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Oil prices rise, Asia stocks drift amid US-Iran stalemateSINGAPORE: Oil prices rose on Tuesday as negotiations between the US and Iran over a peace deal and the reopening of the Strait of Hormuz hit an impasse, while Asian shares drifted on protracted uncertainty over the global inflation outlook. US President Donald Trump on Monday responded to Iran’s conditions for a peace deal with his own demands that Iran pay compensation for people killed in wars, attacks and protests, in a rhetorical escalation likely to complicate efforts to reopen the crucial waterway. Brent crude futures edged up to hit $88.00 per barrel and US crude futures ticked up to $82.45, both the highest levels since July 31, after the contracts rallied roughly 5% on Monday. “We’re now in a bit of a Mexican standoff, if you’d like, in terms of who blinks first,” said Tony Sycamore, a market analyst at IG. “This is going to be almost a war of attrition now,” he said. “You probably can see the (oil) market sitting around the $75-95 range while we wait to see who blinks first.” The latest uptick in fuel costs raises the stakes for the U.S. July consumer price report due on Wednesday, where expectations are for a monthly rise of 0.1% in the headline reading and 0.2% for the core measure. Any upside surprise could rekindle bets of a Federal Reserve rate hike next month, with the odds currently a coin toss. “We think the risks are skewed towards a hot print, which would probably drive a rebound in rate expectations and, potentially, renewed worries about stagflation,” said Jonas Goltermann, chief markets economist at Capital Economics. “Overall, our assessment remains that the U.S. economy is running a bit hotter than a ‘goldilocks’ situation. That points to higher interest rates.” Trading of cash US Treasuries was closed in Asia on Tuesday owing to a holiday in Japan, but futures fell slightly, implying higher yields. Down Under, the Reserve Bank of Australia is due to announce its policy decision later on Tuesday, where expectations are for the central bank to keep rates on hold. MSCI’s broadest index of Asia-Pacific shares outside Japan swung between losses and gains and was last up 0.2% while South Korea’s Kospi rose 0.3%, as the latest escalation in Gulf hostilities kept market sentiment fragile. Nasdaq futures edged 0.28% higher while S&P 500 futures added 0.1% after Wall Street ended lower in Monday’s cash session. EUROSTOXX 50 futures slipped 0.05%, while FTSE futures and DAX futures were flat. Overnight, Nvidia said it has partnered with six major financial institutions to launch compute financing platforms aimed at raising over $500 billion in third-party capital for AI infrastructure, underscoring the scale of the sector’s investment boom. “A small part of me was left wondering whether this is how it felt when sub-prime mortgages first became a mainstream product - the innovation that eventually helped trigger the GFC,” said IG’s Sycamore. In currencies, the yen was back in the spotlight, struggling on the weaker side of 159 per dollar and well away from last week’s high of 155.20 following several suspected rounds of intervention, including a joint one by Japan and the United States. “The market likely remains vigilant about further joint U.S.-Japan yen-buying intervention, so USD/JPY breaching 160 in the very near term seems unlikely,” said analysts at Nomura in a note. “However, the latest price action indicates there are quite a lot of USD/JPY dip-buyers, after the pair reached the 156-157 range for the first time since May.” The dollar got a marginal lift from the renewed climb in oil prices, keeping the euro away from a 1-1/2-month high as it last traded at $1.1546, while sterling eased from Monday’s one-month top and changed hands at $1.3512. Elsewhere, spot gold was up 0.5% to $4,409.81 an ounce.Business Recorder
Iran links Hormuz reopening to its list of demandsTEHRAN: Iran’s Revolutionary Guards said on Sunday that they would not reopen the Strait of Hormuz until the United States complied with a list of demands, including paying compensation for war damage. Iran has effectively blockaded the crucial energy conduit since the United States and Israel attacked it in late February, and wants to charge tolls for passage, striking ships it accuses of attempting to circumvent its preferred route. Attacks in the waterway, which was free to transit before the war, led to the collapse of an April ceasefire, and mediators have urged both sides to return to the terms of a subsequent June memorandum that set out a path for peace talks. Iran’s security chief Mohammad Bagher Zolghadr had laid out on Saturday a list of conditions for reopening the strait, including an end to the “war and aggression against Iran and its allies in Lebanon, Palestine, Yemen and Iraq”. He also demanded the lifting of a US counterblockade of Iranian ports, the end of sanctions, the release of frozen assets and compensation for wartime damage, the Tasnim news agency reported. Iran’s Revolutionary Guards on Sunday said their strategy was to maintain the closure “until the enemy accepts all our conditions… the strait is now actually a theatre of war for us and not just a waterway”. Foreign Minister Abbas Araghchi, who had also said the reopening of Hormuz was subject to conditions, denied on Sunday that Iran was negotiating with the US, saying they were merely “exchanging messages” via intermediaries. Traffic through Hormuz has dropped significantly amid the ongoing attacks. The United Arab Emirates on Saturday accused Iran of striking a tanker belonging to its national oil company as it transited the strait. And later on Saturday, the United Kingdom Maritime Trade Operations (UKMTO) said a ship was hit by a projectile off Oman, though it was unclear whether they were referring to the same ship. Oman’s foreign ministry on Saturday condemned “repeated attacks on vessels transiting the Strait of Hormuz”, without naming Iran. It also said “ongoing negotiations regarding navigation arrangements in the Strait of Hormuz are proceeding”, and warned against any actions that might jeopardise the progress. The June Iran-US deal had said Tehran and Muscat would hash out future arrangements for the strait in discussion with other Gulf countries and “in line with the applicable international law”, which generally forbids tolling in such waterways. Araghchi had said that discussions with Oman over management of the strait were “approaching the final stages”. As Iran throttles traffic in Hormuz, its Houthi allies in Yemen have declared a parallel maritime blockade on Saudi ports in the Red Sea, the oil-exporting giant’s only other maritime route. The Houthis announced on Sunday that they had struck a Saudi oil facility on the country’s Red Sea coast, after the Gulf kingdom said it had extinguished a fire at the site. Saudi Arabia has long propped up Yemen’s internationally recognised government in its war against the Houthis, which was paused by a UN-backed 2022 accord that has appeared to break down since the rebels declared their blockade last month. A medical source in government-held Mokha said three civilians and eight military personnel were killed and a further 32 people wounded on Sunday, with all the civilian casualties resulting from Houthi strikes on the Yemeni city’s port. Houthi military spokesman Yahya Saree said the group had targeted “Saudi enemy” troops and equipment in the area with missiles and drones. The Middle East war has proven an unprecedented challenge to Saudi Arabia’s carefully cultivated reputation for stability and security, as well as its ambitious plans to diversify its economy away from reliance on petroleum. On Friday, the kingdom signed a joint defence agreement with Turkey and Pakistan, including a NATO-style clause that considers any attack on one country as an attack on all. Turkey’s foreign minister said on Saturday he expected Egypt to also join the pact, calling the country a “natural partner on all issues”. “We already act toward one another as if we were alliance members,” Foreign Minister Hakan Fidan said in an interview. A drone struck US assets at an Egyptian port on the Mediterranean last month, marking the first such attack on Egyptian territory since the outbreak of the Iran war. Fidan said the agreement was not aimed at a specific country, while Pakistan’s foreign ministry said Friday that it was “intended to strengthen collective deterrence”.Business Recorder
Iran threatens to hit Gulf states if US launches new strikesIran has warned Gulf states that any new US attack on its territory would trigger retaliation against critical energy infrastructure across the region, according to five sources, as Tehran seeks to raise the cost of military action by threatening Washington’s closest regional allies. The warning was delivered through a flurry of high-level diplomatic contacts after President Donald Trump threatened on July 28 to strike Iran’s energy network and infrastructure, the sources said. Two senior Iranian officials, two Gulf sources and a senior regional diplomat with knowledge of the discussions said Iranian Foreign Minister Abbas Araqchi spoke with his Saudi, Turkish and Qatari counterparts, as well as Pakistan’s army chief. All spoke on condition of anonymity because of the sensitivity of the matter. Araqchi urged Washington’s Gulf allies to use their influence with Trump to dissuade him from launching renewed strikes, the senior diplomat said, warning that any attack on Iran would prompt retaliation against US assets and energy facilities across the Gulf. His message was consistent in every conversation, the diplomat said: “We’re ready to retaliate, but finding a diplomatic solution is the best way to avoid wider escalation and destruction across the region.” “The Iranian warning was unequivocal: if America targeted Iran’s infrastructure, they would retaliate by striking Gulf energy facilities and other regional targets,” one Gulf source said. Also read: US launches new wave of strikes on Iran ‘military targets’ The diplomatic maneuvering underscores how Iran is attempting to use the threat of wider regional destruction as leverage against further US strikes, putting Gulf states that host US military bases and depend on energy exports in a difficult position between Washington and Tehran. Saudi Crown Prince Mohammed bin Salman subsequently spoke with Trump, urging him to delay military action, return to negotiations, secure a ceasefire and pursue a diplomatic settlement, the senior diplomat and Gulf sources said. The warning was intended for every Gulf state, another Gulf source said, but was conveyed primarily through Saudi Arabia and Qatar. Iran has in recent years repaired ties with its Gulf neighbours, including former regional rival Saudi Arabia. Qatar, Oman and Saudi Arabia have all urged Washington to resume talks with Tehran and avert renewed conflict amid Iranian warnings that another round of US strikes could “turn the region into a fireball”, the second Iranian official said. On August 2, Trump said he agreed to cancel the attack on Iran “subject to being able to rapidly make a deal”. Threats of wider regional escalation, says Iranian official “Saudi Arabia believes further escalation will only bring more destruction,” the first Gulf source said. “That is why it urged Trump to give diplomacy a chance.” While urging Washington to pursue diplomacy, Riyadh also made clear it would defend itself if threatened. The second Gulf source said Saudi Arabia warned that any attack on its territory would be met with a military response. Ali Shihabi, a Saudi analyst close to the Royal Court, said the kingdom’s assessment is that further escalation is unlikely to achieve the desired result. “The Kingdom believes a combination of proportionate military responses and sustained pressure on Iran in the Strait of Hormuz offers the strongest path toward a practical diplomatic settlement,” Shihabi said. Also read: US will attack Iranian bridge, power plant for every ship targeted in Hormuz: Trump Iran’s clerical leadership has repeatedly demanded the closure of U.S. military bases in the Gulf and called on Gulf Arab states to stop sharing intelligence with Washington, which Tehran believes has been used to facilitate attacks against it. According to one Iranian official, Tehran’s warning made clear that any new U.S. strike would be met with attacks on energy facilities, refineries, electricity grids, water infrastructure, transport networks and oil fields across the Gulf. “The enemy continues to threaten Iranian infrastructure. If Iran suffers damage, it will inflict far greater damage in return,” the official said. “They still remember Saudi Arabia’s Aramco,” he added, referring to the September 2019 drone and missile attacks on the Abqaiq and Khurais facilities that temporarily knocked out more than half the kingdom’s crude oil production and exposed the vulnerability of Gulf energy infrastructure. By threatening infrastructure critical to Gulf economies, Tehran is seeking to convince both Washington and its Arab partners that another attack on Iran would carry unacceptable economic and strategic consequences, encouraging regional states to press Trump to avoid renewed military action. From Tehran’s perspective, Trump now faces two unpalatable choices, the senior Iranian official said: escalate a conflict that could engulf the Gulf and disrupt global energy supplies, or accept a negotiated outcome that falls short of the decisive victory Washington seeks. One of the principal obstacles to an agreement, the senior regional diplomat said, is Washington’s reluctance to allow Tehran to emerge claiming victory. “The United States wants something it can present as proof that it won the war,” the diplomat said.Business Recorder