Company Interview / Shane's View: War, what is it good for?

The resumption of the War begs the question of what has been achieved? Iran is arguably now stronger having proved it can block the Strait, its government is more hardline, there is no resolution to its nuclear ambitions and it still has missiles and drones!

There are parallels with the Ukraine and Vietnam wars which showed a superior military power can be challenged – but of course they did not threaten the global economy to the same degree!

The relatively moderate response in the oil price and in share markets so far - despite the Strait being blocked again and now less chance of a decent peace deal - likely reflects the relatively benign experience since the War started and the assumption that the same will apply now.

This suggests some sort of range for oil prices maybe around $US70-90, with another TACO “peace” deal if we get to the high end.

But the risk is now high for the global economy and share markets as oil reserves head even lower. The strikes on Iran are intensifying and if really pushed it may attack the UAE port at Fujairah again and could fire up the Houthi’s to block the Bab el-Mandeb Strait out of the Red Sea, would severely disrupt the oil bypass routes.

So we are back to where we were before the peace deal in that the longer the Strait remains closed or the War escalates the greater the risk that oil prices will have to rise to around $US150/barrel to bring demand down to match the hit to supply. This is not our base case but it’s a high risk again.

This leaves US and hence global and Australian shares at high risk of another correction in the seasonally weak months of August and September.

To hear more, tune in to Shane’s Simplifying Investing podcast here:

Simplifying Investing | Podcast on Spotify.