What the Israel-Iran war means for markets

Katie Martin (0:06)

Tushkin. You don't need to be a super smart geopolitical strategist these days to see that the situation in the Middle East is pretty grim. It's all very fluid, stuff is changing quite quickly, and we humble markets monkeys of the Unhedged podcast know our limits. We are not here to give you a read on what happens next between Israel, Iran and the US. What we can do, though, is unpack what this all means for the global economy and for global markets. Is that all more important than the human lives at risk here? Obviously not. But geopolitical shocks, especially in the Middle East, can have ripple effects to jobs, livelihoods and prosperity around the rest of the world. And that's the bit that we can help you understand. Today on the show, we're all freaking out. Why are the markets not freaking out?

This is Unhedged, the Markets and Finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist here at FT Towers in quite hot and stuffy London, finally shaking off my hot and stuffy cold. And I'm joined down the line from New York City by fellow markets monkey, Alpha Primate of the Unhedged newsletter, Rob Armstrong. Rob, stop that.

Rob Armstrong (1:26)

That was my Alpha monkey noise.

Katie Martin (1:30)

I gather from the last podcast that you were long short shorts.

Rob Armstrong (1:35)

Yes.

Katie Martin (1:35)

So if it's not too personal a question, I would like to ask you, are you sporting short trousers today?

Rob Armstrong (1:40)

No, I have big boy pants on right now. I do not, I'm not a shorts at work kind of a person. Shorts are for the weekend and the weekend only.

Katie Martin (1:49)

Where do you stand on linen suits?

Rob Armstrong (1:51)

I don't like wrinkles. I like linen in principle, but in practice, it seems like a lot of ironing and you'd like have to take an iron to work to do a quick midday ironing.

Katie Martin (2:02)

You're possibly overthinking this.

Rob Armstrong (2:04)

Yeah, so no, the answer is no on linen suits.

Katie Martin (2:07)

It's a relief for us all. Now, our vibe, right? Our whole thing on this podcast is kind of loose, kind of lighthearted, very markets focused. I just want to state for the record that we are not terrible people. We care about what's going on in the Middle East.

Rob Armstrong (2:23)

Obviously, the important thing about this situation is the civilians who are caught in the crossfire here. And the people of Iran and the people of Israel are what matters here, is the human beings. We are a tiny little sideshow to that, which is called, What Does This Mean for Markets?

Katie Martin (2:42)

Yeah, and markets are like very dispassionate, right? They don't care about your feelings. They sort of in a way don't care about humans.

Rob Armstrong (2:50)

They don't care if you live or die. Yeah, in most cases.

Katie Martin (2:53)

Yep, yep. So listeners, don't judge us, but we're going to get stuck in. So matters have gone from bad to worse between Israel and Iran. There are rockets flying in both directions. What has the market reaction been, Rob?

Rob Armstrong (3:08)

Well, the most striking thing is that oil hasn't moved very much. It's moved a bit. It's jiggled around. Let me call up an oil price chart here. I should have this in front of me.

Katie Martin (3:19)

I can save you the bother.

Rob Armstrong (3:21)

Okay, please. Save me the bother.

Katie Martin (3:23)

There was a big jump in the price of oil, which is pretty much what you would expect from an escalation of Middle East tensions because Iran is an oil producer. So the price rushed higher, like by 12%, but it's calmed down a lot since then. And we're still now only at about $73 a barrel for Brent. That's higher than it was, but it's the highest since, ooh, April.

Rob Armstrong (3:49)

Yeah.

Katie Martin (3:49)

Like it's not a huge move. And if you compare it to Russia's full scale invasion of Ukraine in 2022, then you saw oil go to $110 a barrel, like in a pretty straight line. And that was much more dramatic. Now, you know, I'm old enough to remember that tension with Iran was one of those things that had a really meaningful impact on oil prices. Like, why is that just not happening now in that old school way?

Rob Armstrong (4:17)

There is a bunch of reasons. And the most important is probably that since we were we little market analysts in the 1970s...