Financial markets were largely unphased to start the trading week after the U.S. military carried out strikes over the weekend on several nuclear sites in Iran. One expert says he wasn’t expecting the muted reaction from investors.
“It’s a little surprising – it does look like they’re unphased currently,” David Aspell, co-CIO at Mount Lucas Management, told BNN Bloomberg in an interview on Monday morning.
In midday trading in New York on Monday, the S&P 500 index was 0.6 per cent higher, while The Dow Jones Industrial Average and the Nasdaq composite were each also up by less than one percentage point. Toronto’s S&P/TSX composite also gained.
The sudden involvement of the U.S. in the war between Israel and Iran is however leading to increased volatility in energy markets, but as of Monday morning there hadn’t been any major swings, Aspell said.
“The worries run straight through the oil market, which currently seems like it’s fairly calm. I think oil prices are trying to judge the likelihoods and the potential impacts. Iran itself is not a particularly large producer of oil,” he said.
“Where you get market turbulence runs through if you get some closing of the Strait of Hormuz that gets oil out. That is likely to be the channel. Currently, there’s some threatening of it but it doesn’t seem like that’s happening so far.”
The Strait of Hormuz, located between Iran and Oman, connects the Persian Gulf to the Gulf of Oman and the Arabian Sea. It is a vital chokepoint along one of the most important oil shipping routes in the world.
If Iran decided to blockade the strait, oil prices would likely climb significantly, though doing so could backfire on Iran’s own economy, The Associated Press reported on Monday.
For oil investors, monitoring the flow of oil through the Strait of Hormuz will be the “key thing” to watch in the coming days and weeks, said Aspell.
“Do they stop the flow of oil out? If you see tankers starting to turn around, if Iran starts to attack ships or send drones or just try and make it very difficult for oil to get out, I think that’s the worry,” he said.
Aspell argued that the movement of oil through the strait is also linked to broader financial markets.
“Stocks currently I think are at the levels they’re at because they’re predicated on the idea that commodities are not going to go up a lot and that central banks around the world are able to continue easing,” he said.
“If you get some spikes in commodities, I think the (U.S. Federal Reserve) should look through that but I think if it looks like the Fed would not, or those things do start to come to pass, that’s the lens through which I think you start to see more worries.”
