Binance: “If the Iran war drags on, risk assets face mounting downside pressure… US midterms could be an opportunity”

Global cryptocurrency exchange Binance said that if the Iran war becomes prolonged, rising crude oil prices could intensify downside pressure on risk assets such as Bitcoin (BTC). Some also see the US midterm elections as a potential tailwind for risk-asset markets this year.

Binance Research, an affiliate of Binance, said in a weekly report on the 11th (local time) that “the market’s direction going forward is likely to be shaped by geopolitical developments centered on the US, Israel and Iran,” adding that “it will be necessary to closely watch for any diplomatic breakthrough.” It added, “However, if the conflict becomes prolonged, global crude prices could rise again to above $100 per barrel,” and said that “if a closure of the Strait of Hormuz lasts for more than 1 month, that is the price level the market is implicitly pricing in, and it would act as a persistent source of pressure across risk-asset markets.”

It also mentioned the limits of releases from the International Energy Agency (IEA)’s Strategic Petroleum Reserve (SPR). Binance Research said, “Looking at the Biden administration’s 2022 SPR release, actual supply was limited to about 1 million barrels per day due to physical bottlenecks,” and “assuming a release of 180 million barrels, it would take 4–5 months.” It continued, “Even if SPR barrels are released, oil still has to pass through the Strait of Hormuz, and throughput in the strait has already fallen by more than 95%,” adding, “the current potential supply shortfall is 12–16 million barrels per day, meaning the SPR could only partially make up for the deficit.”

Regarding the US midterm elections scheduled for November, it described them as an “opportunity amid risk.” Binance Research noted, “In years with (US) midterms, the S&P 500 has tended to fall by about 16% on average from peak to trough due to political uncertainty,” adding, “for Bitcoin, the average decline in midterm years was 56%.” It went on to say, “(But) once election results are finalized and uncertainty is lifted, markets have historically shown strong rallies,” adding, “Bitcoin also rose in all three years following midterms, posting an average gain of 54%.”

Meanwhile, global crude prices again climbed above $100 per barrel intraday on the day. Brent previously surged to as high as $119 per barrel intraday on the 9th, then, as expectations grew for an early end to the war, plunged 11% from the previous session to close at $87.8.