Talks in Oman have failed, and on Saturday, the United States and Israel launched attacks on Iran with the aim of dismantling its missile capabilities and halting any nuclear development. In response, Iran’s Revolutionary Guard fired missiles at U.S. bases in Arab countries allied with Washington, including the United Arab Emirates, Bahrain, Qatar, Jordan, and Kuwait.
What makes the situation even worse for the global economy is that the attacks reached the Strait of Hormuz. As a result, by Monday morning, about 40 supertankers were stuck near the strait, each carrying roughly 2 million barrels of oil. Not surprisingly, oil prices are climbing, even after OPEC+ decided over the weekend to boost production by 206,000 barrels a day, because the bigger question of how to actually move that oil out of the Persian Gulf is still hanging in the air.
What would happen if the conflict were to drag on for weeks?
In short, the effects would be unpleasant, especially for oil-importing countries the hardest, including China and the eurozone. As for industries specifically, similarly, those that rely heavily on oil would feel the impact first. For instance, on Monday morning, U.S. airline stocks were already down in pre-market trading, while major European travel companies, including airlines, hotel chains, and cruise operators, also suffered sharp declines.
In perspective, most industries outside of energy are likely to suffer, either directly or indirectly, as the energy crisis after the war in Ukraine showed. For example, the auto industry could struggle with rising costs for plastics and synthetic materials, retailers might face higher transportation expenses, and the tech sector could be hit by higher inflation, which could push the U.S. Federal Reserve toward tighter policies.
Speaking of that, the recent data isn’t looking encouraging. As companies start passing higher costs onto consumers, U.S. producer prices for January rose 0.5 percent month over month and 2.9 percent year over year, while core producer prices went up 0.8 percent month over month and 3.6 percent year over year.
On the flip side, safe-haven assets like gold (XAUUSD) and the U.S. dollar could benefit.
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