Israel strikes Iran
Good morning, last night Israel attacked Iran’s nuclear and military targets. We will not be discussing politics, or the optics of what happened, instead we would like to share with you our opinion on economics and market outcomes from the attack.
The first reaction is a much higher oil price, based on the risk of war plus the mechanism for importing and exporting oil. One-third of all oil passes through the strait of Hormuz. Unfortunately, this flow of oil can be majorly disrupted if Iran chooses to block or attack ships passing through the region. The US maintains a large naval fleet in the area. The markets have now attached a risk premium to the price of oil that will stay until this conflict is resolved or clarified. Additionally, the futures are pointing to a downturn today. Stock markets usually overreact to major events with the attitude of: “shoot first and ask questions later.” Depending on what actions take place next by Isreal or Iran, it may continue for a little while.
We are monitoring all actions in case we might have to adjust allocations. Today will affect your portfolios in the short term. However, at this time, no action needs to be taken. Pragmatically, Isreal’s and Iran’s percentage of global GDP is a little over 1.28% combined. While the perception of trade shutting down will impact markets, the long-term impact will be de minimis because of the percentage of Global GDP.
If the situation persists and escalates quickly, markets will deteriorate. If an all-out war breaks out in the region, it will obviously affect everything in some way. Please remember, the action taken by two foreign countries is a force majeure, and not a natural economic decline.
Any questions or comments please feel free to call and discuss
Granite Group Advisors 