Markets get very wobbly during times of major international conflict and traders panicked a bit over the weekend as the price of oil moved from around $93 a barrel to over $116 a barrel.
This caused equity and bond prices to fall, but they stabilised as the oil price dropped back towards $100 (at the time of writing Brent Crude is sitting at $100.91 per barrel).
There is now some talk of elevated oil prices causing inflationary pressures with central banks increasing interest rates in response. Some people are even making comparisons with the early 1970s when the oil price rose 500%. Back then the USA was a major net importer of oil, whereas today, it is a net exporter. Similarly, Britain was a net importer of oil until North Sea production turned us into a net exporter (see the chart below), although we subsequently returned to being a net importer as our government discouraged the production of fossil fuels in favour of renewables. As this chart shows, we are still reliant on oil for a significant proportion of our energy:
It is not in President Trump’s interest to engage his country in a long fight with Iran. I suspect, therefore, that before too long he will announce that America’s strategic objectives have been achieved and allow things to settle down. If this coincides with a positive new deal with China (Trump visits Beijing next month for a meeting with President Xi) then a market rebound is likely. Hold on to your seats!
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