How would an attack on Iran affect the stock market?

The chairman of Peilim Investment Portfolio Management Yoram Gabai said it best, “Every war brings the market down for the first few days, what happens afterward depends entirely on whether the war’s end is within sight. The market understands the violence is temporary and corrects itself quickly when the decision on a ceasefire is in Israel’s hands, or when the U.S. attacks and the outcome is certain. If things are heading toward escalation or a lengthy conflict, the market will keep dropping.”

So initially, I expect global stock markets to react negatively, and a wait and see attitude must be adopted first- in the hopes of a quick resolution vis a vis a prolonged conflict. External players joining both sides like NATO, U.N, RUSSIA, CHINA, arab leagues are also key factors that will determine if the situation will escalate or not.

But will they or won’t they?

It is being discussed in various sites that the announcement that emergency oil stocks will be released by the United States and the UK, a move that will temporarily drive down prices, could be the precursor to an attack on Iran that will send crude prices soaring again.

There are already two carrier battle groups located in the waters just outside Iran, with the USS Carl Vinson and the USS Abraham Lincoln already stationed in the region, along with the USS Makin Island (LHD-8), a Wasp-class amphibious assault ship.

A third US battleship, the USS Enterprise, is also on its way to the region, meaning that almost the entirety of the United States’ active naval fleet of warships will be stationed just outside Iran within the next 4-6 days.

JIM ROGERS THE COMMODITY BUG

In the case of a conflict with Iran, Jim Rogers agrees that many markets will initially suffer from the geopolitical shock and turmoil in the Middle East, except, maybe, gold. Has he forgotten about oil going up as well?

I am for the opinion that all equities will crash for three to four days pending any resolution to the attack, as Israel and America are not likely to let Iran go nuclear. Iran is also highly unlikely to whimper at these caucasian powers as they see themselves as the just and righteous voice of the Arab league willing to stand up to the real terrorists of the world. The market hates uncertainty, and if after a few days, there is no quiet after the storm, markets will continue to sell off, even gold and oil stocks.  Crude oil and Gold will most probably go higher.

Any move on commodity stocks may have bigger downside risk than upside risk. In fact, I am theorizing that allowing metals and oils to crash first before entering may seem to be a good idea, in case the attack happens.

DRAWN OUT ECONOMIC EFFECT

The economic fallout from such an attack, whether it lasts only 1 week or 1 month, would be disastrous. Both sides would likely rush to bomb their oil wells like what happened in Libya, so that nobody can benefit from the black gold. The spoils of the war which is oil will only be resumed months after when they fix these wells. In effect, crude oil pay pull back from their crisis highs, but will certainly remain above $107 (nymex), or $127 (Brent) as the absence of oil producing Iran will create a small vacuum in the supply.

So high pump prices means less money saved in our pockets and banks, which would lead to less money moving around in the economy for spending. Any growth that is recently being attained would have been all for naught.

And this is not even the doom and gloom most pessimistic of scenarios . . . .

Comments

  1. I never knew that there’ll be an actual “effect” if Iran would be attacked. Great post man!

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  5. all stock down in these days. what happened? the world will mett it’s ending?

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