When CEOs Should Start Worrying About Israel-Iran War

On October 1, Iran launched more than 180 ballistic missiles into Israel in retaliation for Israel’s killing in late September of Hassan Nasrallah, the leader of Hezbollah, an Iranian-backed militia and political organization in Lebanon. Millions of Israelis were forced to seek safety in bomb shelters, but most incoming rockets were intercepted. Those that did land did not cause significant damage.

From a humanitarian perspective, the escalating conflict – now involving more strikes in densely populated areas of Lebanon – after a year of devastating loss of life in Gaza and the October 7 terrorist attacks, is dire and alarming. But from an economic perspective, the escalation is not a crisis—yet.

Johan Gott, co-founder of Prism, a political risk consultancy, says Iran’s stunning attack demonstrated that Tehran lacks the ability to damage parts of Israeli infrastructure and industry that are connected to the global economy, such as the semiconductor sector. . “We’ve eliminated that concern on a large scale,” he says wealth“at least until now”.

The real threat to global economic stability remains the possibility that, with Iran drawn deeper into the conflict, Tehran could target oil infrastructure and trade routes in the Persian Gulf, through which about 25 percent of global oil shipments travel. “A shutdown there would be unprecedented,” says Gott, “there would be immediate, massive implications.”

“So far, oil prices have been kept under control despite the high risk of conflict in the Middle East, a small historical anomaly,” Prism writes in a new report. “But Israeli attacks on Iranian oil production or Iranian disruption of the oil exports of the Persian Gulf states (Saudi Arabia, UAE, etc.) would change this immediately. We could see a doubling or tripling of oil prices.”

Oil prices rose modestly this week. Brent crude, which was trading at $71 a barrel before Iran’s attack, hit $76 on October 2 and stood at $75 at the time of writing.

To complicate matters, an oil supply crunch could coincide with a surge in demand, given U.S. rate cuts and China’s renewed efforts to use stimulus to jump-start its sluggish economy. Those stimulus efforts are starting to pay off, with Chinese equity markets “rising”, says George Coe, co-founder of Prism. In recent years, weak Chinese demand has kept commodity prices lower. So among the many intersecting concerns of a potential oil supply disruption, “you could have a surge in demand and a supply problem at the same time,” Coe explains, which in turn could lead to higher prices and shortages.

What CEOs should pay attention to

However, the two say, outside of such a scenario, their advice to US CEOs is to keep an eye on threats closer to home. The strike by dock workers at US ports and its potential to wreak havoc on the supply chain, which could also reintroduce inflation, should have business leaders on edge. The strike’s potential impacts have been underreported, they say.

But the duo’s bigger concern is the US election and former President Donald Trump’s protectionist trade policies. The Republican candidate has promised to implement universal import tariffs if he wins in November and higher tariffs on already taxed Chinese goods. his policies would have for American families, but also for global companies, including some of the largest US multinationals, as Of luck Geoff Colvin reports. (Democratic nominee Kamala Harris supports “targeted and strategic” tariffs, a spokesman for Colvin said.)

Companies are still responding to the trade war Trump unleashed with China in his first term by reorienting their cost structures and supply chains, Coe says, and Trump’s latest proposals are far more extreme. “Some calculations point to a cost increase of half a trillion a year for US imports — a number that must then be doubled to account for all but a few retaliations by US trading partners,” the two write in their new report. “This would be a much bigger shock to global supply chains than the China trade war of Trump’s first term. “

During his first term, companies didn’t proactively respond to Trump’s tariff proposals, believing they were too outlandish, Gott adds. Despite all the noise about people eating pets and other outlandish claims, he continues, Trump has been consistent with his policies on trade and executed them successfully in his first term. Four years later, if Trump wins, Gott says, dropping his trade proposals again would be “a big mistake.”

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