Investimental analysis: How will the Iran war impact the economy

The current conflict in Iran may only have a marginal impact on the global economy, according to an opinion by stock exchange broker Investimental.

The company notes that if the episode is resolved quickly, historical parallels from the first Gulf War indicate that the long-term economic effects could be limited. While oil prices have surged, data indicates that short-lived spikes often fail to derail broader stability.

Following the first three days of the current war in Iran, the West Texas Intermediate (WTI) crude oil price rose by approximately 11%, reaching an intraday peak of 16%. By comparison, the benchmark grew by 30% in the three days following Iraq's occupation of Kuwait in 1990, eventually climbing over 170% before military intervention. However, when looking at the sixth day of trading, the current price increase is more consistent; WTI futures have risen by over 75% intraday, whereas the appreciation was under 35% during the same period three and a half decades ago.

Gabriel Aldea, Deputy General Director, Investimental said: "In the positive scenario that the actual conflict does not turn into a new 'forever war', two additional interest rate cuts remain possible for this year, although their probability has diminished. The Federal Reserve could delay the easing cycle, with markets now anticipating the first cut in July rather than June. However, in the hypothesis that the war will prolong or complicate through the involvement of more actors, the data changes. If the oil price continues to grow and inflation exceeds certain critical levels, the American central bank will see itself forced to adopt a cautious attitude, in the sense that it will put the monetary easing process on hold and even, in an extreme scenario, could take into account increasing interest rates".

Despite these pressures, the US stock market has remained relatively stable. After the first week of the current conflict, the S&P 500 saw a decline of only 2%. In contrast, during the first Gulf War, the index dropped 6% in three days and reached a total decline of roughly 20% by October 1990. This modern resilience is supported by US inflation staying below 3%, a much more stable environment than the 7.5% inflation seen at the start of the 2022 Ukraine conflict.