The New Dollar a Barrel Aya-TOLL

02.04.2026

With the outbreak of war in Iran and a dramatic 48 hours in global markets, many investors are questioning what comes next. In this episode of SB Talks, CEO Vincent O’Neill and CIO Nick Ryder break down the impact of geopolitical developments on energy prices, inflation, and portfolio performance. They discuss base-case expectations, downside risks, and how markets have historically responded to periods of conflict and heightened uncertainty. Most importantly, they share why a disciplined, diversified approach remains critical when emotions run high.

In this episode of SB Talks, CEO Vincent O’Neill and CIO Nick Ryder unpack the latest developments in the Middle East and what they could mean for global markets and investor portfolios. From the ongoing disruption in energy supply and oil prices to the knock‑on effects for inflation, interest rates, and economic growth, they cut through the noise to focus on what matters most. The discussion explores best‑case, base‑case, and worst‑case scenarios – and why markets are cautiously optimistic despite lingering risks.

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Transcript

Vincent: Welcome to SB Talks. Today is Thursday, April 2nd, and I am joined as ever by our Chief Investment Officer, Nick Ryder. Welcome Nick.

Nick: Thank you, Vinny.

Vincent: Now, today Nick and I will be continuing our discussion regarding the conflict in the Middle East and the key considerations for markets and portfolios, and for you, our investors. Welcome to all our listeners.

Now, it’s approximately 10 days since we last recorded, and there have been plenty of developments in the Middle East, but, it’s probably fair to say that the picture has not materially changed in terms of her outlook.

Nick: No, I don’t think so. I mean, yeah, as you say, there’s not much has changed there. The Strait of Hormuz is still effectively shut. The US and Israel continue to attack Iran. But we do get the sense that they’re probably drawing towards the end of that attack and certainly in the last few days, Donald Trump has sort of played into that, he’s giving a speech at lunchtime today, so after we record this, but it’s expected he’ll try and say sort of mission done.

Vincent: Do you think that’s driven some of that mild market optimism in the last couple of days?

Nick: Yeah, definitely. That’s what we’ve seen. We’ve seen equities sort of bounce off their lows. Oil price come back down again, and bond yields have come down. So definitely there’s a feeling in markets that, the US will probably sort of wrap this up over the next couple of weeks.

Vincent: President Trump’s been pretty clear to state America’s energy independence, and Europe and possibly Australia to go get your own oil, not necessarily the most optimum outcome for everyone.

Nick: No, definitely. You know, as someone said, it’s we break it, you fix it. So I think he’s realised that there’s not much he can really do to reopen the Straits of Hormuz. I mean, they are sending more troops there. I believe there’s another aircraft carrier or carrier group that’s being sent another sort of 10,000, so there is still the possibility that it doesn’t go as expected. And then it drags on and, they do try and put troops on Kharg Island, which is Iran’s sort of oil terminal and infrastructure export facility and, and try and hold that hostage as leverage to get the Straits reopened.

Vincent: Of course, Tehran could just switch off the pipe to the island, how else do they get their oil out. Through that facility.

Nick: Exactly, so that is still possible. I think that’s less likely and I think we’re probably more likely to see the US sort of pull out. And you know, I think that the title of our last podcast was something around Hormuz Toll Road, someone called it the Aya-TOLL.  And we have seen moves by Iran’s parliament in that direction, potentially $2 million per boat, and they’ll let boats through. Now $2 million sounds like a lot, but there’s,

Vincent: I was going to say it’s a market rate considering some other parts of the world.

Nick: Yeah, but you got to consider that these very large crude carriers, carrying 200 million barrels, so that’s a dollar a barrel, effectively as a toll. So, potentially that’s the new world we live in. But there’s reports in the Wall Street Journal that the UAE is not happy about it and wants to try and help the US sort of force the Straits reopened. It’s still very unclear as to what it all looks like.

But I would suspect that the US and Israel, will stop their campaign. That Iran will try and impose let boats through, particularly for China and India and Pakistan and all these other countries that need that oil.

Vincent: And they need the money

Nick: So, I think that probably looks like the status quo that we’ll have to live with, not that anyone’s happy about it.

Vincent: Yeah, I guess the question will be, if the US finds an off ramp, which is what we’re talking about, and I guess hoping for, but what is the legacy damage that has done, I guess we know, we’ve talked previously about some of the damage to energy infrastructure and how quickly that can be repaired, not necessarily that quickly, what that means in terms of supply. Oil prices and energy prices more broadly and that flow that through. What does it mean for economies and markets?

Nick: Yeah, so in the scenario I’ve painted, it will still take a long time for energy flows to ramp back up to where they were. We know Qatar’s, facilities were badly damaged. That will take years to potentially repair. A lot of countries like I believe Iraq, because they weren’t able to store all the oil coming out of the ground, they had to shut in their wells. And that is quite damaging. It’s very hard to kind of just switch that back on and get back to a hundred percent of production. In some cases, you might only get back to 80% of production, once you’ve shut in your wells. I believe there will still be ripples for a long time in the scenario I’ve painted.

Vincent: And how do you think about that in terms of, we entered the year reasonably robust growth and sort of, foot on the accelerator. This has obviously been a major dampener on that. Is it enough to, you know, raise serious concerns to that growth, potentially even push certain regions towards recession?

Nick: If the oil starts to reflow, I think it’s more of a temporary issue. We’re probably talking 10, 20 basis points off global growth.

Vincent: It’s quite mild.

Nick: Yeah, it’s quite mild. I think that’s the sort of the base case.

Vincent: Of course, you’d be assuming a reasonably, short term to medium term return to not necessarily full supply, but significant supply.

Nick: Yeah, I mean, you have to remember, this is only 20% of crude and LNG supply. So, 80% is still flowing fine. So, it’s at the margin, and that’s why I think it’s only a minor impact.

Vincent: But it’s at the margin that you drive the prices.

Nick: Oh, that’s right. I’m not saying that there’s going to be a stagflationary shock. That’s in our sort of 20, 30% worst case scenario, which I think we articulated on the last.

Vincent: I think 2020 to 30% is not that small a number either.

Nick: No, no, absolutely not. This still could go pear shaped if, you know, the US deploys troops, if, other Gulf countries want to get involved to try and reopen the Straits by force, then that 20-30% might go up quite a lot.

Vincent: I guess we’re probably eagerly watching, particularly over the next few days what we see out of the US and are they leaning more towards that off ramp. And that probably gives us all, more confidence that scenario is less likely to play out. And hopefully that’s the direction that we’re edging in.

I might step back, more domestically if I can. A lot of focus this year on inflation, and the interest rate outlook, and the need for the rate rises that we’ve seen them potentially more. How has we layer over the top of this, the impact on the local economy of what we’re seeing in terms of energy prices?

And how is that affecting your view around the outlook here and what are we seeing in the markets in terms of pricing, future interest rates given what’s happening in the world?

Nick: Yeah, I mean even though we’re probably a net exporter of energy, because LNG is, I think the third or fourth largest export, and that all goes up to Asia for their power requirements. We are obviously heavily dependent on imports of jet fuel, diesel, and petrol. And so, there is some vulnerability to our economy. It’s very likely that inflation will continue to rise. So, people are talking about it getting 5%. It’s currently sort of tracking, high threes at the moment.

Vincent: That’s a pretty ugly number, Nick.

Nick: It’s a pretty ugly number, but once again, if we take the view that this is a temporary shock, then, most central banks should look through that, and not necessarily adjust rates in consequence because that is a cost, it’s a tax on the consumer and businesses. So, it has a growth impact. We’ve seen rates, kind of peak rates for the RBA this year, get up to about 4.8. So that’s nearly three rate rises.

Vincent: So, the market was pricing in potentially at its peak, up to three further rises from where we are.

Nick: That’s right. That’s a fair bit of pay, and it’s come back a bit. Now we’re sitting at a peak rate of 4.6, so two rises. So, May’s sort of priced 50 50, as to whether we get a rise there. But definitely the markets of the view that the RBA has more work to do, to bring inflation kind of heading back towards that two and a half percent target. At the moment it’s heading obviously in the wrong direction.

Vincent: The sooner, I think perhaps some of those extra inflationary pressures can be eased off, all the better for I guess our economy and the interest rate outlook.

Nick: I mean, it’s interesting though, obviously, we are getting a lot more sort of tax revenue from the higher GST collections and the petroleum resource rent tax from those LNG exports. So, we’re sort of benefiting on one hand, but obviously consumers and businesses are sort of struggling on the other hand.

Vincent: Unfortunately, it seems to be probably the one stress consumer part of our economy that’s under most stress already that keeps paying more. The winners are, are elsewhere. It’s the bar bell nature of the Australian economy at present, unfortunately. Events like recently in the Middle East and the energy impacts naturally put stresses on economies, put stresses on markets. Are there any parts of the market that you know, you feel are more vulnerable or that you’re keeping a closer eye on when you think as an investor?

Nick: Well, as I said, I still have the view that it’s fairly short term, so, obviously you worry about that sort of downside scenario, in which case that I would worry about a lot of things. That would be a stagflationary shock. You’d have negative growth outcomes, potentially negative employment outcomes, and inflation going the wrong way. And the RBA then sort of struggling to decide what to do. I think that’s the scenario I worry most about because it’s very hard for any asset class to do well in that we know from 2022 was terrible for bonds, it was terrible for equities, it was terrible for property, really at cash was the only thing that kind of was okay.

And we’re not going to sell all our clients and put them in cash, so I do worry about that scenario, because there’s very little, very few places to hide. I think I mentioned last time, we do have more in sort of infrastructure and, hedge funds in our portfolios now than we did back then.

So hopefully that would help offset some of that but it’s not a scenario. It’s still a very difficult scenario. Not pretty, you know, we know from the 1970s, real returns were negative for most asset classes for a long period of time. We called that a lost decade for investors their returns didn’t cover inflation.

Vincent: Well, we’re not suggesting we are heading back there, but we have to have one, an eye on the past as, as we invest and, and plan for the future. An excellent summary as always, Nick, thank you very much. A very happy Easter long weekend to you and a very happy Easter long weekend to all our listeners. Thank you.

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