8 months ago
Markets have responded to U.S. strikes on Iran with caution - ING
Investing.com - Markets have reacted with caution to U.S. strikes on nuclear facilities in Iran over the weekend, although increased tensions in the Middle East are likely heighten economic uncertainty and put upward pressure on oil prices, according to analysts at ING.
In a note to clients, the analysts flagged that, along with uncertainty around the immediate impact of the U.S. attacks, "the longer-term consequences are also unclear at this time."
Tehran has yet to give any clear indication of how it plans to respond to the U.S. attacks on three nuclear facilities on Saturday, saying that it reserves all options to defend itself.
The Islamic republic has also warned of "everlasting consequences" and stepped up its aerial bombardments of Israel, which kicked off the violence 11 days ago with its own surprise strikes on Iranian nuclear infrastructure.
Iran has called Trump a "gambler" and seemed to hint that the weekend strikes expanded the range of legitimate targets for its military. Trump, meanwhile, raised the question of regime change in Iran in a social media post on Sunday.
Media reports in Iran have suggested that the country is mulling blocking the Strait of Hormuz, a key artery for oil and gas supplies being sent around the world from the Middle East. Other reports have said that Iran may target one of several U.S. military bases located throughout the region.
Traders are now keen to see how the sudden strikes, which came after Trump previously suggested that he would take as long as two weeks to deliberate on a possible attack on Iran, could impact sentiment, inflation and interest rates.
Much of the worry over price growth stems from oil, with traders warning in recent days that an escalation in the Israel-Iran fighting could lead to a disruption of key crude supplies, particularly along the Strait of Hormuz along Iran's southern coast.
The ING strategists argued that there "appear to be four main options" before Iran: "[F]ull escalation, potentially drawing in other nations such as China or Russia; disruption of the Strait of Hormuz; active or passive support for terrorist attacks in the U.S. and Europe; or, alternatively, taking no action at all."
Still, they noted that the lack of "fire sales and panic in financial markets" after the U.S. strikes is "probably [...] a sign of the times we are living in."
"It seems we've all grown accustomed to just how volatile and unpredictable the world has become," the ING analysts wrote, adding that "[a]long with the threat stemming from higher oil prices, uncertainty at elevated levels is another dampening factor for economic activity in the U.S. and eurozone" which is already facing possible tariff-related headwinds.
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