Iran’s response to the U.S. and Israel’s attack created an unexpected oil crisis. By failing to anticipate that Iran would attack neighboring countries with U.S. bases, world stock markets did not price in the repercussions.
Investors need to monitor developments of the shipment shutdown in the Strait of Hormuz. After Iran attacked Qatar’s LNG, markets must factor in the long-term impact on global energy markets. Qatar lost 17% of its LNG capacity for up to five years, according to a Reuters report. Before that happened, Israel hit Iranian gas fields. That disrupted how much energy Iran could export to its trade partners like China.
Global economies need energy for everyday things like transporting products. Plastics and other oil/gas byproduct refineries are at the mercy of rising prices. Fertilizer prices also rise with oil. Firms like Dow (DOW), LyondellBasell Industries (LYB), and CF Industries (CF) rewarded investors. Their share prices broke out at the start of this year.
Consumers may conserve and consume less to survive the oil crisis. But cutting demand is not enough. Investors might wait for the U.S. midterms to give the Democrats more power to end the Iran crisis. However, the market needs to address the acute shortage sooner than that.
The more damage inflicted on Middle East gas fields, terminals, and refineries, the greater the oil crisis unfolds. Expect people to urge their advocacy groups to reject additional funding for military actions unfolding in the Middle East.
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