Global investors are just beginning to recognize the possibility of increasing geopolitical risks, and the risk of a recent oil crisis is increasing as the United States strengthens its military presence in the Middle East.
This is the perspective of BCA Research strategist Roukaya Ibrahim. Last week, BCA Research predicted a 70% probability of the Israeli-Kazakh war spreading beyond Gaza. The company's geopolitical strategists now believe that the conflict has a "subjective 30% risk" of expanding to oil producing regions such as Iraq, the Persian Gulf, and Iran.
The overall response of financial markets to the situation in the Middle East has remained calm, with investors and traders focusing on Israel's lack of ground invasion so far and Hamas's release of two elderly hostages on Monday. On Tuesday, the three major stock indexes of the United States ended higher, and the yield of treasury bond bonds rose and fell. Oil prices have fallen for the third consecutive trading day, and the supply side has not yet been affected by the Israeli Kazakh war. West Texas Intermediate, which was delivered in December, fell below $84 per barrel.
The relative calm of the US market and BCA
Global investors are just beginning to recognize the possibility of increasing geopolitical risks, and the risk of a recent oil crisis is increasing as the United States strengthens its military presence in the Middle East.
This is the perspective of BCA Research strategist Roukaya Ibrahim. Last week, BCA Research predicted a 70% probability of the Israeli-Kazakh war spreading beyond Gaza. The company's geopolitical strategists now believe that the conflict has a "subjective 30% risk" of expanding to oil producing regions such as Iraq, the Persian Gulf, and Iran.
The overall response of financial markets to the situation in the Middle East has remained calm, with investors and traders focusing on Israel's lack of ground invasion so far and Hamas's release of two elderly hostages on Monday. On Tuesday, the three major stock indexes of the United States ended higher, and the yield of treasury bond bonds rose and fell. Oil prices have fallen for the third consecutive trading day, and the supply side has not yet been affected by the Israeli Kazakh war. West Texas Intermediate, which was delivered in December, fell below $84 per barrel.
The relative calm in the US market contrasts with the long-term trend of rising geopolitical risks predicted by BCA Research. Ibrahim believes that these risks stem from the challenges posed by Russia, China, and Iran to the US led world order, as well as domestic differences that prevent the United States from making a unified strategic response. Ibrahim said that in addition to the "proxy war" between Iran and Israel, Ukraine's counterattack against Russia has been thwarted, Taiwan's 2024 election, and the possibility of former US President Donald Trump being nominated as a Republican presidential candidate, these risks are still intensifying.
The unstable situation in the Middle East, coupled with Russia's use of energy as a weapon, is likely to pose a serious shortage of oil supply to the global economic outlook in 2024, "Ibrahim wrote in a report released on Tuesday. The Biden administration will try every means to increase oil production, but the space for choice is limited. The United States and Saudi Arabia have not yet reached a new strategic consensus, so even if Saudi Arabia increases oil production, it will be too little or too late
Some people point out that the 1973 oil crisis may have been a lesson in the past, as Jamie Dimon, Chairman and CEO of JPMorgan, and Larry Fink, CEO of BlackRock, also compared the current situation to the situation in the 1970s. But some other experts believe that there won't be an oil crisis like the one in the 1970s.
At the same time, traditional safe haven assets such as gold and Swiss assets have generally risen since October 6th (the day before the Hamas raid on Israel), and it has been proven that gold and Swiss francs perform best among safe haven assets. In addition, investors are flocking to Swiss bonds. According to BCA Research data, from October 6 to Friday, the gold price rose by about 8%, and the return on Swiss treasury bond bonds was even higher in the same period.
In contrast, BCA Research pointed out that the stock markets in the Middle East, especially the Israeli stock market, have suffered. According to BCA Research, from October 6th to last Friday, the market capitalization weighted returns of the MSCI Arab Market Index and MSCI Israel Index have decreased by approximately 4%.
Ibrahim said, "These different market reactions reflect both the macroeconomic environment and the geopolitical environment
She pointed out: "The geopolitical environment will get worse before it gets better, so investors should be prepared for the continued appreciation of oil and gold in the short term; in the medium term, high-quality government bonds, including long-term U.S. treasury bond bonds, will benefit from the slowdown in economic growth, deflation and geopolitical risks."