The recent US military action targeting Iran’s nuclear program might further elevate oil prices, influencing a swift movement among investors who are assessing the broader effects on the global economy.
In Sunday trading, the response from the Middle Eastern stock markets indicated that investors were perhaps anticipating manageable results, despite Iran’s missile retaliation against Israel following the US’s significant involvement in the situation.
In a speech, President Trump termed the attack a “great military success,” asserting that Iran’s critical nuclear facilities have been effectively destroyed. He further warned that if Iran fails to pursue peace, the US could target additional sites within the country.
Iran has stated that it retains the right to defend itself, cautioning about severe consequences. In Istanbul, Iranian Foreign Minister Abbas Arakich mentioned that Iran is considering its response options but will focus on retaliatory actions before contemplating diplomacy.
Investors expressed concerns that once key markets reopen, US involvement could trigger stock sell-offs and increased demand for safe-haven assets, yet significant uncertainty remains in the air.
“I think the market will approach cautiously, leading to a rise in oil prices,” noted Mark Spindel, chief investment officer at Potomac River Capital.
He added that uncertainty would shroud the market as Americans are now perceived as exposed worldwide, which could boost volatility, particularly in the oil sector.
One indicator to watch for market sentiment next week is the price of ether, the second-largest cryptocurrency, as it reflects investor feelings.
“We’re still waiting to gauge the damage. It may take a while. (Trump) calls it ‘finished,’ but we are definitely still engaged,” said Spindel.
The price of ether dropped by 8.5% on Sunday, showing a total decline of 13% since Iran’s initial strike on Israel on June 13.
Interestingly, most Gulf stock markets showed resilience against the early attacks, with key indexes in Qatar, Saudi Arabia, and Kuwait remaining stable or slightly up. Israel’s main index actually reached an all-time high.
A primary concern for the market is how tensions in the Middle East might affect crude oil prices, potentially leading to higher inflation. Rising inflation could undermine consumer confidence and lessen the chances of short-term interest rate cuts.
Saul Kavonick, a senior energy analyst at MST Markey, pointed out that Iran may retaliate by targeting American interests in the region, including oil infrastructure in the Gulf and key shipping routes through the Strait of Hormuz.
This strait, located between Oman and Iran, is crucial for oil exports from countries like Saudi Arabia and the UAE.
“It really hinges on how Iran reacts in the next few hours and days, but if they follow through on threats, we could see oil prices hit $100,” Kavonick remarked.
Global benchmark Brent crude oil futures have surged by 18% since June 10, reaching close to $79.04, but the S&P 500 has seen little movement despite the initial drops following the attacks.
According to Jamie Cox, managing partner at Harris Financial Group, oil prices are likely to spike before potentially stabilizing, especially if Iran seeks a peace settlement with both Israel and the US.
“With their show of nuclear strength, they might lose any negotiating power and opt for a more defensive position,” Cox mentioned.
Economists caution that sharp increases in oil prices could significantly impact the fragile global economy, which is already grappling with challenges related to Trump’s tariffs.
Historically, stock pullbacks during periods of heightened Middle Eastern tensions have often been temporary. For instance, during the 2003 invasion of Iraq and the 2019 attack on Saudi oil facilities, stocks dipped initially before rebounding over the following months.
Data from Wedbush Securities reveals that while the S&P 500 fell 0.3% during the initial weeks of the conflict, it typically sees a 2.3% gain in the two months post-conflict.
Escalations in disputes can also influence the US dollar, which has depreciated this year amidst worries about the erosion of American leadership on the global stage.
Analysts suggest that if the conflict directly involves Iran and Israel, the dollar might initially benefit from a rush to safety.
“It’s likely that we will see a flight to safety,” emphasized Steve Sosnick, chief market strategist at IBKR.
Jack McIntyre, a global bond manager, expressed uncertainty about the recovery of US Treasury securities due to heightened sensitivity to market inflation.
“If Iran were to move toward a more cooperative and open economic stance, it could have significant implications for the global economy,” McIntyre added.
