What’s Going On Here?A US airstrike that killed a top Iranian military commander sent shivers through global markets on Friday. Zoinks. What Does This Mean?The airstrike marked a major escalation in military tensions between the US and Iran – and considering the Middle East’s importance to the global oil supply, it’s perhaps no wonder the commodity's price jumped as much as 4% on Friday. The incident is already shifting investors’ focus this year from trade wars to actual wars, which might be why assets viewed as shelters in times of geopolitical turmoil – gold, government bonds, etc. – also saw their prices climb on Friday.
Just a day after hitting record highs, meanwhile, US stocks were dragged down by the news. The few bright spots were defense companies that manufacture military weapons – like Lockheed Martin and Northrop Grumman – as investors anticipated increased military spending in the event of an all-out war. Why Should I Care?For markets: Fright night.
Higher oil prices are seen as a tax on consumers, and some economists have warned that a prolonged rise could hurt spending. That'd make life difficult for company profits and stock prices alike. Compounding economists’ fears is the prospect of higher inflation – that is, the rate at which prices increase – in light of oil’s role in everything from plastics to gasoline. If those fears prove justified, central banks might have to raise interest rates in response. More potential bad news for stocks and bonds, then…
Zooming out: An Iran for an Iran.
Investors might be forgiven for thinking Aramco – the Saudi oil giant that sold shares to the public for the first time last month – would benefit from higher oil prices. But they’d do well not to forget the attack that knocked out half its oil production a few months ago. With Iran vowing to retaliate against America’s airstrike on Friday, major US ally Saudi Arabia – along with its vital oil infrastructure – could very well be in the crosshairs (tweet this). | 