Investors in the oil industry have expressed concerns about the sudden increase in oil prices caused by rising tensions between the United States and Iran. The main worry is that US corporate earnings could be heavily affected by rising energy costs.
Since two US military bases hosting US troops were hit by missiles sent by Iraq, oil prices have shot up. Brent crude was up by 1.4 per cent at $69.21 a barrel in the middle of the Asian trade, dropping from earlier gains.
Fund managers and analysists have said that although $70 per barrel remains far below the level that would cause an immediate recession in America, increased energy costs during a time of geopolitical tensions will leave investors and companies skittish.
Barry James, a portfolio manager at James Investment Research, said that the likelihood that oil stays at current levels or moves higher will push more investors into a defensive crouch until it becomes clearer how companies are responding.
He said: “Stocks are not cheap and we’ve had this huge run-up and sentiment had gotten dangerously bullish,”
“I would want to have at least a moderate position in energy if I didn’t have any and some gold in my portfolio.”
The dispute between the United States and Iran escalated even further Wednesday morning after an Iranian missile attack targeted US-led forces in Iraq; the S&P 500 was highly influenced by this news and was sent down more than 1.5 per cent.
Global stock prices have fallen due to the increased conflict in the Middle East. Japan’s benchmark Nikkei 225 stock index plummeted by 1.3 per cent and Hang Seng in Hong Kong was down by 0.8 per cent.