NEW YORK: A US attack on Iranian nuclear sites could push oil prices even higher and trigger a knee-jerk rush to safety, investors said, as they assessed how the latest escalation of tensions would ripple through the global economy.
The reaction in Middle East stock markets, which trade on Sunday, suggested investors were assuming a benign outcome, even as Iran intensified its missile attacks on Israel in response to the sudden, deep US involvement in the conflict.
Investors said they expected US involvement would cause a stock market selloff and a possible bid for the dollar and other safe-haven assets when major markets reopen, but also said much uncertainty remained.
“I think the markets are going to be initially alarmed, and I think oil will open higher,” said Mark Spindel, chief investment officer at Potomac River Capital.
Economists warn dramatic rise in oil prices
may damage global economy
“We don’t have any damage assessment and that will take some time. Even though (Trump) has described this as ‘done’, we’re engaged,” Spindel said.
“I think the uncertainty is going to blanket the markets, as now Americans everywhere are going to be exposed. It’s going to raise uncertainty and volatility, particularly in oil,” he added.
One indicator of how markets will react in the coming week was the price of ether, the second-largest cryptocurrency and a gauge of retail investor sentiment. Ether was down 8.5 per cent on Sunday, taking losses since the first Israeli strikes on Iran on June 13 to 13pc.
Most Gulf stock markets, however, seemed unconcerned by the early morning attacks, with the main indexes in Qatar, Saudi Arabia and Kuwait up slightly or flat. Israel’s Tel Aviv main index was at an all-time high.
Oil prices, inflation
A key concern for markets centres around the potential impact of Middle East developments on oil prices and thus on inflation. Rising inflation could dampen consumer confidence and lessen the chance of near-term interest rate cuts.
Saul Kavonic, a senior energy analyst at equity research firm MST Marquee in Sydney, said Iran could respond by targeting American interests in the Middle East, including Gulf oil infrastructure in places such as Iraq or harassing ship passages through the Strait of Hormuz.
The Strait of Hormuz lies between Oman and Iran and is the primary export route for oil producers such as Saudi Arabia, the United Arab Emirates, Iraq and Kuwait.
“Much depends on how Iran responds in the coming hours and days, but this could set us on a path towards $100 oil if Iran responds as they have previously threatened to,” Kavonic said.
While global benchmark Brent crude futures have risen as much as 18pc since June 10, hitting a near five-month high of $79.04 on Thursday, the S&P 500 has been little changed, following an initial drop when Israel launched its attacks on Iran on June 13.
