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Will the Middle East Wreck My Retirement?

Will the Middle East Wreck My Retirement?

October 22, 2023

We have all seen the news of the traumatic events in the Middle East. It’s another reminder of the Certainty of Uncertainty. As a fiduciary financial planner, I know unexpected events will happen that MIGHT affect my clients. I DO NOT have a crystal ball, but I work hard to be sure my clients have a resilient financial plan that is ready for the NEXT unexpected development.

These can seem like troubling times. From floods, earthquakes, and devastating wildfires to inflation, political discord, and world hunger, the bad news can be hard to stomach some days. The recent news from the Middle East triggers feelings of both sorrow and fear, including fear of how this will impact financial markets.

The U.S. and global economies were already rattled by inflation and rising interest rates. With the news of the surprise attack by Palestine’s Hamas group on Israel (and Israel’s subsequent declaration of war), there are certainly worries about how this could impact financial markets. The fallout of this war will take time to be fully understood, but here are a few things my experts are observing:

Potential for Higher Oil Prices

It is well known that Hamas is backed by Iran and supported by the Iranian Revolutionary Guard (IRGC), so concerns that another Iran-backed militia in Lebanon, Hezbollah, could get involved are significant. There have already been isolated flare-ups along Israel’s border with Lebanon, highlighting the possibility of a proxy war with Iran. Other Iran-funded militia groups in Syria and Yemen could join if the fighting escalates.

A sharper escalation could bring Israel into direct conflict with Iran. In that scenario, Bloomberg Economics estimates oil prices could soar to $150 a barrel.(1) Although heavily sanctioned by the U.S., Iran is a large producer of oil, producing around 3 million barrels per day (bbl/day) about 3.19% of the global supply. Israel, Lebanon, and Gaza only produce about 300,000 bbl/day in total.(2)

Possible Re-Acceleration of Inflation

For the U.S., this could have major impacts on inflation, which has been ticking upward as of late. The overall US inflation rate moved up to 3.7% in September, the third increase in as many months. This is due to already surging energy prices, with gasoline and fuel oil increasing 12.9% and 18.4% respectively over the last two months (3), and despite a decrease in core inflation (excluding food/energy), which had its smallest year-over-year increase since September 2021, after moving down to 4.1% last month.

If inflation begins to reaccelerate, it may cause the Federal Reserve (Fed) to consider further rate hikes. However, the conflict already puts near-term pressure on markets and economic growth, and therefore, despite higher inflation, the Fed may consider leaving rates unchanged to prevent further economic slowdown.

The market seems to agree with the sentiment that rates will stay steady after the next Fed meeting in November, given that the Monday following the weekend attacks, the market-implied probability of an increase in the fed funds target rate in November fell below 14%. This was almost 50% at the start of September and 30% the week prior to the attacks.

Stock Markets Could Be Hurt By Geopolitical Shocks

It's easy to worry that global news will damage your investment returns. History shows that after a short-term reaction, longer-term returns for asset markets after geopolitical events are often positive. We are deeply saddened by the unprecedented and devastating events that are taking place, but we do believe that markets will remain resilient, and staying invested is the most prudent course of action at this time.

(4)

If you’re looking for more information to better understand the roots of this conflict, Financial Times put together a list of recommended books to help you understand the Israeli-Palestinian conflict. Look up these titles to read more about them and find one that is of interest to you:

  • Enemies and Neighbours: Arabs and Jews in Palestine and Israel 1917-2017by Ian Black (2017)
  • Eighteen Days in October: The Yom Kippur War and How it Created the Modern Middle East by Uri Kaufman (2023)
  • Bibi: The Turbulent Life and Times of Benjamin Netanyahu by Anshel Pfeffer (2018)
  • A Day in the Life of Abed Salama: A Palestine Story by Nathan Thrall (2023)
  • Footnotes in Gaza by Joe Sacco (2009)
  • Hamas: The Islamic Resistance Movement by Beverley Milton-Edwards and Stephen Farrell (2010)
  • The Iron Cage: The Story of the Palestinian Struggle for Statehood by Rashid Khalidi (2007)
  • A Peace to End All Peace: The Fall of the Ottoman Empire and the Creation of the Modern Middle East by David Fromkin (1989)
  • A Line in the Sand: Britain, France and the Struggle That Shaped the Middle East by James Barr (2011)
  • Israel: A History by Anita Shapira (2012)

Finally, a reminder: market volatility is expected, and fluctuations are a natural part of normal market cycles (as are recoveries). It’s hard to say how long this heartbreaking crisis may last nor what the financial impacts may be as a result. But I do believe that the financial plans we have in place are built to help withstand volatility. In the meantime, if you’d like to discuss any of these current events in more detail, please reach out. Follow this LINK to find a time for us to have a visit. 

Recent events remind me how important it is for me to focus on the Certainty of Uncertainty in each of my clients’ lives. I hope that as an experienced, highly-trained, CERTIFIED FINANCIAL PLANNER™ professional and Behavioral Financial Advisor, I am effective at helping my clients to better understand their options. I love to meet new people. So, if you would like to discuss these events, follow this LINK to find a time for us to have a get-acquainted visit.

I am a financial planner who is an advocate for my clients ALL THE TIME – a fiduciary financial planner. I provide guidance based on clients’ best interests, not commissions or sales quotas. I think it’s the best way to serve clients and I am thrilled to work this way all the time.

And yes, I’m still taking on a few great families to be part of my financial planning practice.

Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.