UBS On-Air: Paul Donovan Daily Audio 'Oil bubbles up again'
UBS chief economist Paul Donovan casts the latest oil price creep toward $90/bbl as a geopolitical premium driven by US-Iran tensions over the Strait of Hormuz, noting that President Trump's demand for Iranian reparations is unlikely to trigger the concessions needed to reopen the strait. The desk highlights that higher crude has yet to feed into US retail gasoline and diesel, delaying domestic political pressure. UK retail sales data showed positive but slowing growth, with food sales robust and non-food weak, partly weather-related. With no major events on the calendar and the consensus for the UK number small, the focus turns to the upcoming US CPI print.
What the desk is arguing
Per the full note source, UBS chief economist Paul Donovan frames the recent oil price climb as a geopolitical risk premium, with Brent creeping toward $90/bbl. President Trump's response to Iran's reparations demand—counter-demanding reparations—is far from the concessions needed to reopen the Strait of Hormuz, suggesting the premium may persist.
The desk notes that higher crude has not yet translated into higher US retail gasoline and diesel prices, implying a lag that could delay domestic political pressure. This timing nuance is critical for assessing risk sentiment.
The alternative read—that the oil move is purely demand-driven—is implicitly rejected; the emphasis on geopolitics suggests the desk sees supply-side risk as dominant.
Key takeaways
- 01Oil's climb toward $90/bbl is geopolitical, not demand-driven, per UBS.
- 02US-Iran tensions over the Strait of Hormuz remain unresolved, with Trump's reparations demand unlikely to ease the standoff.
- 03Higher oil prices have not yet hit US retail fuel prices, delaying political impact.
- 04UK retail sales growth slowed, with food robust and non-food weak, partly weather-related.
Market implications
Watch for further oil price spikes if Strait of Hormuz tensions escalate, which could pressure oil-importing currencies and support oil exporters. The lag in US gasoline prices means the political fallout may arrive later; monitor US CPI for inflation pass-through.
Risks to this view
A diplomatic breakthrough on the Strait of Hormuz could quickly unwind the geopolitical premium. Conversely, a sharp rise in US gasoline prices could trigger political pressure that forces policy responses.
Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's seven o'clock in the morning London time on Tuesday the 11th of August. Financial markets do not have a great deal to look at today in anticipation of tomorrow's US July consumer price inflation data.
The crude oil price is creeping higher with US President Trump responding to Iran's demands for reparations by demanding Iran pay reparations. This is far from the concessions that the US is likely to be required to make in order to bring about a reopening of the Strait of Hormuz. However, the climb towards $90 oil has not translated into US retail gasoline and diesel prices yet.
There is some delay before that is likely to happen. So the domestic US political pressure around the current situation has perhaps not peaked. In the UK, the British Retail Consortium's shop store sales figures were positive, but the growth in sales has slowed.
The weather may well have had quite a lot to do with this as food sales remained robust and non-food sales fell. The number is also nominal rather than inflation adjusted and there is basically no inflation for non-food items which helps to bring down the nominal pace of growth. Only three individuals forecast this number for the consensus survey which gives some sense of its relative importance to financial markets.
But the resilience of the consumer is something that is still in focus across developed economies. The UK consumer continues to do relatively well all things considered in line with European consumers, relying on adjustments to savings to maintain spending patterns. The United States is offering a mix of minor information.
The National Federation of Independent Business' survey of small business sentiment has traditionally been plagued by suggestions of a political skewing of the results. And the recent weakening trend in the context of a bias to optimism under a Republican president is therefore a little more troubling. There are more primary elections taking place and we have a Fed Speaker to add to the mix of trying to understand what on earth is going to happen to policy.
One thing that might be worth watching is the weaker Yen which has been moving towards the 1.60 level against the Dollar. The unwinding of the post-intervention rally in the Yen is not perhaps surprising. To date there has been little evidence of policy changing in the US or in Japan and therefore no sense of a change in fundamentals and it's hard to position the previous Yen weakness as being the result of a speculative attack.
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