The outbreak of war between Israel and Iran has global markets, which recently hit record highs, on edge.
Driving the news: The two countries traded blows over the weekend with missiles and drones, escalating a conflict that began last week.
- Israel’s military began targeting Iranian energy infrastructure, including a large natural gas field and processing facility, disrupting the country’s oil production.
- Meanwhile, Iran promised more retaliation after launching missiles at several Israeli cities, and said it would curtail cooperation with the International Atomic Energy Agency.
Why it matters: Unlike some recent, more limited conflicts between Iran and Israel, this one shows no sign of ending quickly — and the longer it goes on, the more stress it will put on the global economy.
- While stocks edged only a bit lower as conflict broke out, oil and gold prices both jumped, a sign of investors' growing anxiety about instability in the Middle East.
- Greater damage to Iran’s energy infrastructure (or a decision by Iran to close the Strait of Hormuz to oil tanker traffic) will send oil prices higher still, which will act as a headwind on global growth.
Yes, but: So far, investors' FOMO appears to be overwhelming worries about the economic impact of the war, and if markets continue to hold up, it “may well engender the perception that the rally is ‘bullet proof,’” one analyst told Bloomberg.—TS