War is Spreading in the Middle East - But Still Markets Keep Calm

Now, as in the past, investors show a remarkable capacity for stoicism in the face of war.

Iran’s ballistic missile attack and the threat of an imminent Israeli response continue to move the possibility of all out war ever closer in the Middle East, still the world’s most important source of energy, producing a third of its oil and hosting nearly half of its proved reserves.

Markets, however, remain relatively calm, despite the proven capacity of energy shocks to derail the global economy. OPEC embargoes pushed the price of oil up by more than 300% in 1973, and by nearly 200% in 1979. Prices doubled in the wake of Iraq’s invasion of Kuwait in 1990, and Russia’s invasion of Ukraine set gas prices soaring.

The real possibility of an Israeli strike on Iran’s oil infrastructure, disrupting a daily flow of 1.7 million barrels of oil accounting for 4% of global production, could send prices soaring above $100 per barrel, reigniting global inflation. A mooted strike on the Kharg Island export facility, the Iranian oil sector’s nerve centre, handling some 90% of its crude shipments, would disrupt the passage of 1.5 million barrels per day, 1.4% of global consumption.