Markets currently are priced for near-perfection and overly optimistic about how the conflict ends
Hamas’s barbaric massacre of at least 1,400 Israelis on October 7, and Israel’s subsequent military campaign in Gaza to eradicate the group, has introduced four geopolitical scenarios bearing on the global economy and markets. As is often the case with such shocks, optimism may prove misguided.
The economic and market implications of this scenario are mild. The current modest rise in oil prices would recede, because there will have been no shock to regional production and exports from the Gulf. Though the U.S. could try to interdict Iranian oil exports to punish it for its destabilizing role in the region, it is unlikely to pursue such an escalatory measure. Iran’s economy would continue to stagnate under existing sanctions, deepening its dependence on close ties with China and Russia.
Unlike Netanyahu, this new Israeli government would not be openly committed to regime change in Iran. It could secure the Islamic Republic’s tacit acceptance of Israeli-Saudi normalization in exchange for new talks toward a nuclear deal that includes sanctions relief. That would allow Iran to focus on urgently needed domestic economic reforms. Obviously, this scenario would have highly positive economic implications, both in the region and globally.
If Israel, and possibly the U.S., bomb Iran, production and exports of energy from the Gulf would be set back, possibly for months. This would trigger a 1970s-style oil shock, followed by global stagflation , crashing stock markets, volatility in bond yields and a rush into safe-haven assets like gold GC00, +0.14%. The economic fallout would be more severe in China and Europe than in the U.S.
The toppling of the Islamic Republic would allow Iran to rejoin the international community. There would still be a severe global stagflationary recession, but the stage would be set for greater stability and stronger growth in the Middle East. The good news, then, is that there is a relatively high chance — 65% — of the conflict not escalating regionwide, implying that the economic fallout would be mild or contained. The bad news is that markets are currently assigning only at best a 5% probability to a regional conflict that would have severe stagflationary effects around the world, when a more reasonable figure is 35%.
United States Latest News, United States Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
Bill Maher scolds Obama’s ‘moral equivalency’ on Israel-Hamas: He really ‘disappointed me’Liberal comedian Bill Maher took aim at former President Obama for comments he saw as 'moral equivalency' between Israel and the terrorist group Hamas.
Read more »
Iran leader visits Saudi Arabia for first time in years for summit on Israel-Hamas warIranian President Ebrahim Raisi has arrived in Saudi Arabia for a summit on the Israel-Hamas war, telling reporters that “Palestine is the most important issue in the Islamic world.”
Read more »
Bill Maher Disagrees with Obama's Characterization of Israel-Hamas WarJenny Goldsberry covers social media and trending news for the Washington Examiner. She’s a 2020 Brigham Young University graduate with a major in communications and minor in Japanese. She was born in Utah and has previous newsroom experience at the Salt Lake Tribune and Utah’s NPR station.
Read more »
Arab, Muslim Leaders Demand Immediate End to Israel-Hamas WarSaudi Arabia and other Muslim countries called on Saturday for an immediate end to military operations in Gaza, rejecting Israel's justification of its actions against Palestinians as self-defense.
Read more »
Donald Trump: No Intervention in Israel-Hamas WarRepublican presidential front-runner Donald Trump said there's no intervening in the Israel-Hamas war in Gaza, saying that 'You're probably going to have to let it play out because a lot of people are dying.'
Read more »
Dick Morris to Newsmax: Trump Poll Rise 'Coinciding' With Israel War on HamasAmericans who might not have voted for former President Donald Trump before are now jumping on his candidacy as war in the Middle East has erupted, according to presidential campaign adviser Dick Morris on Newsmax.
Read more »