Israel-Iran War: What Markets Should Fear the Most

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Geopolitical Crises and Market Psychology

Israel-Iran War: What Markets Should Fear the Most

One common trait of geopolitical or financial crises is that markets tend to price in worst-case scenarios in the early stages. As events evolve, investors begin to reassess the true scale of the threat. It can take days, weeks, or even months before financial markets find a bottom. But typically, once the worst-case scenario is factored in, the impact of ongoing news diminishes.

However, not all situations allow for such clarity. The unfolding Israel-Iran conflict presents one such case, where both geopolitical instability and economic risks are at play, making it especially difficult for markets to evaluate and price outcomes accurately.

The Economic Risk Markets Cannot Ignore

While geopolitical implications dominate the headlines, it’s the economic risks, particularly those tied to global oil supply that pose the greatest threat to markets. The fear isn’t merely conflict; it’s the disruption to the fragile energy supply/demand balance..\

1. Disruption to Iran’s Oil Facilities

Iran is a major oil producer, pumping approximately 3.3 million barrels per day (bpd) and exporting around 2 million bpd. Any targeted strikes on Iran’s oil infrastructure, such as recent reports of Israeli attacks on key facilities could severely disturb this supply. It has only been a few days anmd there are reports of Israel attacks on Iran’s oil depots and a major gas field.

Even a partial reduction in Iran’s exports would shake the delicate suppl/demand balance in global energy markets. Given the market’s sensitivity, oil prices could surge rapidly, stoking globalinflationary fears.

2. Closure of the Strait of Hormuz

The more catastrophic outcome nd one markets fear the mosis the potential closure of the Strait of Hormuz. This narrow waterway is the world’s most critical oil chokepoint, with roughly 20 million bpd, or one-fifth of global oil consumption, passing through daily.

A closure, even a temporary on, would likely send oil prices skyrocketing to $100–$150 per barrel or beyond. This kind of energy shock would reverberate through every major economy, triggering:

• Higher inflation
• A potential global recession
• Risk-off sentiment in financial markets

The Black Swan Risk: A Global Tailspin

This scenario qualifies as a black swan event, a rare and unpredictable situation with severe consequences. The closure of the Strait would not just spike oil prices; it would also risk escalating the conflict, as global powers may be forced to intervene to reopen trade routes and protect energy interests.

At that point, markets would no longer be responding to simple supply-demand implications but to the risk of broader fallout.

A Risk Beyond Geopolitics

The bottom line is the Israel-Iran war is not just a regional flashpoint. It has the potential to deliver a blow to an already fragile global economy that is still dealing with ngoig trade tensions, inflationary pressures, and uneven post-COVID recovery.

What Should Investors Watch For?

• Oil price trends — especially any spikes beyond $80/barrel
• Shipping traffic in the Strait of Hormuz
• Threats from Iran about retaliation or escalation
• Military attacks near oil infrastructure
• Emergency diplomatic summits involving OPEC or other  nations

If Iran begins to signal desperation, such as actively threatening to close the Strait, it becomes nearly impossible for markets to price in a worst-case scenario in advance. That is what makes this conflict especially dangerous.

XTIUSD (WTI) CFD CHART

Watch $80 as a key area and $80-$100 as a key zone .

 

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