A recent attack by Hamas on Israel has been a focal point in both mainstream and financial news outlets. The possible intensification of the conflict is generating significant discussions. This report aims to dissect the market implications stemming from this geopolitical tension.
Humanitarian Perspective
At the outset, I express our deep concern for the human suffering associated with this conflict. It's an immense tragedy for innocent civilians, and our empathy extends to all affected families.
Market Dynamics and Geopolitical Conflicts
While the human aspect of conflicts is deeply saddening, from a strictly financial viewpoint, the market tends to prioritize economic outcomes. In the case of the Israel-Hamas conflict, the market's primary lens is its effect on energy and commodities, particularly oil. This is in contrast to, for example, the Ukraine-Russia dispute where the focus was on the supply of natural gas.
Market Consequences of the Israel-Hamas Situation:
Events perceived as threats to oil supply can result in elevated oil prices and a corresponding drop in stocks.
Conversely, if market players believe that oil supply remains unaffected by the conflict, its broader financial repercussions may be limited, despite the associated human and geopolitical ramifications.
Here’s the worst case situation:
Potential Israeli intervention in Gaza (very likely)
The possibility of Hezbollah retaliating against Israel from the northern border through Lebanon (create a 2-front conflict for Israel)
A pivotal concern is Iran's involvement in backing Hezbollah and Hamas. If Iran acts aggressively towards Israel, this could lead the U.S. to launch an attack at Iran's oil infrastructure, which would basically destroy most of their oil supply in the market. This would significantly disrupt global oil supply. This potential U.S. strategy is evident in legislative proposals, such as the one from Sen. Graham of South Carolina, that would authorize POTUS to destroy Iranian oil infrastructure in the event of assault on Israel.
An escalation involving major regional actors like Israel, U.S., Iran, Hamas, and Hezbollah would significantly shake markets and cause oil prices to soar.
Recent Stock Market Behavior
Interestingly, there has been a recent rally in stock markets. This could be attributed to rumors of President Biden's possible diplomatic intervention in the region. Proactive diplomacy might stabilize oil markets and subsequently support global market confidence.
Concluding Thoughts
In the context of the Israel-Hamas tension, oil prices are the market's primary barometer. A significant indicator of deepening crisis will be if oil prices cross the threshold of $87.72 in relation to conflict-related news. Such a scenario would not only indicate the worsening of the geopolitical situation but also signify a stock market selloff.
And remember - The one fact pertaining to all conditions is that they will change.
Feel free to use me as a sounding board.
Best regards,
-Kurt
Kurt S. Altrichter, CRPS®
Fiduciary Advisor | President