Markets set for rocky opening after Trump's plunge into Middle East war
[SINGAPORE] When the major markets reopen on Monday (Jun 23), investors in Asia and other parts of the world will be bracing themselves for a volatile few days ahead, with oil prices likely to surge and inflation forecasts coming under renewed scrutiny.
This after US President Donald Trump's stunning U-turn from his earlier position that he would keep the United States out of Middle Eastern wars. On Saturday, he ordered a strike against three Iranian nuclear facilities, giving a boost to Israel's efforts to destroy Iran's nuclear programme.
His decision has already prompted analysts to describe it as Trump's biggest foreign-policy gamble of his two presidential terms.
In a televised address from the White House, Trump called the strikes a 'spectacular military success' and warned Teheran against any retaliation, adding that Iran would face more attacks if it did not agree to peace.
'This cannot continue. There will be either peace or there will be tragedy for Iran, far greater than we have witnessed over the last eight days,' said the president.
Terence Wong, the chief executive officer of investment fund Azure Capital, expects the markets to be choppy on Monday.
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'Given Trump's generally anti-war stance and opposition to overseas defence spending, this was a surprising move and definitely marks a significant escalation in the Middle East conflict. The big question is how Iran will react,' he told The Business Times.
Vasu Menon, managing director of investment strategy at OCBC, expressed some optimism that things may not turn out as bad as others fear.
He said the 'unfazed response' from markets in the Middle East that were open on Sunday offers hope that the fallout for other global markets when they start trading on Monday may not be dramatic.
'Even if there is a sharp pullback among global markets on Monday, they may not be down and out. The response may be temporary and a rebound could materialise eventually,' he noted.
'Much depends on what Iran will do next, but the shock and awe of the US attack and the warning from Trump not to retaliate or suffer significant consequences, may prevent Iran's leaders from responding aggressively.'
How Iran reacts over the next few days or even weeks 'may keep investors nervous' and markets volatile in the short term, he added.
'Of greater consequence to markets may be the reciprocal tariffs that Trump will decide on by Jul 9. Trade concerns have taken a back seat due to the developments in the Middle East, but could re-emerge to the forefront in the coming weeks.'
Higher risk premium for oil
As for oil, prices are likely to go up by between US$3 and US$5 per barrel when trading resumes, said market analysts on Sunday, with the gains expected to accelerate only if Iran – the Organization of the Petroleum Exporting Countries' (Opec) third-largest crude producer – retaliates in a major way and causes a major disruption to oil supply.
Jorge Leon, the head of geopolitical analysis at Rystad Energy and a former Opec official, said: 'An oil-price jump is expected. Even in the absence of immediate retaliation, markets are likely to price in a higher geopolitical risk premium.'
UBS analyst Giovanni Staunovo said that such risk premiums typically fade when there are no supply disruptions.
'The direction of oil prices from here will depend on whether there are supply disruptions – which would likely result in higher prices – or if there is a de-escalation in the conflict, resulting in a fading risk premium,' he explained.
In an extreme scenario in which the Strait of Hormuz ends up being shut, the price of oil could even go above US$130 a barrel, weighing on global growth and driving consumer prices higher, according to a Bloomberg Economics analysis.
The Strait of Hormuz is a crucial choke point between Iran and Oman through which about 20 per cent of global oil and gas demand flows.
Flight disruptions
Singapore Airlines (SIA) said on Sunday that it had cancelled two flights between Singapore and Dubai – SQ494 and SQ495 – following a 'security assessment' of the ongoing situation in the Middle East.
The carrier added that it would be reaching out to all affected customers, with those impacted to be put on alternative flights or given the option to seek a full refund of the unused portion of their ticket. Other SIA flights between Singapore and Dubai may also be affected as the situation remains fluid, the airline said.
British Airways cancelled several flights to Dubai and diverted two planes bound for Doha on Sunday, according to data from Flightradar24.
The flight-tracking website noted that most airlines have maintained their flight diversions around the region due to recent missile exchanges.
The website showed that airlines were not flying in the airspace over Iran, Iraq, Syria and Israel. Many carriers have opted for other routes such as north via the Caspian Sea or south via Egypt and Saudi Arabia, even if these mean higher fuel and crew costs and longer flight times.
Operation Midnight
While the rest of the world continues to make sense of the US attacks and the fallout, senior figures from the Trump administration said the ball was now firmly in Iran's court and that it should make peace.
All in, the US strikes involved 14 bunker-buster bombs, over two dozen Tomahawk missiles and more than 125 military aircraft. General Dan Caine, the nation's highest-ranking military officer, said the strike was named 'Operation Midnight Hammer'.
US Defence Secretary Pete Hegseth said in a briefing at the Pentagon that the US 'devastated' the Iranian nuclear programme, adding that the operation 'did not target Iranian troops or the Iranian people'.
'(Trump) seeks peace, and Iran should take that path. This mission was not, and has not, been about regime change,' he noted.
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