Iran Conflict: What We Know Now

Marc Zabicki (00:00):

In the early morning hours of February 28, both U.S. and Israeli forces began a coordinated attack on strategic targets within Iran. The action prompted a military response from Iran against Israel and U.S. Gulf installations across the region. The retaliatory attacks were of limited success according to various media reports. In this latest edition of LPL Street View, we'll take a brief look at what we know now about the conflict and point to some potential near term and long-term ramifications for investors.

Marc Zabicki (00:41):

This is what we know so far. In the early hours of Saturday morning, both U.S. and Israel combined military strikes, targeted Iran's military infrastructure, known Iranian leadership locales, air defense systems, and missile drone launch sites. Many of the targets were centralized around Tehran, and later that same day, it was reported the leader of the Iran Republic, Ayatollah Khomeini, was in fact killed. Reportedly, the U.S. leveraged manned and unmanned aircraft, and the attack and weapons systems were launched from air, land, and sea. As we record this on the afternoon of March 2, large scale strikes within Tehran have continued with over 1000 military targets hit, according to the U.S. media sources.

Marc Zabicki (01:36):

Again, as we address you on this day, March 2, oil prices have indeed moved higher. The primary reason for that is that approximately 20 million barrels of oil per day flow through the Strait of Hormuz, making it the world's most critical energy choke point. The Strait falls within Iran's territorial waters, although under United Nations law, it is considered an international waterway. Elsewhere, European equity markets were down sharply, while activity in U.S. markets have been somewhat mixed. Gold has ticked higher and the dollar has moved sharply higher, while Treasury bonds have sold off a bit after rallying ahead of the weekend's news. On balance, the market's reaction has been somewhat muted and not far from what you may see in a typical trading day.

Marc Zabicki (02:35):

While we don't know yet the longevity of the conflict, these types of geopolitical events do not typically lead to a lasting disruption from markets. The Trump administration expects only a multi-week frontal military engagement, and they also maintain the U.S. is not interested in what can be extensive and long lasting nation building. If this is in fact the case, this could limit the market's reaction to overall events. What can cause a lasting market disruption is when such events lead to a change in the economic trajectory of the U.S. or the world. And at this time, we do not believe that to be the case in this instance. In fact, history has shown us that such events should not prompt any material change in multi-asset portfolios. The one watch out we would point you to is that equity markets in the Middle East could be subject to high levels of ongoing volatility. So ensuring exposures are limited here should be a consideration. Meanwhile, we'll no doubt, be conducting ongoing analysis on this likely fluid situation and update you accordingly. Please check our Research content on lpl.com for more information. Thanks for listening, and as always, allocate wisely.