(MarketWatch) It’s always useful to have a sense of Middle Eastern history, as financial markets swirled following the news of the U.S. airstrike that killed a prominent Iranian general in Baghdad.
So let’s go way back to…September, when an unprecedented drone attack on Saudi Arabia oil processing facilities cut the country’s production in half.
Crude-oil futures shot up some $8 a barrel, the largest one-day rise in history, and analysts speculated that prices could climb further. Within days, however, those gains were erased, and investors became comfortable enough with the security situation that Saudi Aramco later in the year was even able to go public.
All of which is to say that, as the term “World War III” trends on Twitter, that could be but isn’t necessarily the fate. Tensions could even de-escalate from here.
Henry Rome, an analyst at Eurasia Group, expects Iran to retaliate for the assassination of Qassem Soleimani but stopped short of calling his death the next Franz Ferdinand.
“We expect moderate to low level clashes to last for at least a month and likely be confined to Iraq. Iranian-backed militias will attack U.S. bases and some U.S. soldiers will be killed; the U.S. will retaliate with strikes inside of Iraq,” he wrote in a note to clients. “Iran will also likely resume harassment of commercial shipping in the Gulf and may launch military exercises to temporarily disrupt shipping.” Another risk is an “asymmetric” response — a euphemism for terrorism — akin to the 1992 attack on an Argentine Jewish community center.
But Rome doesn’t expect a full-blown war, noting Tehran’s “healthy respect” for U.S. power and President Donald Trump’s aversion to war in the Middle East. Rome says oil prices could “make a run at $80” if the conflict spreads to the oil fields of southern Iraq or if Iranian harassment of shipping intensifies.
Iraq is OPEC’s number-two producer, with more than double Iran’s output.
Another interesting analysis came from Ciovacco Capital Management, which looked at S&P 500 performance after one-day spikes in oil prices. Between 1983 and 2019, the stock-market index climbed nearly 23% after one year, following the biggest spikes.
