Iran-US standoff to last through mid-terms; oil could be much higher, says Chris Wood

According to fresh market updates, The standoff between Iran and the US is likely to continue through the US midterm elections, with any de-escalation having to come from the US side, according to Jefferies’ global equity strategist Chris Wood.

Wood stated Iran is likely to maintain its current position of negotiating with the US only on the basis of the memorandum of understanding signed by Donald Trump a few months ago.

Donald Trump has stated that Iran was considering a deal, but Wood stated he did not believe that would happen unless the US negotiated on the basis of the MOU.

“My base case is that the standoff continues through to the midterms,” Wood stated in an exclusive interview with Moneycontrol.

The latest developments in the Red Sea have further noted another layer of risk. Given the news flow, Wood stated, “the only amazing thing is that oil is not much elevated.”

Look beyond crude to diesel cracks

The impact of the energy shock is already more visible in refined products than in the headline crude price, Wood stated.

“Financial markets are obsessed with the listed crude price,” he stated. “But in the real world, the real problems are much better captured in the products.”

Wood cited European gas prices as another example. Gas prices in Germany and the UK are 10 times US marks, he stated, pointing to the real-world pain already being felt from the energy shock. China, not US, has leverage

China could play a critical role in determining how far crude prices climb, Wood stated.

China has large oil stockpiles and has bought less oil in recent months, which he sees as one of the reasons prices have not risen further. Growing EV adoption is additionally creating an element of demand destruction in China.

“If anybody's got leverage over this situation, it's China, not the US,” Wood stated.

China could exert pressure on the US by suddenly increasing its oil purchases, pushing prices elevated and putting pressure on Trump ahead of the midterms.

China additionally has greater leverage over Iran than the US, Wood stated.

“If anybody's got leverage over Iran, it's China, it's not the US,” he stated.