US march to war against Iran gives oil industry a boost

Ed Sykes

Oil prices pushed upwards on Monday 6 January, following the US assassination of Iran’s top general last week in Iraq.

Iran has long been a key regime-change target for the US. And it has faced increasing hostility from the superpower in the last couple of years. Following Donald Trump’s 2018 exit from the Iran nuclear deal, for example, there have been heightened tensions between the West and Iran. This withdrawal essentially killed the agreement. Ever since, the US has sought to put pressure on Iran via heavy sanctions and military threats.

Strong gains for the oil and arms industries

Brent crude smashed through the 70 dollars per barrel mark early in the day. Meanwhile, the US standard – West Texas intermediate – was up around 1.2% to 63.78 dollars. This capped off strong gains for oil since Donald Trump ordered the murder of Qassem Soleimani, the head of Iran’s Quds Force. Iran has promised to retaliate, and Iraq’s parliament voted in a non-binding resolution on Sunday to oust US troops based in the country. More than 5,000 US troops are still on the ground in Iraq 17 years on from the 2003 US-led invasion.

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The assassination has raised fears of a potential escalation of violence in the region, and even an all-out war between the US and Iran. And traders have pushed up the price of oil in response to these fears, as a war in the region could cut off supplies and restrict shipping through the vital Strait of Hormuz, where a fifth of the world’s oil supply is transported. The strait, around 20 miles across at one point, sits between Iran and the Arabian Peninsula, home to its regional rival Saudi Arabia.

The news has also been a boon for London-listed oil majors and weapons manufacturers. BP was up around 1.85% on Monday, for example, while BAE Systems rose 1.65%, leading the FTSE 100.

War-crime threats from Trump

Trump has also insisted that Iranian cultural sites are fair game for the US military, dismissing concerns that doing so could constitute a war crime under international law. And he warned Iraq that he would levy punishing sanctions if it expelled US troops.

Military action against cultural sites would likely be illegal under the laws of armed conflict and the UN charter. Oona Hathaway, an international law professor at Yale and a former national security law official in the Defence Department’s legal office, said Trump’s threat amounted to “a pretty clear promise of commission of a war crime”.

“For what?”

Progressive politicians in the US have slammed Trump’s actions. Army veteran Tulsi Gabbard, for example, said:

Bernie Sanders, meanwhile, stressed:

Indeed, anyone who considers themselves to be progressive should completely oppose a US war against Iran. Because it would be disastrous for everyone involved. And the only people who’d benefit would be oil and arms trade executives, and the politicians in their pockets.

Featured image and additional content via Press Association

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    1. The share price moves are as one would expect. Stock in oil and armaments is a hedge against war and its disruptive effects on other components of markets. Gold is doing well too; it is a generic hedge rather than industry/service specific.

      The question that ought be in the investor’s mind is what is a good hedge against peace? Thoughtless statesmen who let genuine peace break out – this to be distinguished from cunningly crafted tension giving reason for weapons manufacture and purchase – risk damaging their nation’s, and their personal wallet’s, finances. Hedges against war are easy to identify but not so for those against peace.

      There are potentially many sectors for growth and income when an economy is no longer impeded (read also as ‘no longer buoyed-up’) by promoting conflict but it is not obvious which to put faith in. Staples, the export of which to warring nations may be disrupted, could be worth considering. This is not the place to go one by one through candidate possibilities. Needless to say, the investor buys hedges against peace whilst war/tension is in full flow, that is when their market value is depressed.

      Yet, the wise investor does not sell-off stock associated with conflict when by some misfortune peace breaks out. That is the time to buy more. Peace is generally transient and anyone cognisant of human nature pertaining to nations’ rulers and their backers, this regardless of pretence at (unattainable) democratic governance, is aware that a medium-term bet on arms/oil industry fortunes recovering, better still blossoming, after economically disastrous peace has been banished is a certainty.

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      This advice is offered without warranty. Investment values can unexpectedly decline just as they can increase. Persons unfamiliar with markets and unlikely to become guests in government bunkers ought consider digging their own hole in the ground and stocking up on cans of baked beans (plus an opener); furthermore, don’t purchase ‘low sugar’ variety because one might need every calorie one can get.

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