Market Report 23rd June

While headlines surrounding Iran’s threats and regional instability have fuelled momentary concern, structural constraints make a full closure of the Strait of Hormuz both improbable and self-defeating. Tactical disruption remains a possibility, especially through proxies or shipping harassment, but the strategic calculus strongly favours containment rather than escalation.

Aluminium and oil markets are likely to hold a modest geopolitical premium, but pricing behaviour so far reﬂects a belief in resilience, not fragility.

Strategic Constraints on a Strait Closure

Although the Strait of Hormuz is often invoked in geopolitical brinkmanship, several structural realities make a full blockade a high-cost, low-reward manoeuvre for Iran:

Iran would need to operate in both international and Omani-controlled waters to attempt a closure, raising the risk of direct conﬂict with GCC states and likely triggering formal defence alignments. Iran also relies on Oman as a key logistical and diplomatic partner. Severing that relationship would be self-damaging.

Major importers of Gulf energy, particularly in Asia, would suffer from any shipping disruption. Conversely, Iran’s geopolitical rivals have already reduced or eliminated direct exposure to Iranian oil, making the strategic leverage of such a move limited.

Export infrastructure bypassing Hormuz, such as the UAE’s Fujairah pipeline and Saudi Arabia’s Red Sea lines, provides alternative routes that reduce the strait’s monopoly over regional energy ﬂows.

All of this supports the view that Hormuz’s value lies primarily as a deterrent or bargaining chip, not as a credible near-term pressure tool. Iranian rhetoric on the issue may be geared more toward domestic signalling and preserving deterrence than toward practical escalation.

Market Reactions: Cautious but Controlled

Markets responded to the weekend events with temporary volatility but have since settled:

Gold brieﬂy rose above $3,395 per ounce before easing to $3,350. Brent crude spiked to

$81.40 per barrel before pulling back to $78.50. Risk assets remain on alert, but the absence of follow-through escalation has helped restore some calm.

Market participants remain attentive to the possibility of tactical retaliation, including actions by Iranian-aligned groups such as the Houthis. The main near-term concern is maritime disruption, particularly for aluminium shipments, which could be delayed if vessels are forced to reroute around the Cape of Good Hope.

While some are discussing the potential for more serious disruption to Gulf smelters and industrial sites, such a scenario would represent a signiﬁcant escalation and is not expected unless conﬂict intensiﬁes.

Metals Regulation: LME Moves to Contain Speculative Pressure

The London Metal Exchange has introduced a new rule requiring traders with front-month positions that exceed total available inventory to lend or roll forward those positions at level pricing. This change was triggered by recent cases of large speculative builds in contracts such as aluminium, where positions exceeded inventory multiple times over.

Total LME aluminium inventory has fallen below 350,000 tonnes, while some traders reportedly held positions above 1 million tonnes.

The rule applies to all front-month positions up to and including the third Wednesday prompt date. While temporary, this measure signals a clear intent to curb distortions in the physical market. The LME is also preparing to take over regulatory oversight of position limits from the UK’s Financial Conduct Authority in July 2026.

Macro and Rates: Sterling Market Shifts Hawkish

The ﬁxed income market has turned slightly more hawkish on the Bank of England:

BoE-dated OIS now prices 46 basis points of cuts by year-end, with 18 basis points priced for June and 23.5 basis points by September. Goldman Sachs continues to recommend receiving December BoE OIS, expecting a rate cut in August followed by two more in the second half. Softening wage data and a weaker labour market are driving expectations of monetary easing.

Today’s ﬂash PMIs and a speech by Governor Andrew Bailey at the Insurance Chairs Dinner may provide further clarity.

Energy Watch: Positioning and Fundamentals in Focus

Two key data points are expected today:

The NYMEX Commitments of Traders report, delayed from last week, will show whether speculative long positions in crude and gasoil have extended further. Recent ICE data showed Brent net long positioning at its highest since April.

The JODI database will publish global oil and gas supply and demand balances for April. These ﬁgures will help contextualise recent moves in price structure and fundamentals.

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