Global markets, from crude oil to equities, may be reacting too quickly to shifting geopolitical expectations without a confirmed resolution in place, according to veteran macro strategist David Roche from Quantum Strategy.
In a conversation with ET Now, Roche cautioned that recent moves in oil and equity markets reflect speculation rather than substance, as investors attempt to price in a potential pause in Middle East tensions.
He noted that what is being discussed in diplomatic circles is far from a comprehensive agreement.
“Well, look, I mean, it is fair to say we have not seen an agreement because there is not an agreement. Secondly, this, if there was an agreement, this is only an agreement to pause. Most of the substantive things like nuclear disarmament are pushed out to some sort of 60-day negotiating window and the strategic issues of Iran's support for its proxies like Hezbollah is not dealt with and most important Iran retains strategic control of the Gulf.”
Roche argued that markets are effectively pricing in optimism without evidence of a durable settlement, adding that even a potential agreement under discussion would fall short of resolving core strategic conflicts.
He further warned that even if a deal emerges in its current form, it would be structurally weak and potentially destabilizing in the longer run.
“So, in two ways the markets are ahead of themselves. Number one, they have not even seen this deal, they are speculating. And number two is that this deal is a bad deal. If it emerges in the terms just described is a very bad deal because it means the war has resulted in Iran winning all its strategic objectives including freeing up its trade and access to its confiscated assets. And essentially the US has achieved nothing.”
Limited upside even in a relief rally
On the market reaction, Roche suggested that even if a short-term de-escalation materialises, gains in equities and softness in oil may be limited in scope.
“But I would say oil at 90, markets up 3% or 4%, that is about the measure of what you are going to get.”
He added that markets had not fully priced in risk earlier, which limits the scope of further upside from any “risk-on” shift.
Strait of Hormuz and geopolitical control concerns
Discussing proposals around maritime security and regional arrangements, Roche dismissed the idea of shared control mechanisms as ineffective. “No, that is not a middle way because look it leaves the Iranians in control of the Gulf. Oman is really not a force to balance Iran in any way.”
He warned that such frameworks could create long-term instability by legitimizing control over strategic waterways. “You cannot go down that route. So, I am most pessimistic that diplomacy can achieve the red lines that we as portfolio managers need to see.”
Temporary relief, not structural resolution
According to Roche, the only scenario that would trigger meaningful short-term relief in global markets is one that ensures uninterrupted oil shipping flows. However, he stressed that deeper structural issues remain unresolved, including nuclear concerns and regional proxy dynamics.
He said a partial easing could still trigger a short-lived rally: “You will get a further rally in equity markets and risk assets and further fall in oil.”
But he warned such moves would likely be temporary, lasting only until underlying geopolitical tensions resurface.
Political and economic constraints on both sides
Roche also highlighted that both the United States and Iran are operating under tightening internal constraints, though of very different nature and timelines. “We do not actually know how much foreign exchange reserves in particular gold does Iran have… but it is probably more than 100 to 200 days.”
On the US side, he pointed to political pressures, including upcoming elections and economic sensitivities around energy prices. “Not only does its budget arithmetic look fatal, but it has also got its elections coming up.”
He added that rising fuel prices and monetary constraints could increasingly shape political decision-making in Washington.
Oil markets: paper versus physical reality
Roche also drew a distinction between financial oil markets and physical supply conditions, arguing that futures pricing may be exaggerating downside moves.
“The crude price that is falling is paper crude price for the futures for Brent. If you actually look at the physical exchange price… it is going down very little, very little indeed, 4–5%, nothing.”
He cautioned that strategic petroleum reserves may not be sufficient to offset prolonged disruption. “My figures show that Europe and key Asian countries run out of oil by the end of September… So, essentially, the oil reserves do not bail us out.”
Outlook: volatility ahead, not resolution
Roche concluded that markets may experience short bursts of optimism, but the underlying geopolitical and energy risks remain unresolved. Any relief, he suggested, is likely to be temporary unless deeper structural issues in the Middle East are addressed.
