Oil markets have spent the past week behaving as though the worst is over. Brent crude has surrendered much of its wartime premium, tankers are once again moving through the Strait of Hormuz and investors have rushed back into risk assets.

For financial markets, the message appears straightforward enough: diplomacy has replaced disruption. Yet has anything fundamentally changed, or are markets simply pricing the next sixty days rather than the next five years?

That question deserves more attention than the latest move in crude futures.

The ceasefire between Washington and Tehran remains fragile. Reports of fresh exchanges involving Israel have already raised doubts about how durable the current arrangement really is. The negotiations themselves remain limited, temporary and heavily dependent on political incentives that may look very different after the US midterm elections in November. If today’s calm is largely a product of electoral arithmetic, what happens once that arithmetic changes?

Markets have been here before. Every indication of progress has pushed oil lower. Every sign of renewed tension has brought buyers rushing back. That tells us less about confidence in lasting peace than about confidence that neither side wants another immediate escalation. Those are not quite the same thing.

Perhaps the more interesting question is whether governments should be taking the same view as traders.

Financial markets are designed to price probabilities.........

© Business Recorder