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World Barrels Toward Major Oil Industry Disruption

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Clear Facts:

  • The Israel-Hamas conflict might pull in militant groups from Lebanon or Syria, or even trigger a direct clash with Iran.
  • Matt Gertken of BCA Research predicts a 70% chance of the conflict spreading beyond Gaza within a year.
  • Potential expansion of this war could lead to major disruptions in the oil supply.

Matt Gertken, a top geopolitical strategist for Montreal-based BCA Research, has voiced serious concerns over the expanding Israel-Hamas conflict.

In his view, there’s over a 50% likelihood of this war entangling militant factions from neighboring countries like Lebanon and Syria.

More alarmingly, he hasn’t ruled out a direct confrontation with Iran, a development that could wreak havoc on global oil markets more than what’s currently anticipated.

Even though financial markets seem tranquil at the moment, strategists are deeply pondering the possible repercussions of this escalating conflict.

The serenity of investors was evident as the three primary U.S. stock indexes DJIA SPX COMP exhibited a rising trend on Monday morning.

Concurrently, there was a noticeable dip in the value of oil, with Brent crude BRN00, 1.12% declining by 1.2%, settling below the $90-a-barrel mark. The U.S. benchmark CL00, 1.34% CL.1, 1.37% also experienced a momentary drop of 1%.

However, underlying these market behaviors is an undercurrent of unease. Certain traders and investors harbor apprehensions about an unforeseen resurgence of U.S. inflation.

This inflationary trend hasn’t been completely accounted for in the financial projections, and this comes at a juncture when no decisive action is expected from the Federal Reserve in its upcoming meeting scheduled from Oct. 31-Nov. 1.

Chris Low, the chief economist at FHN Financial in New York, stated, “a frozen, uncertain Fed risks higher inflation and higher market rates as a result.”

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Back at BCA Research, Gertken’s analysis presents a mere 30% probability that Israel will restrict its retaliation to just Gaza.

He rather highlights a more substantial 45% probability that the war could encompass Hezbollah and other militant entities in Lebanon and Syria.

This potential expansion, in his words, could give rise to “a regional war with higher risk of impacting oil, but not necessarily a direct impact.”

Further dissecting the probable scenarios, Gertken assigns a 25% probability that Israel might take offensive action against Iran or its substantial assets spread across the Middle East or its “core sphere of influence” that includes Iraq.

Such aggressive actions might compel Iran to reciprocate militarily, possibly disrupting the oil supply as a message to the U.S. to rein in Israel.

The turbulent Middle East scenario carries a 31% chance of inducing severe oil shocks. BCA Research urges investors to brace for such disruptions as a standard expectation in the next one to two years.

Gertken’s advice to investors in this backdrop is to “go long defense stocks and energy versus cyclicals.”

Principal Asset Management’s chief global strategist, Seema Shah, echoed similar concerns about the escalating tensions.

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She said, “The key macro concerns from the developments in Israel lie with the threat of upward pressure on oil prices.”

Shah continued, pointing out that even though “Brent crude prices have not risen materially,” any significant escalation might further amplify the pressures on oil prices.

She emphasized the potential knock-on effects this could have on inflation, ultimately demanding corrective action from central banks.

If these oil prices surge and exert additional inflationary pressures, there might be anticipations of extra interventions from policymakers, potentially signaling a renewed bond rout.

Shah advises, “In light of the situation in Israel, it is prudent for investors to maintain a diversified portfolio across different asset classes, with a particular emphasis on high quality and defensives.”

We want to know what you think! Share your thoughts in the comments below.


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4 Comments

4 Comments

  1. Gerald Scott Ladd

    October 21, 2023 at 10:41 am

    We were energy independent under Trump.Biden is America last and has fucked up everything he has touched.If there were real justice in this country, he’d be impeached, and jailed.

  2. TC

    October 21, 2023 at 5:02 pm

    There’s no way United States isn’t getting involved in this conflict, but I wonder where we could get all of the oil we needed to support our needs? Hmmm, I really wonder where we could come up with that amount of oil and not have to ask a terroristic middle eastern country for that kind of oil?

  3. messup

    October 28, 2023 at 8:42 am

    Folks, it’s 2024 elections. Here goes: 1) Lithium deposits in Argentina for EV industry. Better than current suppliers and their “child-labor” schemes and is in Western Hemisphere0. Lack of Oil? No problem, switch to EV’s oligarch’s like the guarantee…pumps up share prices (it’s always about New York Stock Exchange). 2) So, Argentina’s elections are coming up shortly (30 day “cooling off period’ AND DOLLARIZATION IN 96 COUNTRIES WILL REMAIN (POSSIBLY EXPAND). 3)CLIMATE CHANGE. “lets-Go-Brandon” needs his “coalition” to hold together and possibly expand for 2024. He’s working on regaining the “BLACK BLOC” back in “The DNC FOLD.” This move accomplishes it with EV’s moving to southern states with their production and manufacturing, you know, hires all unemployed minorities. “I’m back in the saddle again, back where a FRIEND IS A FRIEND’ (an ‘ol cowboy song). 4)And CRT…yep! Can’t forget the (nazi’s!). See, it’s Frankfurt School – Columbia University (NY CITY)…where all the Antifa, Far Left HAMAS GUYS LIVE AND STUDY (Even Obama – Class of ’83 knows about the sick underbelly of this (Hegelian)illness) 5)Starting to get a feel how this ‘COMMUNIST TAKE OVER OF ALL AMERICA OPERATES??? 6)There’s more: (INTEL, FBI, CIA, Military (SOPS), In Arizona (Phoenix) all night helicopter flights from Camp Verde to Luke AFB…”sumpin’ musta be happenin’! Amen. 7)Think Strategically…it’s deeper than just “bubble gum and hamburgers, folks.” 8)Haven’t touched on “inflation nation, yet!!!” Read A Bible. KJV. Psalm 128. 10 Commandments everywhere. God Bless.

  4. CharlieSeattle

    October 29, 2023 at 5:38 pm

    Iran should have been turned in to a smoking glass parking lot decades ago.

    Bush 1 & 2, Obama and Trump let them off to easily! Bribes must have worked.

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