit, OPEC is still making up close to 30%. 80% of global oil production. So I think for now, the group still has a strong hold over the market, particularly when you sort of factor in the OPEC plus members, Russia and the likes of that. So I don't think we're going to see sort of a breakdown of the group. just yet. But if you were to sort of say to me, well, who's next to leave? I would say. Probably Venezuela could be a candidate for that, right? Given obviously their closer alignment. with the US in recent months. But if you really want to say, is there an end to OPEC? Well, then clearly... You know, we open the taps, we see be in the long term potentially three to four million barrels a day of uh of additional supply coming onto the market. And then ultimately you need to see the market finding a balance and that's going to put pressure on. US oil producers and I suspect that then you start seeing a pullback in US production in the sort of the medium to longer term. if that was to happen Okay, one last question for you, Warren, then I'll ask some more to other people. But someone is asking, let's see, let's... Imagine that the Strathcomies were to open And next week, where would you see the oil price settling? at the end of the third quarter. Look, I think we will definitely see quite a strong pullback. in prices just from a sentiment point of view. But I think let's also not forget we've drawn down a significant amount of... of oil inventory just over the you know in the third month into this conflict right uh where we're basically at a billion barrels. of oil supply lost and we're going to lose more just naturally it's going to take time to see a recovery. So I think we do see some... Port still for the market will certainly come off. But I think prices will be somewhat better supported than many might. think going into Q3. So I think if you say we restart next week, I think probably we could see Brent trading. 90 dollars by the end of Q3. you three Okay, question for Tim. In terms of credit spreads, where would you see a US Treasury level? where the market sentiment could switch from appreciation of higher yields to fear of a global growth slowdown and funding. pressure Yeah, I think what we have to remember... is the demand element and the yield element and the cash cash element is still so strong within credit spreads so or within the credit markets so it's hard to see where we would get a level at which point we start selling off. And even if you look at fire pressure, okay, there's already been a very serious amount of funding already done this this year right i mean We're at record-breaking levels almost across the board, even on some of the smaller products you take corporate. corporate hybrids you take reverse yankees euro supply usd supply everything is running at record-breaking level and everything is being absorbed into the market so easily and so effortlessly. So it's hard to see that if we would ever see a bit of a real switch or a turn I think it would have to be more significant than just fine pressure or growth slowdown. I think we would have to see some more significant concerns, let's say, coming out of private credit. or even a bit more of an implosion there. Or perhaps even, you know, that could be... driven by either, let's say, a more severe conflict causing rise in rates etc or it could also be let's say an AI surprise where a lot of these companies come under pressure because AI can essentially eliminate their entire business model overnight. in a sense. So I think that we need to be looking at more. There is, of course, you know, still... other factors at play but I think they would be the main risks more than and more than actually a growth slowdown that and again even if we have, let's say, a severe slowdown. we might reprice a little bit wider but ultimately the the cash levels are still too high and there's still too much availability of cash to put to work. within the credit space. Okay, we've got a... But our monthly economic update has been published as we've been speaking to you. It's called Two. Anniversary's one uncomfortable mirror that look into your inboxes for that report or on our website at ing.com forward slash think um And thank you to my speakers, Warren Patterson, Chris Turner. James Knightley and Tim Rahill. That's all we have time for, but we'll see you next time.