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Since the last week in September, there has been a ratcheting up in the intensity of the Gaza conflict. It started with Iran’s missile attack on Israel and since then we have been waiting to see what and Israel’s response would be. Last weekend the response came with attacks on military facilities in Iran. The humanitarian crisis grows with the death toll rising but it has not sparked any financial crisis.
The chart below plots the movement in the Brent oil price. As we can see, the oil price spiked at the end of September from $72 to $80 after Iran’s attack. The market started to fear that the conflict was going to broaden out and affect the level of oil supplies. As it has turned out, Israel’s response was more measured and avoided damaging oil facilities. As a result, the oil price has now dropped back towards levels seen at the start of the year and stands close to 20% below the year’s high. This is good news for global inflation and global growth. The market risk emanating from this conflict has not disappeared but so far the market impact remains small.
