If Israel launches a military strike against Iran over its nuclear activities, the markets will be thus awaiting one single thing only i.e. the Iranian response. This comes as a reason that the scope of such a response will be between a brief increase in oil prices and taking the World back to the economic crisis.
By D. Mohammad Al-Noamani
The possible prospects and the markets’ likely reactions, which were indicated by foreign policy’s analysts, economists and strategic experts, are as follows:
Not replying immediately...
Iran might declare that the Israeli army attacked civilian sites, but did not cause serious damages. Then, Tehran delivers a flood of irritated speeches on Israel without making any military response.
Jala Riyani, I.H.S. Global Insight Middle East analyst, said. “It may be more appropriate for the Iranians to play the role of the victim. They might also take advantage of this to perhaps strengthen the legitimacy of the internal regime”.
- As a result of the strike, oil prices might rise to 10-20 dollars, large number of investors might prefer to choose more secure assets such as the American Treasuries, and the stocks and currencies that are at high-risk will be definitely affected. However, if this step was not been followed by any further action, confidence might be regained.
- The Israeli markets that are relatively used to face conflicts, might be more resilient in facing the initial rumors. In fact, some analysts suggest that a successful strike could significantly delay Iran's nuclear program, and this might be positive for the Israeli markets.
Unknown Vital Things...
- Evaluating the effectiveness of an attack over the Iranian facilities could be almost impossible. It would be difficult to predict the impact of the strikes in the long-term on the domestic Iranian policy, on the regional policy, and the Western support for Israel as well.
- Could Israel achieve its goals via one sole strike? Or this might require a longer operation, which could take several days and cause a more serious damage for the markets?
Retaliation- by-Proxy …
Iran is distancing itself from any direct answer, but it supports the attacks made by Hamas from the Palestinian territories and by Hezbollah from Lebanon. Iran might also support attacks by proxy on the Western troops in Iraq and Afghanistan.
Riyani said, “The probable response would be represented in increasing their subversive activities throughout the Middle East. These activities will likely focus primarily on Palestine and Lebanon and to a lesser extent on the Gulf”.
- This might have some short-term impacts on oil prices, particularly if the attacks include Iraq. However, the global markets in general will not be much affected.
- The Israeli markets will probably not be affected by the initial attacks, but the continuation of the attacks for a long period of time will slow down the economy, enhance defense spending, and harm the markets as happened during the Palestinian uprising (Intifada).
Unknown Vital Things...
- The duration of the increasing violence. Violence by proxy could be escalated to include the activist’s attacks on Western and oil targets.
- If Hezbollah attacks Israel, it will respond in a way that quickly expands the conflict. Israel has threatened to make the Governments of both Lebanon and Syria liable for any attack by Hezbollah.
Rockets falling on Israel ...
Iran might respond by launching ballistic missiles armed with conventional warheads. Although they are more accurate than the Scud missiles that were launched by Late President Saddam Hussein against Israel during the Gulf War in 1991, yet the effects of any strike would be limited.
Metsa Rahimi, Janusian Consulting Enterprise information analyst said, “Certainly, this thing should not be out of consideration. The Iranians might want to respond, but they realize that if they do so they will be facing strikes again”.
- It is sure that the oil prices would rise, despite the fact that attacking Israeli cities will not have any direct impact on oil production. The broad global markets will face wide sell-off, and will be keeping a concerned eye on any further escalation.
- The Israeli markets might be more resilient again. The markets had already risen in January 1991 during the rocket attacks, despite that it was clear that the strikes were not chemical and did not cause major damages. Much will depend on the size of the damage and the duration of the missile strikes.
Unknown Vital Things ...
The Israeli and Western reactions. Will there be more retaliatory strikes? Will the used weapons continue to be conventional ones only?
- Is Israel going to attack military targets and the infrastructure in Iran, including the possibility of targeting oil facilities? This would raise the prices and push China, Iranian oil main client, to search for supplies from other regions.
Closing the Strait of Hormuz …
Iran could carry out its threat by closing the Strait of Hormuz in front of any movement to prevent the flow of about 17 million barrels per day of oil, which represents about 40 percent of the total seaborne oil trade, but that will require a quick response from the American forces.
Michael Wittner, head of energy research at Societe Generale said, “Just addressing a trustworthy threat or if any quasi-error takes place, freight rates will raise. Then, no one will transfer oil from there for two weeks until the Navy of any party return to take control”.
- Analysts estimate that this could raise oil prices to150$ for each barrel. Additionally, other oil producers such as Russia, Nigeria and Angola might benefit from this. However, the rising of the cost of fuel is likely to reduce the growth in each place, and China, the most important destination for the Iranian exports, will have to seek for obtaining supplies from other regions.
- Other financial markets will suffer and will sharply turn down, if it was a long-term disruption.
- It is expected that the Israeli markets would be affected by the broader turmoil, despite the fact that the impact might likely be less than in other emerging unstable markets.
Unknown Vital Things ...
How long could Iran uphold the closure? Military analysts believe that the American military might be quickly able to neutralize the means of laying the Iranian mines represented in the ships, helicopters and submarines.
A wider conflict, taking place...
At the end, it is difficult to predict the consequences of an Israeli military strike against Iran. In the worst conditions, the strike could lead to the worsening of violence in the wider region. Admiral Mike Mullen, chairman of Joint Chiefs of Staff, said during a visit to Israel recently, “I am very concerned about the unintended consequences of any military strike”.
- The escalation of violence in the Middle East would make the price of oil rise more because of the risks. This will raise the prices and could undermine the financial crisis global recovery. The consumers might also favor non-Middle East suppliers and alternative technologies.
- Investors will look to Israel as more hazardous, at a time when the rise in the defense spending affects the economy.
Unknown Vital Things ...
The duration and severity of any conflict. Will the major world powers, especially China, Russia and the United States and the European Union move towards holding a meeting on the Middle East, or the conflict will exacerbate the differences between them?
© Islam Times
Translation By Mayssa Hazimeh