An investment update from our managing director Mark Bousfield.
Over the weekend, the US carried out airstrikes on three Iranian uranium enrichment facilities with an exercise code named Operation Midnight Hammer. The reaction from the markets has (as I write) been measured, with the S&P 500 future pretty much flat and the FTSE 100 is marginally higher at the open, suggesting that investors, whilst cognisant of the action, are not viewing it as an existential market event… at least not yet!
Oil prices initially reacted sharply with Brent crude surging as high as ~$81.40 before falling to about $76 per barrel. The catalyst is concern over possible retaliation targeting energy infrastructure or shipping through the Strait of Hormuz which is a vital artery for global oil and liquified natural gas (“LNG”).
The Strait moves roughly 20% of the world’s oil and LNG, and the threat of its closure will unsurprisingly trigger a spike in oil. Iran’s parliament has approved a motion to close the Strait, but the final decision lies with the Supreme National Security Council.
Tehran has the means such as mines, anti-ship missiles, fast-attack craft, to disrupt traffic, and we’ve already seen proxy attacks (e.g. by the Houthis) move markets in the past. But closing the Strait also hits Iran’s own economy hard as it relies on the same route for its exports and the country has a huge reliance on revenue derived from oil.
Whilst, and we’ve lived through a few recently, geopolitical shocks like this often trigger a period of market volatility, so far the market reaction has been muted. We remain focused on how things will pan out; the US has stated that it is not interested in a long-term war whilst that isn’t the case with Israel and Iran. It is yet another sign that the world continues to fracture and we are taking this into account as we build our portfolios.
If you have any questions or would simply like to discuss your portfolio in light of recent developments, please don’t hesitate to get in touch.
