On February 28th, the U.S. and Israel conducted military strikes on Iran, following stalled negotiations, the imminent threat of obtaining nuclear capabilities, and the weakened state of the Iranian regime. Risk markets showed a mild reaction to the conflict; however, if energy prices were to spike and remain elevated, we believe this could impact the investment environment. For example, higher oil prices mean rising business costs and larger household costs which impact consumer spending, and elevated prices could compel the Federal Reserve to shift its policy stance. Currently we believe the chance of a major oil shock is low, but the situation is worth monitoring. J.P. Morgan estimates that the Gulf producers have approximately 22-25 days of storage available to store their production. If the Strait closure lasts for multiple weeks, these producers may be forced to halt production, leading to a larger market reaction.
In this week’s Market Note, we highlight the recent jump in crude oil price. Geopolitical conflict tends to occur on a fairly consistent basis around the world, and investors have typically been well-served by avoiding knee-jerk reactions to these events.
The Verus Market Note provides market commentary along with relevant charts and graphs. Each week, we highlight a key story from the finance world that we believe will pique your interest. While these insights are meant to inform and enrich your understanding of the current market landscape, they should not be taken as direct recommendations for immediate portfolio adjustments.