The American attack on Iran over the weekend has understandably spooked the Australian share markets today. At the time of writing, the S&P/ASX 200 Index (ASX: XJO) has fallen by a sizeable 0.63% and is well back below 8,500 points.
Wars are always tragic events, and analysing the stock market might seem insensitive on a day like today. However, the markets affect the wealth and retirement dreams of millions of people all over the world.
As such, I think it's only fair that we take a cold, hard look at what is happening in the Middle East and discuss how it could continue to impact markets.
Of course, we already know the initial reaction from the ASX. But what about the American markets? Well, we'll have to wait until around 11.30 pm tonight (our time) to find out exactly how Wall Street has taken the news.
Saying that, one expert has already made a grim prediction about what could happen next.
In an article in the Australian Financial Review (AFR)'s Chanticleer column today, it is argued that the America-Israel-Iran conflict that is currently going on could wipe as much as 10% off the US markets. Why? Well, it all comes down to the oil price.
This, the article argues, could be the catalyst that tanks global markets.
Image source: Getty Images
Could the attacks on Iran disrupt oil supplies?
The article quotes BCA Research chief strategist Marko Papic as stating that he believes the American S&P 500 Index (SP: .INX) "is likely to fall between 5 per cent and 10 per cent". That's in part thanks to a prediction that the oil price could climb as high as US$85 a barrel "in coming days".
Papic does argue that these moves could be "relatively short-lived". But that's assuming a modest response from Iran to the attacks on the weekend.
As recently as the start of this month, West Texas Intermediate (WTI) crude was trading as low as US$60 a barrel. Today, it is up to over US$75. As the article states, "Investors had all but baked low oil prices into share prices – and now they'll have to change course".
The world is awaiting a potential response from Iran. One of the avenues that experts suggest the country could take is disrupting the vital Straight of Hormuz shipping lane. This narrow choke point on Iran's southern border is an energy highway, hosting up to 20% of the world's oil supply at any given moment.
If Iran does halt tanker traffic in this strait, it could lead to a massive supply disruption in the oil markets, sending the price of crude soaring even higher.
Let's hope that cool heads prevail and these 'worst-case' scenarios pass us by.
