Oil prices rose by more than 4% as Israeli troops moved into Lebanon and Iran launched missiles on Israel
As Israeli troops moved into Lebanon and Iran launched a missile attack on Israel, the risk of a jump in oil prices that could trigger another global inflation shock appeared to be materialising.
Oil prices rose by more than 4% to about $75 a barrel on Tuesday.
However, experts said investors had remained relatively sanguine against a backdrop of escalating tensions in the Middle East, with oil prices having fallen more than 10% in the past three months and the US stock market remaining close to an all-time high.
Western financial capitals could be troubled by an uptick in oil prices, especially ahead of next month’s US presidential election. Inflation has cooled across advanced economies in recent months, paving the way for interest rate cuts by policymakers at the world’s top central banks.
Yet experts believe financial markets could still avoid panic, citing three key reasons: expectations for the future path of the Middle East conflict, geopolitics, and the increasingly shaky health of the world economy.
“It’s quite surprising when you see escalations and nothing moves, it’s not generally what you expect from markets,” said Nuwan Goonetilleke, the head of capital markets at the London-listed insurer Phoenix Group. “But it’s been escalating over the past 12 months.
“The market will continue to watch to see if the conflict draws in other regional powerhouses. Iran is the one that could be potentially dramatic.”
First, analysts remain hopeful that the recent escalation can be dialled back.
The stakes are high, however. Iran is a major oil producer, supplying about 3m barrels a day – or about 3% of world output – despite western sanctions.
