A surprise attack by Palestinian militant group, Hamas, last weekend killing over 1,300 Israelis led to massive reprisal bombardment of Gaza by Israel Defense Forces (IDF) and set the stage for an imminent bloody ground war between the two nations.
This conflict effectively opens another war front in the Middle East – the world’s largest oil-producing region, re-ignited geopolitical tensions and has sent oil prices surging and global markets are reacting feverishly.
An analyst, V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services says further escalation of the conflict could draw more countries in the region like Iran into into the war, further disrupting both oil production and supplies and could send oil price to record levels that may impact the global economy.
“Events in the Middle East over the weekend present a risk for stocks as such events could lead to a surge in oil prices thus putting at risk the recent US disinflation narrative“, said Mr Vjay.
“Nobody knows how this war is going to evolve. The situation will change if Iran, a major Hamas supporter, is drawn into the war. That can disrupt oil supplies causing a spike in crude, which can trigger a risk-off in the market. This is a time to be cautious. Investors may refrain from taking big risks. Wait for the developments to unfold. Long-term investors can slowly accumulate high-quality stocks on declines,” he said.
Brent crude oil futures climbed 5% to $88.76 a barrel earlier and US WTI crude rose to $87.02 a barrel. Gold is gaining as the war intensifies with the rising death toll.
But Deven Choksey, MD at KRChoksey, sees some hope saying OPEC nations would be mindful of not increasing the oil price beyond 10-12%, as they have an understanding in practice with the USA to ensure oil prices are not increased beyond certain levels.
“The US is backing Israel and Biden will ensure that the US opens up their oil reserves to cool down the prices in case they go up beyond 10-12 per cent to control inflation in the US and also Because the US would not like Russia to benefit from higher crude oil prices,” Choksey noted.
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