Markets await Iranian response
He said if there were attacks on US shipping, or attempts to limit access through the Strait of Hormuz, oil prices could spike.
“There’s a question come Monday as the markets open how everyone will digest this. I don’t think anyone is thinking that there’s an easy ability to de-escalate, but I think it will hinge on the Iranian response.
“If they do ratchet up the tension further, if this starts to broaden out into shipping attacks, I think market expectations and worries about oil supply will increase substantially. The question is, just to what degree do you price this and how do markets look at that?”
He said shares in companies in defence-based industries could increase in value.
“Everyone will think the war’s on and certainly so far there’s nothing that would stop you thinking the same.”
People might also shift to defensive assets, he said, such as utilities.
NZ response
The fact New Zealand was sending a Defence Force aircraft and Foreign Affairs personnel into the region proved how concerned the Government was, he said.
Shamubeel Eaqub, chief economist at KiwiSaver provider Simplicity, said there could be bumpiness ahead for households.
“So far, market pricing is unexpectedly calm. Oil prices haven’t increased very much, equity prices haven’t changed much even though we had already seen the beginning of that escalation before the weekend started.
“But with the US involvement now, the uncertainty is even higher than before.”
He said the experience of the Gulf War in the 1990s showed the potential impacts. “The channels were two-fold: the first was around the price of oil and the second was really around the uncertainty in financial markets in general.
“Now, compared to the Iraq wars, the world is a lot less dependent on oil than it used to be, which is also true for New Zealand, so the oil intensity of the economy is less. It doesn’t mean we are immune; it just means we are less exposed.”
‘Fear and uncertainty’
He said it was not yet clear how sensitive financial markets would be but the bigger issue was the fear and uncertainty that would be created.
“That’s what we tend to see when there is a risk-off, equity markets tend to fall … the New Zealand dollar tends to get more volatile. Quite often it weakens when people are more risk averse, which means it’s generally speaking a net positive for exporters but a net negative for the rest of us because we tend to consume a lot of imported products.”
He said it could take 12-18 months for the full effects of big geopolitical events to flow through.
“But the initial effect quite often tends to be very much fear-driven, financial markets-driven commodity price-driven things.”
He said for most New Zealanders, the message was to “hang in there”.
“The oil price - you have no control over it. We are price takers, so whatever you can do in your own control to be able to manage your transport [might help].”
He said when it came to financial markets, that was also generally out of an investor’s hands. But if they were worried about their KiwiSaver accounts, they should remember that it was time in the market that would make the difference over the long term rather than short-term movements.
‘No need to worry or panic’
Koura KiwiSaver founder Rupert Carlyon said the biggest risk was to inflation.
“If it does turn into a broader Middle East war and potentially shutting down the Strait of Hormuz, we are likely to see higher oil prices, which will flow through to everything.”
Shipping delays would also make importing goods harder and more expensive.
“The Reserve Bank will be watching this very carefully as anything that has the potential to skew inflation to the upside will mean a halt to further interest rate cuts.
“I suspect markets will open down in anticipation of the conflict, though as we have seen over the past few years, markets fear more about the prospect of conflict rather than the reality of it. We have already seen this playbook with Ukraine and Russia and Gaza and Israel. Definitely no need to worry or panic.”
- RNZ
