Asgeopolitical tensionsintensify across the Middle East, global markets appear to be navigating a phase of deceptive calm, with crude prices stabilising near the $100–$110 range even as underlying risks continue to build. In an interaction with ET Now,David Rochefrom Quantum Strategy emphasised that investors are focusing on the wrong indicators, arguing that the oil market—not equities or bonds—holds the key to understanding what lies ahead.
“Well, first of all, you are pointing at the right thing, which is do not watch what traders are doing in equity markets or bond markets. Watch what is happening in the oil market because that is the major determinant, the variable, which will feed through to all the other things that we talk about in markets,” he said.
Roche pointed out that current oil prices only partially reflect the scale of disruption, noting that supply constraints emerging from the Gulf, along with a sharp decline in shipments through the Bab-el-Mandeb in the Red Sea, are far more significant than markets currently acknowledge.
“Now, as regards where the oil price is, call it between $100-110, and that reflects a period of shortage in oil supply which is, of course, coming out of the Gulf but actually movement through Bab-el-Mandeb in the Red Sea is also down by about half and nobody is talking about it. So, it is a big disruption,” he said.
He estimates that roughly 12%–14% of global oil supply is impacted, yet this has not fully translated into prices because of the lag effect in global supply chains. Tankers that departed before the conflict are still delivering cargo, delaying the visible impact of shortages.
“So, what I am saying to you is the supply chain is a slow-moving artery at this present time and the actual physical shortages are only working their way through.”
According to Roche, this lag could soon give way to a sharper price adjustment if the situation remains unresolved.
“So, I think that the 110, 107 if there is no resolution in the Gulf by the end of this week will become 120 at least, to 130. And if there is war in the Gulf such as President Trump’s laden promises say there will be, then of course the oil price would be 150.”
“So, the answer to your question long-windedly is no. The oil prices today reflect a temporary stasis before the full impact of the shortages created by the Gulf actually affect markets.”
Turning to equities, Roche dismissed the recent correction as insignificant in the context of the risks at hand, warning that markets may be displaying a degree of complacency.
“Equities are down 9-12% depending on where you look. Frankly, between you and me, that is nothing.”
He cautioned that a worsening crisis could trigger far deeper declines, potentially in the range of 30% to 40%, and stressed that current valuations can only be justified if there is a clear resolution to the geopolitical conflict.
“So, in order for equities to be justified where they are, that the levels justified where they are today, you have to see a resolution of this crisis.”
Roche outlined two potential paths to stability—either a breakdown of the Iranian regime leading to smoother shipping flows, or a large-scale coordinated international effort to secure maritime routes—but suggested that neither appears likely in the near term.
“Either of those would say, okay, well, equity markets will like that, that is okay, but the most likely thing is that the war escalates and then the equity markets are not where they should be. They are still way ahead of themselves.”
Exploring a more prolonged scenario, Roche described a state of “limbo” where tensions persist without full-scale escalation or resolution, leaving global markets in a fragile equilibrium.
“Well, I have done the sums and your scenario is kind of we all stay someplace between heaven and hell which for want of not committing to one form of religion or another, we call limbo.”
In such a case, even partial disruptions to shipping through the Strait of Hormuz could result in a significant supply gap.
“Now that 20% to 30% would actually leave you, if you run out the sums, with a hole in the oil market, a dearth of supply, a lack of supply of approximately 8 million barrels a day to 10 million barrels a day,” he said.
Despite alternative supply routes and pipelines, Roche believes the deficit would remain substantial, forcing markets to adjust through reduced demand.
“Add all that in, you still got your 8 to 10, let us say, million barrels of oil hole in the supply side a day,” he added.
“Now, how you fill that hole is actually by constraining demand, by destroying demand.”
The broader economic implications, he warns, point toward a stagflationary environment marked by persistently high oil prices, subdued global growth, and rising inflation.
“So, it is actually a stagflationary environment, that is the result of the figures, the scenario that you paint. It is nowhere good. It is not a total collapse, but it definitely is not what markets are pricing in yet,” he added.
In essence, Roche’s assessment underscores a growing disconnect between market pricing and ground realities, suggesting that the true economic and financial impact of the crisis may still lie ahead.
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