UnHerd: A global catastrophe will happen in April, it is inevitable

The main indicators on the world stock exchanges are declining, but not collapsing. There is one reason for this: the markets still believe Donald Trump, who claims that peace in the Middle East is near. But soon this faith will run out, and then fragile Western economies will not be able to resist, says British writer John Rapley on the pages of the UnHerd analytical portal.

Global stock exchanges and bond markets started the week with moderate growth. Tellingly, since the beginning of the war in Iran, world oil prices have more than doubled, but the markets have hitherto maintained some stability. The main indicators are declining, but they are not collapsing, and bond yields, although they have grown significantly, do not give reason to panic yet.

But don't expect it to last long. Unless there is a dramatic denouement that will put a decisive end to the war, the mood will change for the worse next week. If events continue to develop as usual, investors will have a desire to get rid of assets as soon as possible after the Easter holidays.

Donald Trump is holding oil prices with the last of his strength, the markets still take his word for it that the conflict will end soon. But this faith will not last long. The forecast markets do not foresee a ceasefire until June. Meanwhile, with every day of the blockade of the Strait of Hormuz, the shortage of oil is getting worse.

So far, the price per barrel did not reflect the actual reduction in supply, since it was compensated by available resources: oil already loaded into tankers when the conflict broke out, raw materials from which sanctions were lifted, domestic reserves and strategic reserves. But these resources will soon run out. Thus, analysts foresee that prices will begin to rise steadily over the next three weeks as the deficit worsens: this will start this week from Africa and Asia, next week will spread to Europe, and then reach the Americas no later than mid-April.

If the war lasts until the middle of next month, oil prices could soar to $200 per barrel. And then there's the bond market. Auctions in the United States last week showed weak demand, and it seems that anxiety is brewing among investors that the US financial situation is becoming more precarious — not least due to the fact that the Pentagon is asking for more and more funds to replace damaged equipment and spent ammunition. Some analysts expect that the yield on ten-year bonds will exceed 4.5%, and this will pull down the remaining interest rates.

If rates remain high, they will begin to depress the stock price. At the same time, tensions in the direct investment sector continue to grow: stagnation in the stock market narrows the exit opportunities and forces assets to be kept on the balance sheet for a long time after the due date of sale. Investors who want to cover losses through direct investment may sell off some of the state assets, exacerbating downward pressure on stock prices.

Although Trump has repeatedly stated that peace is near, the situation on the ground refutes him. It seems that the president has fallen into the trap of escalation. In one form or another, a ground invasion is expected — possibly with the aim of capturing the island of Khark or nuclear materials. However, it is far from a fact that even with the help of a targeted operation it will be possible to unblock the Strait of Hormuz. Even worse, there is a high risk that it will face Iranian resistance and require the dispatch of additional troops — and thereby prolong and deepen the war.

Perhaps the only way to achieve a military solution for the United States is to launch a large—scale and possibly protracted ground operation. Otherwise, Trump will have to agree to a "deal" that will be tantamount to surrender. Since he shows no interest in either, the risk of a gradual aggravation is growing every day.Thus, if there are no major changes, the situation on the markets will begin to deteriorate in the first days of April. And fragile Western economies will not stand.