For nearly a year since the Hamas attack on Israel on Oct. 7 and the start of the fighting in Gaza, investment strategists have warned that a wider war could break out in the Middle East, crimping the world’s oil supply and sending shock waves throughout the global economy.
The markets have generally shrugged off the potential of a broader conflict: The price of oil has remained largely subdued, with traders reassured by the world’s plentiful supply.
But after Iran launched a barrage of missiles at Israel on Tuesday, oil prices began to rise as the market appeared to factor in the risk of a growing regional conflict. After President Biden said on Thursday that there had been “discussions” about support for an Israeli attack on Iran’s oil facilities, the price of Brent crude, the global oil benchmark registered its biggest weekly gain in more than a year.
“Investors are finally paying attention to the Middle East after having decided it wasn’t going to move the needle,” said Tina Fordham, a former chief global political analyst at Citi who now runs an independent consultancy.
“It’s not a perfect storm yet,” she said, “but it’s a constellation of risks coming together at a time when market systems still haven’t gotten comfortable that we’ve avoided a hard economic landing.”
Everyone is watching Israel’s next move. Attacking Iran’s oil infrastructure or nuclear facilities, for example, would intensify the conflict. Biden has said he will not support an attack on Iran’s nuclear sites, and yesterday cautioned Israel against hitting Iran’s oil fields. “The risk is not zero, which means it’s high enough to consider different scenarios that range from all-out conflict that curtails energy access to a peaceful off-ramp,” said Ronald Temple, the chief market strategist for Lazard’s financial advisory and asset management business.
Oil prices are the biggest global economic risk factor. Iran produces about 2 percent of the world’s oil supply, which it sells mostly to China. But the greatest liability to the global economy would be if Tehran blocked access to the Strait of Hormuz, which connects the Persian Gulf to the Arabian Sea, because about 20 percent of the world’s oil passes through there.
Oil prices are still lower than a year ago, mostly because the United States and other countries have ramped up production and demand in China, the world’s biggest oil importer, has continued to fall as its economy has slowed. Saudi Arabia and seven other oil producers have also agreed to unwind some of their production cuts, though the plan has been delayed.
“Even though there’s a lot of oil in the world right now, a massive regional war could take more oil offline than there is spare capacity,” said Matt Gertken, the chief strategist at BCA Research.
That could fuel inflation. Oil prices are a major component of food prices, for example. At a moment when much of the world is starting to get inflation under control, a sustained increase in oil prices could set off a new bout and potentially affect interest rates.
Analysts at Capital Economics suggested that oil prices would most likely need to reach $90 a barrel to become a factor for central banks. As of Friday, the price of Brent crude was $78 per barrel.
Traders and energy companies are making moves. “I think it’s pretty clear that investors are already hedging their risk exposure,” said Michael Brown, a senior research strategist at the Australian brokerage Pepperstone, pointing to indexes that measure how much investors are buying options to limit their losses.
Stephen Schork, a trader who advises heavy industrial users of oil, like fertilizer or natural gas companies, on how to hedge risks, says it’s “imperative to act now” to protect against a jump in prices. He is recommending that they use a specific options strategy known as a “zero cost collar.”
Companies are watching for how the conflict affects the U.S. election, the outcome of which could have huge consequences for trade relations, taxes and regulation. Neither a spike in oil prices nor a heightened sense of global turmoil would help Vice President Kamala Harris’s campaign.
For most companies, the potential effect on the election is “perhaps the biggest potential impact of the conflict,” Theodore Bunzel, the head of Lazard Geopolitical Advisory, said.
Markets have tended to shrug off geopolitical risk. Despite the war in Ukraine and the fighting in Gaza, stocks have been at historic highs. Oil prices spiked after Israel and Iran exchanged blows in April, but quickly fell.
Quincy Krosby, the chief global strategist for LPL Financial, says the philosophy on trading room floors, which is echoed by companies, tends to be, “It doesn’t matter until it matters.”
But, she says, at some point it does matter: “The question is how far does it go?”
— Sarah Kessler
IN CASE YOU MISSED IT
Job growth far surpassed expectations. Employers added 254,000 jobs in September, government data published on Friday showed, a sign that the labor market is proving resilient. The unemployment rate fell to 4.1 percent, from 4.2 percent in August. The data will be seen as good news for the Federal Reserve, which is monitoring the labor market closely as it weighs its next rate cut.
OpenAI closed a monster fund-raising round. The start-up behind ChatGPT secured $6.6 billion in a round that valued the loss-making company at $157 billion. The investment was led by Thrive Capital, the venture capital firm run by Josh Kushner, and included Microsoft, Nvidia and SoftBank, which backed OpenAI for the first time. During negotiations, OpenAI asked investors to commit to not backing its rivals, including Anthropic and xAI, Elon Musk’s A.I. start-up.
A dockworkers’ strike that crippled East and Gulf Coast ports ended within days. The International Longshoremen’s Association suspended its work stoppage after port employers increased their wage offer and the Biden administration pressed the two sides to reach a deal. The tentative agreement would raise wages 62 percent over six years.
The N.B.A. tips off in Abu Dhabi
Hamdan Alnuaimi, a 15-year-old who lives in the United Arab Emirates, likes to watch N.B.A. games. But he rarely wakes up in time for the first quarter. “Four a.m.,” he said of the time games air in Abu Dhabi. “Literally 4 a.m.”
Alnuaimi spoke to The Times’s Tania Ganguli on Friday at an N.B.A. fan festival in Abu Dhabi, where the Boston Celtics and Denver Nuggets played a preseason game later that day.
When told of Alnuaimi’s plight, Mark Tatum, the league’s deputy commissioner, was delighted to provide some good news. “This year we actually will have 40 games on prime time during the weekends,” Tatum said.
Sitting next to him, Adam Silver, the league’s commissioner, added: “Prime time here.”
The N.B.A. sees the Middle East as a critical market. It says there are 15.6 million N.B.A. fans in the region, more than for any other American league, and it expects the sports industry there to grow 8.7 percent by 2026, more than twice the rate of the global sports industry.
Abu Dhabi has become the league’s hub in the region. The N.B.A. started playing preseason games there in 2022, and it says basketball participation has since grown 60 percent in the Emirates and 54 percent in the Middle East.
But the league has faced criticism for its partnership with the country, with some arguing that it allows the Emirates to distract from its human rights record. Silver said the N.B.A.’s presence in the Emirates was ultimately a good thing. Among other things, he pointed to the experiences of young people like Alnuaimi, who participated in the Jr. N.B.A. program, a youth league the N.B.A. uses to foster interest in basketball among middle-school-age children in different parts of the world.
Despite the ethical debate, it’s clear that the league is making some inroads into the market. Friday night’s game at Etihad Arena was billed as a sellout, though there were a few empty seats. Fans who were wearing traditional Emirati clothing mingled with others in Western garb. People from both groups wore sneakers, which one local said was a sign of the N.B.A.’s cultural influence in the region.
The French soccer legend Thierry Henry attended the game. So did Will.i.am, the rapper, singer and songwriter, and Steve Harvey, the talk show host, who sat courtside and was mobbed by a group of young fans who leaped over seats to take a picture with him after the game.
Fans from 43 countries had bought tickets to the game. N.B.A. jerseys dotted the arena. The Nuggets and the Celtics did their part, at least briefly, playing several of their stars for a decent swath of the game. They’ll be back for another game Sunday, and another chance to show their product to this market.
On our radar: A finance book for kids
A lack of basic finance knowledge has become such a large problem with such huge ramifications that a whirl of states have introduced mandatory financial literacy courses in high school. Mellody Hobson, the president and co-chief executive of Ariel Investments, an investment firm, wants children to start even earlier. This week, Hobson published “Priceless: Facts About Money,” a book that aims to help children ages 8 to 12 understand more about money.
“My hope is that this book will help remove the mystery and fear that often surround the subject of money in so many homes,” Hobson told DealBook.
Hobson began writing the book during the coronavirus lockdown. “I started by brainstorming topics to establish the financial foundation, the must-haves,” Hobson said. “This process was helped by my own childhood experiences as well as my efforts to teach my daughter about money in real time.”
Rather than presenting terms as a dictionary would, Hobson wanted to “weave concepts into creative discussions,” she said. And instead of centering those on fictional characters, she chose herself and her co-chief executive, John Rogers, as the book’s stars. “Early on, I rejected any notion of a made-up character narrating the book, which was suggested,” Hobson said. “Such an approach felt less serious.”
Together, the two discuss why Rogers used a pound, not a dollar, on his family trip to England and how they each manage their allowances. The book covers both necessary facts (how interest works) and fun facts (if you fold a dollar bill the long way, you can make George Washington look like a mushroom).
The book’s fanciful illustrations have a personal back story. Hobson’s then-7-year-old daughter overheard her interviewing an illustrator during the pandemic and suggested that Hobson work with her elementary school art teacher, Caitlin Stevens, instead. Though Hobson resisted, her daughter pushed her to go to the teacher’s website. “It was immediately clear that Caitlin Stevens was truly talented,” Hobson said of the book’s illustrator. “Her style offered a combination of realism and charm.”
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