Stock market ‘euphoria’ masks looming Iran war recession risk
Global economies could be “sleepwalking” into a “big recession”, as investors continue to underplay the impact of the oil price shock, Amrita Sen, founder and director, market intelligence at Energy Aspect, told CNBC’s “Squawk Box Europe” on Monday.
The S&P 500 hit a new all-time intraday high last week, with the broad market index touching 7,230.12 on May 1. That’s despite a surge in the cost of energy caused by the war in the Middle East — with oil prices soaring more than 50% since the U.S.-Iran conflict began on Feb. 28.
“This has been the biggest conundrum for us — if anything, we think oil should be higher and the equity market should be a lot, lot weaker,” Sen said.
“I think we’re sleepwalking into potentially a pretty big recession.”
Sen said there is an “extremely misplaced euphoria” among many investors, who she believes are continuing to dismiss the ongoing energy squeeze as an issue affecting mainly Asian economies.
OPEC has pledged to ramp up its oil production, though Sen cautioned that this increase remains largely symbolic and falls short of what is needed to replace lost supply.
‘Massive energy crisis’
“The story is really when Hormuz reopens, and at what capacity and what pace it reopens,” she noted. “If you assume that the Strait remains disrupted for a longer period of time, you are saying that we all need to go back to 2013 demand levels, about 10 million barrels per day less… we’ve added a billion more people. I think that’s the challenge we have right now — we need oil prices to go up so that we can get the demand reduction.”
Brent crude.
Looking ahead, Sen said she expects $80-90 a barrel to be the new floor going forward, adding that higher-for-longer prices will reverberate across commodity markets, highlighting the impact on LNG, chemicals and fertilizers, among other assets.
“Just wait for food prices to start going up because of what’s going on; the lack of urea transport; and natural gas prices, or natural gas being curtailed in the fertilizer sector,” she said.
“This is a massive, massive energy crisis. I have been equally amazed at how the equity market is completely dismissing it, talking about how great Q1 results are. They are not going to be great nearly to the same extent in Q2.”
‘A day of reckoning’
Brent crude, the international oil benchmark, reached $111.23 per barrel on Monday, a 2.9% rise, as prices of U.S. West Texas Intermediate increased 2.2% to $104.16 a barrel.
Speaking to CNBC separately on Monday, chief Europe economist at Morgan Stanley Jens Eisenschidt pointed to the wide-ranging pressures stemming from oil upheaval. He highlighted the spiraling anxieties within the airline industry over jet fuel shortages, as well as rising gasoline prices in the U.S., and growing challenges faced by manufacturers whose products use just “a drop of oil.”
“The tensions are visibly increasing in the system,” Eisenschidt told CNBC’s “Squawk Box Europe” on Monday. “I think we…
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