Markets

A lasting US-Iran conflict would cause 'broad economic, financial shock,' Moody's says

Key Points
  • "A lasting conflict would have wide-ranging implications through broad economic and financial shock that significantly worsen operating and financing conditions," Moody's said Monday.
  • Senior analyst Alexander Perjessy said that repercussions would be felt throughout economies, as ongoing tensions would impact areas outside of energy and banks, such as tourism.
  • So-called safe haven assets like gold and bonds have been rallying since Thursday's airstrike, while U.S. West Texas Intermediate crude surged to its highest level since April.
VIDEO1:2801:28
Gen. Soleimani's daughter threatens attack on US troops during funeral procession

As tensions rise in the Middle East, Moody's warned on Monday that any sustained clashes could have global economic repercussions.

"A lasting conflict would have wide-ranging implications through broad economic and financial shock that significantly worsen operating and financing conditions," Moody's senior analyst Alexander Perjessy wrote in a note to clients Monday.

"A protracted conflict would potentially have global repercussions, in particular through its effect on oil prices," he added.

Following Thursday's death of top Iranian commander Qasem Soleimani, on Sunday an Iranian state-run television broadcast said that the nation would no longer respect uranium enrichment restrictions set forth in 2015's nuclear deal. Also on Sunday, the Iraqi parliament passed a resolution calling for an expulsion of foreign troops, which raises question about the future of the allied mission that has successfully fought the "Islamic State," or ISIS, in recent years.

Perjessy said that the effects of ongoing tensions would hit the broader economy — not just the oil and banking sectors — as things like tourism in the Middle East, for instance, would be impacted. He also noted that "increased risk aversion" would be negative for issuers, particularly those with "large external financing needs" and "relatively smaller or insufficient reserves."

Since Thursday's airstrike safe haven assets like gold and bonds have rallied, and oil prices have surged to multi-month highs.

VIDEO7:0107:01
Likely to be Iranian response to US drone strike: Fmr. brigadier general

On Monday international benchmark Brent crude hit a session high of $70.74 — its highest since September 16 — while U.S. West Texas Intermediate climbed to $64.72, its highest since April.

Perjessy said that for oil producers in the Middle East higher prices "could mitigate some of the credit-negative implications," so long as demand remains high and nations are able to continue exporting.

- CNBC's Michael Bloom contributed reporting.