Despite war hysteria coming from mostly Democrats, the markets appear to be taking things in stride. Stocks were up on Monday, slightly down on Tuesday while gold and T-bills — considered a safe haven for investors — have begun falling after an initial spike following the attack that killed Qasem Suleimani.
But what about oil? If we’re on the brink of war with Iran, shouldn’t we be seeing $100 bbl oil?
The fact is, investors and analysts have already factored in increased tensions between the U.S. and Iran and are dismissing talk of “World War III.” Nor do they think Iran is stupid enough to take action that would choke off tanker traffic through the Straits of Hormuz, through which 18 million bbls of oil move every day.
Of course, investors could quickly bid up the price of oil if the strait was closed or hostilities between the United States and Iran boiled over into a major conflict.
That’s because the world’s oil producers have a small buffer of around two million barrels a day of potential output that they could quickly add. Most of that spare capacity is in Saudi Arabia.
If millions of barrels a day of oil production were suspended, that would quickly draw down storage tanks and send oil prices soaring, analysts say, although the United States government could seek to calm markets by releasing fuel from the Strategic Petroleum Reserve.
A big oil price increase would have a much more modest impact on the United States economy than in the past, though it could hurt other countries like China and India more.
On Monday, some stock markets around the world flinched. But the sun rose on Tuesday and the world was still here, as investors realized the emptiness of Iran’s threats and don’t believe Democratic rhetoric that Trump is trying to start a war.
Dryden Pence, chief investment officer at Pence Wealth Management, said the market is not too worried about the conflict’s impact on oil given how much U.S. production has risen in recent years.
“We are the biggest oil producer in the world and we’re able to make up what’s lost from Iran,” Pence said. “If you took Iran completely out of the oil market, that’s not a big deal.”
“That’s why the market reaction has been so muted compared to what it would’ve been 10 years ago,” he added.
I know it’s fun to talk about World War III, the return of the draft, endless war, wag the dog, and other exciting, boredom-killing memes that anti-Trump hysterics are trying to push. But investors deal with perceptions based on real-world events and don’t pay much attention to the political hot air being manufactured in Washington. And in the real world, Iran wouldn’t dare to cause any serious damage to U.S. interests.