As tragic as the events in Iran are, the most important question of the current war for the global economy and thus the global financial markets is whether the currently disrupted oil (and liquid gas) exports from the Persian Gulf will remain interrupted for longer (as reported in the Austrian media, around 20% of global oil and liquid gas exports are affected by this).
Scenarios are possible in which oil supplies from the Persian Gulf remain cut off for an extended period of time (weeks or months). However: Saudi Arabia can transport almost half of its production via pipeline to the Red Sea and thus export it independently of the Gulf; And it is precisely for such interruptions that industrialized countries (and also China) keep oil stocks for several months. It is questionable whether Iran can really stop oil exports for a long period of time given the USA’s massive air superiority.
In our view, the strongest argument against a prolonged oil price shock is: US President Trump should have no interest in an oil price shock and a US recession, which could cost his party the parliamentary elections in the fall. Trump also has a strong influence on ending the conflict and thus reactivating oil supplies through the Gulf.
What is likely for stock markets in that case?
We believe there is a high probability that the stock market will recover (and oil prices will fall) once negotiations begin, and even more so if there is a ceasefire. It is currently unclear whether this will happen within days or in a few weeks.
Are there historical examples?
In the last two crises – which were actually massively economically negative – namely the Corona shutdown and the attack on Ukraine, the majority of the stock market decline was directly reflected in the stock market prices. The stock market recovery started days in the case of Corona and a few weeks later in the case of the Ukraine war. Of course, historical developments do not allow any reliable conclusions to be drawn about future developments. For investors with sufficient risk-bearing capacity and a long investment horizon, any further price weakness on the stock exchanges in the next few weeks could turn out to be a long-term investment opportunity.
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