Is the oil shock coming now?: Following the rise in the Middle East, turbulent days are approaching in stock markets, including Switzerland

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Global financial markets, shaken by high returns in recent weeks, are facing a new dose of geopolitical uncertainty after Hamas’ surprise attack on Israel. Saturday’s attack by Hamas and subsequent declaration of war by Israel are likely to cause stock markets to fall when they open on Monday. The primary indicator will be the oil price. Crude oil traders and market observers expect the price of black gold to rise significantly on Monday.

Bloomberg oil analyst Javier Blas does not rule out medium-term risks that the crude oil price could rise above $100 per barrel. “It would be a mistake to underestimate the possibility that the world will face higher oil prices in the long term.” For the oil market, everything depends on how Israel reacts to Hamas, which launched the attack, and Iran, which generally pulls the strings of the Palestinian group.

Sanctions and delivery bottlenecks

Andrea Tueni, head of sales trading at Saxo Banque France, told Bloomberg that financial markets should be concerned about the risk that higher oil prices could drive up global government bond yields. “Oil supplies could be at risk if the conflict spreads throughout the region.”

If Iran is found to be fueling hostilities in Gaza and southern Israel, the United States will likely tighten enforcement of existing sanctions on Iranian oil exports. “All these factors will likely increase oil prices in the short term, thereby increasing inflation fears around the world,” Tueni said.

Parallels to the Iraq War – but also differences

However, Blas does not believe there will be a huge increase in oil prices as there was at the beginning of the Iraq War in 1990, pointing to the first oil crisis 50 years ago. It’s easy to draw parallels between October 2023 and October 1973: a surprise attack on Israel and rising oil prices.

But the similarity ends there, the oil analyst writes. There are several reasons for this. On the one hand, this was a conflict between Hamas and Israel, and on the other hand, the war that triggered the oil crisis of the 1970s was a coordinated attack by Arab countries. Additionally, demand for petroleum products is currently decreasing due to economic uncertainty. Blas also argues that the US government can tap into strategic oil reserves, which should keep any rise in oil prices in check.

Prominent geostrategist Marco Papic points out in a tweet that political crises in the Levant often remain an isolated problem. “Even a major conventional war like the 2006 Lebanon War had no impact on oil prices. The macro context was much stronger,” explains Papic.

More volatility in stock markets

It is likely that the effects of this crisis will be felt not only in the oil market but also in the stock and foreign exchange markets. Tel Aviv’s TA-35 stock index fell 7 percent on Sunday, while Cairo’s EGX30 fell 5.4 percent. Greater losses, although on a much smaller scale, were also experienced in Riyadh, Doha and Kuwait.

It seems certain that geopolitical turmoil in the Far East will lead to greater volatility in international stock markets. Lower prices can be expected on the Swiss stock exchange at Monday’s opening, as evidenced by the reactions from Middle Eastern stock markets.

Stronger dollar and franc expected

Crises and wars generally lead to a higher appreciation of the dollar, which is in demand as a safe haven in times of war. This also applies to the Swiss Franc. However, due to its size, the Swiss currency has a much smaller weight in the international foreign exchange market than the US dollar.

A non-trivial risk at the moment is that a sharply rising dollar will cause challenges for emerging markets as local yields rise due to the currency’s weakness against the dollar. This is unlikely to happen without negative effects on American and European financial markets in the medium and long term.

Source :Blick