A key concern for markets will be the potential impact of the developments in the Middle East on oil prices and thus on inflation. A rise in inflation could dampen consumer confidence and lessen the chance of near-term interest rate cuts.
“This adds a complicated new layer of risk that we’ll have to consider and pay attention to,” said Jack Ablin, chief investment officer of Cresset Capital. “This is definitely going to have an impact on energy prices and potentially on inflation as well.”
Oil prices have already risen significantly since Israel attacked Iran earlier this month, and traders and analysts are preparing for a further price surge — but still guessing where the crisis goes from here.
Markets could be in for a wild rise when they reopen. Credit: AP
“Much depends on how Iran responds in the coming hours and days — but this could set us on a path toward $US100 oil, if Iran responds as they have previously threatened to,” said Saul Kavonic, an energy analyst at MST Marquee.
“This US attack could see a conflagration of the conflict to include Iran responding by targeting regional American interests that include Gulf oil infrastructure in places such as Iraq, or harassing passage through the Strait of Hormuz.”
The maritime chokepoint at the mouth of the Persian Gulf is a vital conduit for not just Iranian shipments, but also for those from Saudi Arabia, Iraq, Kuwait and other members of the Organisation of the Petroleum Exporting Countries.
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Joe DeLaura, a former trader and global energy strategist at Rabobank, also said prices were expected to rise when oil reopens. “The market wants certainty, and this now firmly pushes the US into the Middle East theatre,” he said. “But I think that this means the US Navy will be tasked to keep the Strait open,” he said, adding prices could head into the $US80-to-$US90 a barrel range.
Before the US attack on Sunday, analysts at Oxford Economics modelled three scenarios, including a de-escalation of the conflict, a complete shutdown in Iranian oil production and a closure of the Strait of Hormuz, “each with increasingly large impacts on global oil prices.”
In the most severe case, global oil prices jump to around $US130 per barrel, driving US inflation near 6 per cent by the end of this year, Oxford said in the note.
In crypto markets on Sunday, Bitcoin lost 4 per cent and Ether slumped by 8.5 per cent.
Reuters, Bloomberg
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