Israel vs Iran: Navigating a new regime of geopolitical risk
Periodic spikes in equity and bond market volatility are part of a new equilibrium that requires a proactive risk management approach
ISRAEL’S “pre-emptive” strikes directly against Iran on Jun 13 represents a meaningful escalation in what had been Israel’s ongoing battle against primarily Iranian proxies. It now represents a direct confrontation between regional powers in the Middle East, drawing a red line which Israel has not crossed previously in its long-running conflict.
Following Russia’s 2022 invasion of Ukraine, we analysed geopolitical conflicts since World War II as categorised by the Glenview Trust, an investment adviser. Major power conflicts (US-Soviet primarily) and short-lived conflicts between “mismatched adversaries” proved limited in their impact on US equity returns. In contrast, more prolonged conflicts (such as the Russia-Ukraine war that began in 2022) generated more headwinds for US equity markets in both their initial stages as well as over the year after they started.
Most impactful: energy market disruptions
Regional conflicts which result in energy market disruption – notably Iraq’s 1990 invasion of Kuwait and Russia’s 2022 invasion of Ukraine – have been among the most impactful and prolonged regional cross-border conflicts based on our analysis.
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