By Taylor J. Kovar, CEO – Kovar Capital
–Hey Taylor – There’s always talk about financial impact with these conflicts in the Middle East. Any insight as to what might happen with things being so shaky in Iran? – Freddie
–Hey Freddie – A lot of financial webs cross through Iran, Iraq, Saudi Arabia and the rest of the region. Oil is the primary talking point, but the military presence of soldiers from multiple countries has a price tag attached as well.
As far as an economic impact from the acts of aggression that happened at the beginning of the year, we’ve already seen it. After the retaliatory strikes from Iran in response to the killing of Qassem Suleimani, the markets got spooked and took a noticeable dive. In the days since however, we’ve returned to all-time highs because it seems like tensions leveled off a little. Unlike the drone strike in Saudi Arabia last year, there’s a less direct impact on the oil industry in the wake of these airstrikes.
But, and this is the really important thing, we can’t just look at the short-term data. While we might not actively be at war, Iran is still a major adversary. Anti-American sentiment in the region, while not shared by everyone, is a steady undercurrent in both Iran and Iraq. Geography alone makes Iran an incredibly important player in Middle Eastern politics, and that’s before we even consider the possibility of the country developing nuclear weapons.
The scenario many fear is that the U.S. will get involved in another conflict and spend a lot of money doing so, and that action would quickly result in a spike in oil prices that would be a drag on our overall economy. The Iranian government is on pretty thin ice already, meaning any sort of escalation could go either way as far as uniting Iranians or amplifying the country’s internal chaos. Either scenario will be pretty messy.
Unfortunately, there’s no easy fix and no one can predict how things will play out. We can expect to see the stock market twist and turn as new developments come out of the Middle East and our government employs different tactics, military or otherwise. Global markets being what they are, we also are somewhat at the mercy of what other countries do in terms of sanctioning Iran.
As with other conflicts, there’s no reason to let this scare you away from investing. The Dow gets jumpy for lots of reasons, and while tensions with Iran give us plenty of causes for concern, it’s nothing that should have you thinking about cashing out.
