The Middle East has been locked up in a state of tension and conflict, and recent events have only heightened the volatility in the region.
It all started on October 7th last year when Hamas launched multiple coordinated attacks against Israel.
1) Escalating Middle East Tensions and Global Impact
This sparked a chain of retaliatory actions that could spill into an uncontrollable regional, and potentially global, conflict.
The Middle East conflict seems set to pull countries tied to it through politics, economics, or energy to this tension. The world fears an increased escalation after Iran vowed retaliation for the assassination of Hamas political chief Ismail Haniyeh in Tehran and Hezbollah senior commander Fuad Shukr in Beirut. The big question is how these events impact various markets, starting with oil, the financial markets, and cryptocurrencies.
Source: X
2) Oil Prices on the Rise
Iran, facing the loss of key figures, has several retaliatory options on the table. Supreme Leader Ali Khamenei hinted at “harsh punishment” for Israel, one of which could be disrupting the flow of oil through the Strait of Hormuz.
Here’s how important this narrow passage is to the world: around 30% of the world’s oil goes through this route. Any threat to this route can cause significant spikes in oil prices due to fears of supply disruptions.
Source: X
As of Tuesday, August 6, 2024, oil prices are reacting sharply to the escalating tensions. Brent crude futures rose by $1.25, or 1.6%, reaching $77.55 per barrel, while U.S. West Texas Intermediate crude futures climbed $1.35, or 1.9%, to $74.29. This rise follows a dip on Monday when both benchmarks fell around 1% amid global stock market declines.
3) Impact on financial markets
The Middle East conflict is leaving the world’s economy at a standstill. Uncertainties like this often lead to volatility in the financial market. However, the financial markets saw some stability early Tuesday, following Monday’s scare.
Amid the escalating Middle East conflict, US stock index futures are showing resilience, rising between 1% and 1.8% on Tuesday. This upward movement indicates investor optimism or a rebound after recent declines. It appears investors have a positive outlook regardless of the brewing Middle East conflict. This is possibly due to confidence in the US market’s ability to weather geopolitical storms.
Source: X
Interestingly, gold, widely considered a haven, experienced a decline on Monday. However, falling US Treasury bond yields and a weakening US Dollar helped limit its losses. Early Tuesday, the gold price (XAU/USD) held steady slightly above $2,400 per ounce.
4) How’s Crypto Reacting?
Bitcoin is down 17% in the last 7 days, and Ethereum has suffered a 26% crash in the last week. However, following their steep losses, both cryptocurrencies managed to claw back some of their value on Tuesday. Bitcoin inched back to $56,000. And Ethereum rose as much as 4.6% to the $2,500 zone.
However, many fear this recovery could be short-term as the global economic uncertainty continues. We advise crypto investors to seriously study the market before making a major commitment. Conversely, this market decline presents a huge opportunity for some to buy crypto at a good entry price.
5) Is this World War 3?
The Middle East conflict has raised concerns about a potential global conflict. Some believe we could be set for a third world war. US President Joe Biden met with national security experts on Monday amid concerns about Iran’s retaliation.
The US has already expressed interest in supporting Israel should it be attacked. Furthermore, both the US and the United Kingdom have urged their citizens to leave Lebanon, which has been marked as a hostile zone.
On the other hand, Russia has shown strong support for Iran in its conflict with Israel. Sources claim that Russia has moved its Iskander missile systems and Murmansk-BN electronic warfare systems to Iran.
Reports also claim that Russia’s former Defense Minister and current secretary of the Kremlin’s Security Council, Sergei Shoigu, arrived in Iran to discuss with top security officials. However, Secretary of State Antony Blinken believes the Middle East conflict is more of a regional affair. But we could see a heavy escalation if all parties fail to resolve.
Disclaimer
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