The Strait of Uncertainty

The relief rally that greeted news of a provisional peace deal in the US-Iran war on 14 June may have been a tad premature. Even though President Trump declared “the toll free opening of the Strait of Hormuz”, oil is not yet flowing in full. Weekend talks in Switzerland that kicked off the negotiations toward a peace deal within two months have so far yielded little clarity on the road to resolution.

While all parties hailed “great progress,” and it seems that the US has made quite substantial concessions with the lifting of its naval blockade and unfreezing of Iranian assets, we don’t yet have a roadmap for the full opening of the Strait of Hormuz or the terms and potential cost of passage. And there is a risk the Strait remains a key bargaining chip in the proxy war between Israel and Lebanon’s Hezbollah.

As we outlined in our commodities outlook for the rest of the year last week, investors need to prepare for more short-to-medium term volatility around energy costs, driving up inflation and global geopolitical escalation.

Logistics remain the primary bottleneck. While oil in the ground remains plentiful, the conflict removed 15-20% of global supply which cannot be restored at the flick of a switch. Industry estimates suggest that for every day the Strait of Hormuz remains closed, the global energy supply chain requires three days to normalise. Given the Strait has been closed for almost four months, we could be facing at least six months of disrupted supply chains, even into early 2027. While increased US exports and Chinese destocking may have provided a temporary buffer, these reserves are finite. The physical shortages are likely to persist as we enter the seasonally strong period for oil products. Natural gas markets appear equally vulnerable if winter demand spikes before inventories can be replenished.

Figure 1. Daily vessel crossings through the Strait of Hormuz, 2026 versus 2021-2025 range

Source: Bloomberg, ticker TRHBTKCD, as at 28 May 2026.

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Metals are navigating a narrow path between a cyclical recovery and a stagflationary environment dictated by energy costs. Global manufacturing shows signs of acceleration, but supply chain fragility remains a risk. In the precious metals space, gold continues to serve as a universal reserve currency. The conflict has accelerated a move away from the US dollar, with the petro-yuan gaining ground as nations seek secure payment alternatives.

Perhaps the most significant shift is the prioritisation of energy security over the cost of carbon. Renewable energy has emerged as a structural winner because it offers a model that is less reliant on imports. The guiding question for policymakers has moved from finding the cheapest molecule to securing the most reliable one. Investors should view current volatility as a signal of a broader shift in how global resources are valued

Oil markets were very well supplied, maybe even oversupplied, before the war. We may eventually see a full recovery, but the reality is also that we are in a new commodities paradigm, one where geopolitical and geoeconomic developments create both cyclical and structural dislocations and investment opportunities.

Author: Al Chu, a portfolio manager covering natural resources at Man Group.

What will markets make of prospective UK Prime Minister Andy Burnham?

After Keir Starmer’s resignation as UK prime minister on Monday, the path appears to be clear for Andy Burnham to take up residency at 10 Downing Street. The fact that gilts and the British pound hardly moved highlighted the inevitability of this scenario since Burnham decisively won the Makerfield by-election last week.

We may see more fireworks once Burnham has announced his policies and cabinet, particularly if he replaces current Chancellor Rachel Reeves. Markets have seen Reeves as steady pair of hands, committed to lowering the UK’s debt burden while covering day-to-day government spending from tax revenues.

Fear of reckless spending? 

Investors see a Burnham premiership as a shift to the left for a government already battling high deficit levels, with 30-year gilt yields hitting their highest levels since 1998 at 4.86% in May. Last year, Burnham claimed the UK government should not be “in hock” to the bond market. However, he recently assuaged fears of reckless spending by pledging to adhere to the fiscal rules set by Reeves.

In terms of what this means for UK credit markets, rates will likely dominate returns. All eyes will be on this autumn’s budget and how changes to corporation and national insurance taxes, as well as potential increases to minimum wages, could impact what is already a gloomy economic backdrop. This should drive the direction of credit spreads, which, despite geopolitical volatility and a stagflationary economy, are at their tightest levels, trading significantly below the 25th percentile (Figure 2). This highlights that valuations are highly vulnerable to any fiscal surprises or shifts in policy direction that may emerge as the new administration takes shape.

Figure 2. Sterling investment grade index spreads (OAS) versus historical percentiles

Source: Bloomberg, as at 5 June 2026.

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One of Burnham’s key messages has been to reassert “public control” of energy and water companies. Whether this means re-nationalisation or a different form of government intervention remains to be seen.

In terms of timeframe, media reports suggest that in the likely absence of any challenger to Burnham’s leadership of the Labour Party, he could be sworn in by mid-July as the seventh UK prime minister in 10 years.

All data Bloomberg, unless otherwise stated.

Author: Hugo Richardson, a client portfolio management analyst in London.