Does a No-Deal Between the US and Iran Mean War?

Talks between the US and Iran wrapped up with claims of progress but no deal on Friday as the USS Gerald Ford arrives off the coast of Israel and Trump is briefed on military options.

The Latest Developments

• US-Iranian talks end without a deal but with an agreement to keep talking next week as the American military buildup in the region continues.
• Crude prices fluctuate on rumours around talks, and growing regional tensions, such as the conflict between Afghanistan and Pakistan, raise interest in safe havens.
• Crude prices could spike to $110 per barrel, according to analysts, if a US-Iran conflict leads to the closure of the Strait of Hormuz or a curtailment of Iran's production.

Gold Up, Crude Fluctuates

Oil prices have bounced around this week as US military assets build up in the Middle East, while US President Donald Trump pushed for a deal to terminate Iran's nuclear programme. Talks between the two countries were held through intermediaries in Geneva, Switzerland, from Tuesday to Thursday, with little official comment. Such silence has left the market reacting to rumours, with Brent spiking above $72 per barrel on initial reports that talks had ended without a deal. The price then fell back to $70.50 after clarification that some progress had been made and that the sides had agreed to extend talks to next week. Gold prices have also been elevated amid fears of a conflict, rising 0.4% on Thursday and are set for their seventh consecutive monthly gain.

Going into the weekend could be crucial for the crisis, as it is likely that if the US were to launch airstrikes on Iran, it would be a surprise move. Many analysts believe the weekend is the most likely, given that it has been when the White House has conducted interventions in the past and would minimise potential market fallout. The positioning of two aircraft carriers in the region opens a window starting late Friday. Analysts suggest that if Iran's supply is interrupted or the Strait of Hormuz is closed, crude prices might rise to $110 per barrel. Iran produces around 3.3M barrels per day of crude. There have been reports from various sources about preparations for war, such as Saudi officials planning to temporarily increase production in the event of a conflict. Israel has been pushing for a military strike on Iran and is considered likely to be a participant, as it was last year. Crude traders took note of reports earlier in the week that Israeli hospitals were making preparations for a potential prolonged war with Iran. 

Tensions Expanding, But It's Not a Done Deal

One of the fears of a US strike on Iran is that it could ignite a broader conflict in the region, but that might already have happened. Tensions between Afghanistan and Pakistan escalated on Thursday, when the latter launched airstrikes across its neighbours, including Kabul. Pakistan's Defence Minister Khawaja Asif said there was an "open war" between the two countries. Although neither is a major oil producer, their proximity heightens the risk of regional tensions, which supports gold prices.

Trump has made reaching a deal to end Iran's nuclear ambitions a focal point, bringing up the issue in his State of the Union address on Tuesday. He says he wants a deal but is not ruling out military action. Reportedly, the Pentagon briefed the US president late Thursday on airstrike options. Analysts note that US demands for Iran are "tough," including dismantling all three main nuclear sites and turning over all enriched uranium to the US without immediately lifting sanctions. Iran has so far rebuffed these demands. Crude prices are seeking more clarity on what to expect, with a brief conflict potentially leading to a short-lived spike. Meanwhile, traders are looking to the OPEC+ meeting this weekend, with expectations that the cartel could raise its output target for April.

Brent Extends Gains Above Upper VWAP

Brent crude appears to have left behind a double-bottom support near $58, with the current VWAP expansion on the weekly chart suggesting an imminent breakout. If bulls can sustain prices above the $70 psychological support, Brent could extend its gains to the $80 handle with RSI showing more room for upside. However, a pullback or a full-blown reversal remains in play as well. Losing the round support and the median VWAP near $64 would open the door to $60 once again, re-exposing the lower VWAP.

Source: SpreadEx | Brent Crude, Weekly Chart