“However, given where we are in the business cycle and already slowing global demand, the impact of the conflict would not be as severe as in the previous energy crisis in 1973 as we could potentially see more Saudi Arabian capacity coming into the market if needed to meet demand. Markets will worry about higher energy prices and since we are already in a risk-off environment, that could push equity markets lower.” A conflict in the Middle East has obvious implication in oil prices. “The timing of the conflict could not have been worse given the talks between Saudi Arabia and Israel. Anthi Tsouvali, multi-asset strategist at State Street Global Markets:.The oil price has been quite volatile in recent weeks, and another spike could feed into consumer prices in the coming months.” We think a lot will depend on whether the conflict is contained or widens in scope – for instance on Israel’s northern border – and that could prompt increased concerns about commodities – oil in particular. “The conflict has the potential to hurt broad market sentiment, but it’s not for certain. Richard Flax, chief investment officer at Moneyfarm:.This is a long standing terrible situation but other than some short term volatility it shouldn’t have a big impact.” “I don’t expect the situation to have a meaningful impact on markets. Alfonso Benito, chief investment officer at Dunas Capital:.“It is evident that any extension of this to oil-producing countries, Saudi Arabia in the lead, could make the price of crude oil more expensive with negative inflationary effects for the West and would mean higher rates for longer and falling stock markets if the above caused a recession.” “Much will depend on whether the crisis turns out to be another short-term flare-up or something much bigger like a war between Israel and Iran.” “Geopolitical crises in the Middle East have usually caused oil prices to rise and stock prices to fall,” said Ed Yardeni, president of Yardeni Research Inc. Iran is both major oil producer and supporter of Hamas. The fallout in markets will likely be determined by whether conflict spreads to the rest of the Middle East region. Sentiment toward stocks could take a hit with IG’s Weekend Wall Street contract down about 0.4% at noon on Sunday in London. Bond traders will need to quickly determine if the clash is a reason to rush for the safety of the dollar, shunning higher yielding-debt, or to fear yet another bout of inflation. Saturday’s strike and Israel’s subsequent declaration of war risk unnerving markets when they reopen Monday, with investors eyeing the reaction of the oil price as a guidepost, although crude traders aren’t anticipating an outsized surge.
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