Fuel for Thought: Oil Prices and Geopolitical Tensions

Oil Price Movements this Week

Oil prices initially spiked on Monday as tensions escalated, reflecting concerns that shipping routes or production facilities could be impacted. On Tuesday, when Iran fired retaliation missiles at a US military base in Quatar, many may have thought that such an event could put upwards pressure on the oil price, yet it had the opposite effect. Oil prices began to fall when Iran bombed a US military base, as it was widely known that the base had been evacuated, reinforcing the view that the attacks were not intended to escalate the conflict, rather it was a retaliation to save face. Further, a US-brokered ceasefire reduced the immediate threat, and oil prices slipped further. As a result, oil prices are set for their steepest weekly decline in two years, as the risk of a supply disruption has been reduced.

Why do oil prices matter?

Even if you’re not directly invested in oil, it influences global markets in many ways. Oil price moves are worth watching, not just for what they say about geopolitics, but for how they ripple through sectors and shape broader market sentiment.

If oil prices had continued to rise, markets may have worried about renewed inflation pressures. That could make central banks more cautious about cutting interest rates. The sharp decline in oil has instead helped ease those fears, which may support risk appetite and give markets some breathing room.

While the situation remains fragile, markets have responded positively to signs of de-escalation, with oil retreating and investor focus shifting back towards inflation data and central bank moves.

The Noise

• Global equity markets ticked up this week, with investors mostly optimistic about easing geopolitical tensions. In fact, US equity markets are almost at new all-time high levels, despite having experienced a c.12% drawdown less than two months ago.

• Global bond yields eased slightly this week. In particular, the 10-year US Treasury yield (yields move inversely to prices) dipped to around 4.34% after peaking at 4.79% earlier this year, reflecting caution over economic growth prospects. Overall, the bond market showed signs of cautious optimism, balancing steady monetary policy with concerns about inflation and growth.

• US economic data released this week revealed that goods exports in America fell to their lowest level since the Covid-19 pandemic. US goods exports fell 5.2% to £130.5bn in May. This drop can be attributed to Trump’s tariffs announced in April, dubbed ‘Liberation Day’. The broader impact of this falling figure includes a widening trade deficit and concerns over long-term economic growth.

The Niche

Why Are Pounds Called Quid? There are two main theories: One popular explanation is that quid comes from the Latin phrase quid pro quo, meaning "something for something" or a fair exchange, so a ‘quid’ came to mean a unit of exchange or a fixed amount of money. Another suggestion is that quid originated from Quidhampton, a place in Wiltshire, where there was once a royal paper mill producing banknotes or related documents.