Iran and the Strait of Hormuz
Geopolitical tensions have raised energy prices and market volatility, but we view the correction as temporary and see selective reinvestment potential.
Since February 28, the markets have been rattled by the potential impacts of the U.S. and Israel's attack on Iran on the global economy.
We do not believe that this conflict will escalate into a prolonged, massive conflagration in the Middle East. The neighboring countries of the Persian Gulf, especially Saudi Arabia, are clearly on the side of the U.S. This is especially true now that Iran is putting them under pressure with missile attacks. Without allies – China and Russia are also staying out of it – the mullah regime in Iran will collapse sooner or later. This will eliminate a potential threat and reduce support for terrorist groups in the region. A positive development, even though it is unclear how events will unfold in Iran thereafter.
Markets are in turmoil as oil prices have risen 50% since the attack, and LNG prices have risen as much as 100% amid fears that the Strait of Hormuz will remain closed for an extended period. This is a possibility, as attacks on shipping in the strait remain a threat despite Iran's greatly reduced military capabilities. However, the importance of the Strait of Hormuz should not be overstated. The 2021 blockage of the Suez Canal had more serious potential consequences for the global economy because it disrupted virtually all supply chains in Western industrialized countries. The Strait of Hormuz is primarily used for transporting oil and gas (LNG from Qatar). These represent a significant 20% of the respective global production. But most of the oil transported through the Strait of Hormuz goes to Southeast Asia. Only 5% goes to Europe, and the U.S. is a net exporter. Moreover, most countries have onshore oil reserves. For example, China has reserves equivalent to four months of imports. The head of the International Energy Agency (IEA) said last week that the rise in oil prices as a result of the war in Iran is not due to a fundamental shortage. “There is enough oil. There is no global oil shortage”.
LNG can be substituted. Currently, Europe sources 60% of its LNG from the US and only 8% from Qatar. Additionally, it should be noted that Australia exports more LNG than Qatar.
We do not want to downplay the situation. Price increases for oil and gas are slowing down the economy and fueling inflation. In our opinion, however, these increases are temporary and in no way comparable to the oil crisis of the 1970s, either in terms of size or impact on economies and financial markets.
From this perspective, the current correction in the stock markets represents a buying opportunity. In January, we reduced our equity exposure by taking profits. We will begin reinvesting as soon as there are signs that the panic-driven sell-off and the undifferentiated flight into liquidity are coming to an end.