CLSA Adds Risk as Iran Ceasefire Sinks Oil Prices Over 15%

A two-week ceasefire between the United States and Iran sent global oil prices plunging more than 15 percent after Tehran agreed to reopen the critical Strait of Hormuz waterway, prompting strategists at CLSA to begin adding back cyclical market exposure.

"The 14-day ceasefire... may be insufficient to give Gulf exporting countries the confidence to restore production to pre-war levels, but it should at least allow the release of cargo stranded behind the strait, providing much-needed relief," CLSA said in a report to clients. "We have decided to withdraw our 'defensive' stance adopted after the outbreak of war and return to benchmark allocations."

The market reaction was immediate and sharp. Benchmark Brent crude fell about 15.9 percent to $92.30 a barrel, while West Texas Intermediate crude plunged over 16 percent to trade below $94 a barrel after touching $117 earlier in the day. In response, US stock futures soared, with Dow futures jumping more than 900 points and S&P 500 futures rising over 2.5 percent.

The fragile truce, mediated by Pakistan, provides what CLSA calls an "off-ramp" for a conflict that has cost 15 American lives, hurt US President Donald Trump's approval ratings, and pushed average gasoline prices above $4.10 a gallon. However, with Iran seeking sanctions relief and reparations, the risk remains that the ceasefire is merely a pause, with the potential for renewed disruption to the more than 20 percent of global oil supply that transits the strait.

In its note, CLSA said it was re-adding cyclical exposure, shifting its portfolio allocations across Asia. The firm moved its Hong Kong allocation to "20% overweight" and South Korea to "15% overweight," while reducing India to "10% overweight." It advised an underweight stance on Australia, Taiwan, and Malaysia.

The brokerage noted that the conflict's costs likely exceeded President Trump's expectations, providing a strong incentive to de-escalate. Still, the situation remains tense. Iran's foreign minister stated that safe passage would require "coordination with Iran's Armed Forces," leaving the terms of transit unclear. Analysts were quick to point out the ambiguities.

"It hasn’t really clarified anything when it comes to the Strait," Patrick De Haan, head of petroleum analysis at GasBuddy, said on social media platform X. He suggested a two-week ceasefire likely means "another two weeks of status quo and barely anything getting through," which could keep upward pressure on fuel prices. The last major disruption in the strait saw crude prices spike and created the biggest oil supply shock on record, affecting roughly 12 million to 15 million barrels per day.

For now, markets are breathing a sigh of relief. The de-escalation saw investors move out of safe havens, with US Treasury yields declining and precious metals like gold and silver jumping 2.5 percent and 4.6 percent, respectively. CLSA believes that waiting for a final peace agreement would be too late to capitalize on the market shift.

This article is for informational purposes only and does not constitute investment advice.