Markets shrug at the Lebanon conflict, but are underestimating the risks

GULF COUNTRIES - Report 30 Sep 2024 by Justin Alexander

Markets have shrugged off the risks from the conflict in Lebanon, including the killing of Hezbollah's leader and a pending ground invasion. Hezbollah may not be as weakened as thought and, although Iran has shown restraint until now, this may be a step too far. Lots of human suffering is ahead. For GCC markets, there could be a panic hit to bonds and equities if there is a significant exchange of fire between Iran and Israel, particularly if the US participates and if there is disruption to shipping in the Gulf. However, these impacts would be short lived, but the premium to oil from risk and possible damage to Iranian exports could last longer and offset this positively for the GCC. Still, the Gulf states don't want to see this happen and are trying to engage diplomatically to mitigate conflict.

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