Europe faces recession if Strait of Hormuz crisis not resolved in a month - RBC
Europe faces recession if the crisis in Hormuz is not solved in a month / Photo: ilolab / Shutterstock
Europe faces recession if the crisis around the Strait of Hormuz is not resolved within a month, according to Mark Dowding, director of bond investments at RBC BlueBay Asset Management. "I think it will become inevitable," Bloomberg quoted the financier as saying.
"European equities are undervalued because they don't take into account the real, tangible risk of recession," he said, suggesting investors consider inflation-linked bonds as protection.
Supply disruptions in the energy market are getting worse by the day, with about 1 billion barrels of oil already lost since the conflict began, Downing explained. A stagflationary supply shock will affect global markets in different ways, with Europe and Asia being hit harder than the US, he warned.
Dowding expects central banks to keep interest rates unchanged this week, with the US Federal Reserve, in his view, holding them at current levels through 2026 due to ongoing inflationary pressures. Dowding predicts U.S. inflation could approach 4%. And the ECB, he admitted, may even begin preparations for a possible rate hike.
In early April, ECB Governing Council member Yannis Stornaras said Europe could face a recession if the conflict with Iran drags on and oil prices exceed $150 a barrel, Reuters wrote. "Right now, no one is talking about a recession. But if the war continues and we see scenarios with oil prices above $150 a barrel, nothing - not even a recession - can be ruled out," he said.
What's up with oil prices
Oil prices jumped on April 27 amid uncertainty about the prospects of negotiations between the U.S. and Iran. Futures for Mark Brent rose by 3.5%, trading at almost $109 per barrel. Contracts for WTI added 2.5% and almost reached $97 per barrel.
After Axios reported on a new Iranian proposal - to open the Strait of Hormuz and end the war by postponing more complex nuclear negotiations - U.S. Secretary of State Mark Rubio said Iran wants to retain control of the strait and called it unacceptable, Bloomberg reports. In an interview with Fox News, Rubio said Washington cannot allow a situation in which Tehran decides which ships can pass through the strait or charge a fee.
This article was AI-translated and verified by a human editor
