Markets believe that the Iranian situation will not have a major negative effect on the world economy. At least for now.
Round 1 of the U.S. vs. Iran seems to be over, and the effects on the world economy seem to be negligible. Relieved at what looks like Iran's and President Donald Trump's intentions not to escalate the conflict, world markets rallied. The Dow Jones Industrial Average, which began the day after Iran's missile attacks on U.S. bases at 28,556, crept up to 28,637 just before the president's remarks then shot up to 28,768 after he finished speaking.
U.S. President Donald Trump concludes his remarks after speaking from the White House on January 08, 2020 in Washington, DC. During his remarks, Trump addressed the Iranian missile attacks that took place last night in Iraq and said, “As long as I am president of the United States, Iran will never be allowed to have a nuclear weapon.”Peter Singer, of the New America Foundation, predicts an increase in cyber-attacks."Iran put a lot of resources into building its capabilities.
Any price jump that does occur is unlikely to last for very long. Kevin Book, who leads ClearView Energy Partners, a firm which forecasts oil prices, says,"Geo-political spikes come and go, and they tend not to be that long-lasting. There are a lot of brakes built into the system to handle short-term events. The Saudis can ramp up production or the president can tap strategic reserves." Book is telling his clients to expect Brent prices to level out around $60 per barrel.
The markets believe that scenario is unlikely. Everyone involved seems to be looking for a way out, despite continuing tough talk by Iran and the U.S. Iran's missile attack appeared to be designed not to inflict casualties. Trump's response to the attack was seen as muted and conciliatory. He described the damage caused as"minimal" and said,"Iran appears to be standing down, which is a good thing for all parties concerned and a very good thing for the world.
Dr. Ataman Ozyildirim, Senior Director, Economics and Global Research Chair at The Conference Board, says some indicators are very noisy, with so much movement it can be hard to distinguish a trend from a blip. Others can be affected by isolated events and can jump because of short-term supply disruptions. None are foolproof. Ozyildirim recommends using a dashboard of several metrics and tailoring that dashboard for the needs of the user and the specific situation.
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