US-Iran Stalemate Sends Oil Above $90, Pressures Equities and Long-End Yields

The lack of progress between Washington and Tehran increased expectations for a more prolonged closure of the Strait of Hormuz, the Deutsche Bank note said. Brent moved back above $90 and continued higher, while equities slipped and inflation concerns pushed long-end bond yields to fresh multi-year highs, including the US 30-year Treasury yield at its highest since 2007. Trump said he had no interest in extending the June memorandum, denied urgency around a deal, and claimed a back channel with Iran’s Revolutionary Guard, which Iran rejected. US officials also signalled they were prepared to play the long game. The 12-month Brent future reached a two-month high, showing markets are pricing in a more prolonged period of elevated oil prices.

Earlier on Aug 18, Westpac’s daily note described a generally risk-off tone after Trump reaffirmed he was not interested in extending the truce, with renewed Middle East tensions pushing oil higher. Equities weakened in the US and Europe, while Asian markets outperformed on semiconductor strength before the oil rally. US Treasuries weakened as oil rose, and the dollar softened on subdued Fed tightening expectations, with the Australian dollar moving above 0.71 against the greenback. Brent climbed back above $90 a barrel.

The stalemate had already been flagged as a source of wide-ranging uncertainty. A CIBC note published Aug 17 said Iran appears willing to hold out for better terms while the US has shown little willingness to meet those demands, leaving no clear timetable for a full reopening of the Strait of Hormuz. The base case remains a resolution within months rather than years, but Gulf states are spending heavily on alternative export routes, suggesting preparations for prolonged disruption. CIBC said crude could fall toward $70 or lower if a deal is reached, but if the Strait remains threatened, prices could move into triple digits. It also noted US gasoline has already risen above $4 a gallon.

A partial de-escalation signal emerged early on Aug 18, when Saudi Arabia resumed oil loadings and sales from inside the Strait of Hormuz. The move could cap oil upside if loadings normalize, but it was overshadowed by the subsequent US-Iran headlines that drove Brent higher. The resumption underscores that not all Gulf exports are halted, even as the political stalemate persists.

The market’s reaction is unfolding against a corporate backdrop that remains fundamentally solid. A Goldman Sachs analysis of second-quarter earnings, published Aug 18, said real revenues excluding energy rose 6.4% year-on-year, the fastest pace since 2021, with consumer commentary improving. However, the outlook is softer: real consumer spending is expected to slow to 1-1.5% in the second half of 2026 as saving rates stay low, real disposable income growth remains weak, tax refund support fades, and elevated oil prices weigh on households. More than $100 billion in tariff refunds has been treated as a one-off windfall, and sectors receiving the largest refunds are seeing the biggest price increases and weakest forward margin revisions.

The combination of a solid earnings base and a consumer spending slowdown frames the current equity weakness as potentially rotational rather than recessionary, but the persistence of elevated oil prices remains the key risk. With the Strait of Hormuz still unresolved and inflation pressures mounting, the next catalyst will be any sign of progress in US-Iran talks or further disruptions to Gulf oil flows.