The impact of the Iran war is being felt by the global markets as they contend with their most turbulent geopolitical environment in years. The world economy is experiencing a major oil shock triggered by the conflict between the United States, Israel and Iran that began on February 28.
The crisis has led to the closure of the Strait of Hormuz, disrupting roughly 20 percent of the world’s daily oil supply and causing crude prices to surge past $100 per barrel.
Despite Iran saying that it will allow ships which are non-aligned with ‘it’s enemies’ to pass through the narrow passage, analysts are warning that the oil shock resulting from this conflict could reshape global inflation outlook, force central banks to reconsider rate cuts and weigh on risk assets from equities to cryptocurrency.
With U.S. president Donald Trump threatening to strike Iranian energy infrastructure, Iran has doubled down on the closure, adding fresh threats of its own. Iran has made it clear that any attacks on its energy bases will result in reciprocal strikes on U.S.’ Gulf allies.
News headlines fuel investor concerns
Josh Gilbert, Market Analyst at eToro, said in an interview with Coin Headlines that the sheer pace of headline changes was making it difficult for investors to hold a steady course.
“We wake up every day and we’re ultimately seeing a new headline and those headlines are what’s driving markets at the moment. We’re seeing a very headline-driven market, and as an investor that’s very difficult to deal with because it is changing on a dime.”
As the conflict shows no signs of de-escalating for now, oil prices have been the main focus for analysts. The shutdown of the Strait of Hormuz has further exacerbated the crisis with supply chain disruptions which will lead to broader price pressures.
Federal Reserve Chairman, Jerome Powell, while stopping short of signaling a rate hike, warned that inflationary forces were building.
Bitcoin emerges stronger than gold
As the crisis has unfolded, it is the performance of crypto in general and Bitcoin in particular, that has surprised many observers. Although the world’s most popular cryptocurrency remains roughly 45 percent below its October highs, it has traded with a relatively contained band of $65,000 to $76,000 throughout the three weeks of this conflict. It has outperformed both gold and S&P 500 since the start of the Iran war.
Gilbert believes the structural changes that have been enforced in the Bitcoin market over the last 5 years, since the biggest digital asset fell by 80 percent, has contributed to this resilience.
“Back then it was a very different period. We had no spot ETFs, no corporate treasuries buying billion-dollar positions, no sovereign wealth funds putting capital to work. Whereas today we’ve got all three of those.”
While Bitcoin is showing resilience, Gilbert feels investor sentiment has changed towards assets conventionally considered safe.
“What we initially saw and what has probably been the standout story in markets over the last 12 months is gold. That’s sort of seen a huge rally over the last 12 months and again that was sort of the initial haven that investors ran to. We saw that demand rose above $55 thousand an ounce. We’ve seen that sort of pull back on the strengthening of the US dollar and as bond yields have risen.”
Mantra for investing during a crisis? Be boring!
Amidst this market doom-and-gloom, with portfolios turning red faster than traffic signals, how can investors keep their money safe? Josh has a measured and seasoned advice for investors: keep it safe, and stick to the basics.
“The best thing to do is turn the laptop off, keep an eye on what’s happening. If fundamentally nothing has really changed, some of the worst things to do is panic-sell out of markets — it can really fundamentally change long-term returns.”
Historically investors who exit the market during volatility frequently miss the recovery, ultimately underperforming those who stay the course.
Sometimes, it’s not about timing the market but about time in the market when it comes to maximising returns.