Market update: Pessimism creeps in despite Trump’s bullish stance on Iran war
Susannah Streeter, chief investment strategist, Wealth Club: ‘’President Trump sounded bullish before reporters in the Oval Office about the trajectory of the war with Iran, but the conflict has become entrenched and shows little sign of being ‘wrapped up very soon’, despite his claims.
Tehran has launched intense attacks on the American embassy in Iraq and is continuing to strike key infrastructure sites of US allies across the Middle East. Iran is intent on causing as much disruption and damage to facilities as possible to stop the flow of oil, with energy its key weapon in this conflict.
The optimism which mounted on Monday is fizzling out. Crude prices are rising again, and London’s FTSE 100 has had a flat start to trading, with energy giants offering some support but other losses, such as falls in airline stocks, offsetting gains. Investors are assessing the impact of a longer, drawn-out conflict on economies around the world. European indices are expected to be in the red in early trade, and more pessimism is set to spread on Wall Street.
The airline industry is still reeling from the repercussions of intense strikes across the Middle East. As drones continue to infiltrate the skies, it has caused a sharp reassessment of flight maps. The closure of UAE airspace overnight due to a drone attack on a fuel storage tank has dashed hopes of more permanent routes being re-established.
The tense situation, with travel warnings staying in place and demand for holidays plummeting, has prompted British Airways to cancel all flights to Dubai until at least June. Abu Dhabi flights remain cancelled until October, while routes have also been cancelled to Bahrain, Tel Aviv and Amman. Airlines are counting the high cost of cancellations, rerouting flights, and dented consumer confidence, while aviation fuel has shot up in price and is set to stay highly volatile.
While many airlines have oil hedging in place, securing a chunk of their fuel at fixed prices, it’s not a failsafe solution, particularly if the war drags on much longer. Competition for other, safer destinations is also set to increase as holidaymakers rethink plans, which is likely to see ticket prices continue to rise.
The disruption of transport routes will cause huge headaches for conference organisers and hotel chains across the region. The UAE has been trying to project an image of business as usual despite the attacks, but with airlines cancelling routes, the viability of big events has come under serious question, and postponements are set to mount up. Kingdoms in the Gulf were counting on tourism and being hubs for global business to help diversify their economies, and this conflict is proving to be a major setback for those plans. London-listed Informa has seen shares continue to decline in early trading, as investors assess the impact on the global events organiser’s operations, particularly in the Middle East.
While there appear to be back channels of communication which have opened up between Iran and nations like India, Pakistan and China, enabling safer passage for their tankers, the key Strait of Hormuz still largely out of bounds. Efforts by Trump to round up support from NATO members to increase security through the waterway have been met with considerable pushback. Finland’s President, Alexander Stubb, has backed Keir Starmer after the UK prime minister was once again singled out by Trump for criticism for not acquiescing to US demands to support its military campaign. Finland and Germany’s leaders have stressed that it’s not a NATO war, with the Finnish president emphasising that peace mediation, not escalation, should be the priority.”