The flare-up in geopolitical tensions in the Middle East fuelled volatility in global markets and drove a widespread shift away from risky investments as risk aversion dominated sentiment.
Markets reacted to energy security risks as tensions in the oil-rich region threaten the infrastructure and the flow of oil tankers and LNG carriers through the Strait of Hormuz.
The shipments via the waterway represent a significant portion of the world’s oil and LNG supplies.
As a result, energy prices have jumped significantly and could continue to climb if tensions continue.
The ensuing risk-off sentiment affected other markets, including equities and other commodities. Investors could continue to move away from risky assets, pressuring stock markets in the US, Europe and the Middle East, and toward safe-haven assets. In this regard, gold has recorded an increase and could see significant inflows in the coming days, which could potentially drive its price beyond its previous record.
While global conflicts tend to cause short-term volatility, long term trends continue as conditions stabilise, particularly the bull trend in stocks. As a result, the market could see some rebalancing on new developments, while dip-buying opportunities could emerge for stocks leading the recovery.
