Global markets this week are focused on the progress of talks between the United States (US) and Iran, which are expected to begin on Monday. The development is an important factor as it has the potential to determine the direction of oil prices, global inflation and financial market sentiment.
US President Donald Trump said talks with Iran would resume after he postponed military operations previously planned against the country.
According to him, the decision was made after receiving requests from Saudi Arabia, the United Arab Emirates (UAE), Qatar and Iran to make room for a diplomatic solution.
Trump also said the discussions would focus on the security of the Strait of Hormuz and the issue of Iran's nuclear program.
The Strait of Hormuz is a strategic route that handles almost a fifth of the world's oil supply and any disruption in the area could have a major impact on global energy markets.
Following hopes for a diplomatic solution, crude oil prices recorded a decline as concerns about supply disruptions began to subside. West Texas Intermediate (WTI) crude oil fell to around US$79 per barrel, while Brent crude oil also fell to around US$83 per barrel.
However, geopolitical risks are not over yet. BMI Research expects the chances of reaching a more comprehensive understanding on the reopening of the Strait of Hormuz are increasing.
However, the research firm also warned that the negotiations still face the risk of military tensions and missteps that could trigger a new conflict at any time.
Throughout the week, investors are expected to continue to monitor any developments from the US-Iran negotiations as they will be the main driver of oil, gold and risk asset price movements.
Any progress in the negotiations has the potential to ease pressure on energy markets, while failure to reach an agreement could revive concerns about global oil supply and increase inflationary pressures.
