Just as Pentagon planners are sorting out military contingencies in the event of a conflict with Iran, so too are investment planners assessing the investment risks and opportunities of war in the Persian Gulf.
A new investment commentary by analysts at Wilmington Trust, the more than century old high-net-worth outfit the DuPont family founded to manage its own wealth, considers the market effects of an Israeli response to Iran’s efforts to complete its nuclear program.
Wilmington Trust’s Clayton Albright III and Clement Miller start their analysis noting today’s high gas prices, heading to the peak levels seen in 2008 and 2011—a fact they tie to the geopolitical situation swirling around Iran’s nuclear program and Western efforts to contain the crisis through economic sanctions. Rather than “fear the worst and react accordingly,” Albright and Miller attempt to coolly lay out four scenarios they consider realistic, only one of which (and not the most likely) they consider to be seriously destabilizing.
The first scenario they consider realistically possible is a continuation of sanctions with no overt military conflict—in other words, today’s status quo will persist. Under that scenario, to which they assign a 20% probability, investors should expect “continued upward pressure on oil prices.” The efforts of the U.S., EU and soon Japan to ban new oil contracts and phase out oil purchases under existing agreements are tending to reduce Iran’s participation in global oil markets, despite the slack picked up by China, India and other emerging market Iranian customers.
Moreover, supply disruptions and low surplus production are occurring at a time of historically high levels of global oil consumption. The result, the analysts foresee under this scenario: “A prolonged period of high crude oil prices would present a continuing drag on the world economy and on expected equity market returns.”