INA–Follow up
The global economy has entered a new and complex phase of geopolitical and financial uncertainty, following US President Donald Trump’s announcement, from the Turkish capital, Ankara, and during his participation in the NATO summit, to end the war and cancel the memorandum of understanding and temporary truce signed with Tehran to end the Gulf conflict.
Trump described any new efforts to negotiate with the Iranian leadership as “just futility and a waste of time,” warning that Washington may pursue serious and open military options to respond to the targeting of commercial shipping.
This sudden shift, accompanied by Washington's threats to launch massive military strikes, caused a violent logistical and financial shock in global markets, amid warnings from the International Monetary Fund that the continuation of the conflict would force it to reduce global development rates, currently stable at 3 percent.
Global energy markets on fire
US statements revived fears of a complete and prolonged blockage of the global energy artery in the Strait of Hormuz, which immediately translated into panic buying that raised prices sharply:
• Brent crude: consolidated its gains to rise by 7.4 percent, settling at $79.64 per barrel.
• US West Texas Intermediate crude: rose by nearly 7.3 percent to reach $75.58 per barrel.
This rapid jump of between 25% and 32% compared to pre-war levels reinjects inflation risks into bond markets and threatens to freeze two years of gains in fighting global inflation. The sensitivity of oil concerns was increased by the fall of US stock in the Strategic Petroleum Reserve to its lowest levels since 1983.
A wave of selling is sweeping through international stock exchanges
Global stock exchanges reacted to the US military threats of land and sea strikes with immediate shudder, triggering a massive selling wave of high-risk assets and investors fleeing to safe havens:
• American markets: The Dow Jones Industrial Average lost about 1 percent of its value (equivalent to 514 points), followed by the Standard & Poor’s 500 Index by 0.46 percent, and the Nasdaq Technology Stocks by 0.31 percent.
• European markets: Paris and Frankfurt markets fell by 1.8 percent, while London fell by 1.2 percent.
• Asian markets: The KOSPI index in Seoul led the declines, recording a decline of more than 5 percent.
Airlines and cruise companies were the direct victims of the sudden flare-up in fuel prices, as shares of United Airlines, Delta, and Carnival declined. In the technology sector, Samsung Electronics shares continued to fall by 6 percent due to fears of a slowdown in demand, while shares of the American company Broadcom survived with a 3 percent rise supported by a huge supply deal with Apple worth $30 billion.
The yen is faltering and the dollar is seeking safety
In foreign exchange markets, the tone of the war has rearranged traders’ priorities towards owning the US currency as a safe haven:
• The dollar index: It maintained its relative stability against a basket of major currencies at the level of 101.1 points, supported by expectations of maintaining high interest rates.
• The Japanese yen: It continued to falter, hovering around the level of 162.49 yen per dollar, approaching its lowest historical levels in about 40 years due to the huge difference in bond yields between Washington and Tokyo.
Economic reading: Experts and strategic analysts unanimously agree that international markets have become completely governed by sharp fluctuations due to the “lack of geopolitical vision,” amid real fears that canceling the truce will turn into a complete diplomatic rupture that will lead to the return of an open and comprehensive “tanker war” that will force international powers to impose a mutual naval blockade.