— This is the script of CNBC's news report for China's CCTV on January 7, 2020, Tuesday.
Market panic has been eased some if you see from the performance in global financial market Monday, but it is not totally eliminated as heaven asset gold rise to a 7-year high that reflects the worries in markets. Some analysts believe that worries are not realistic while some concern that the current situation is just a start for a long-lasting conflict.
Moody senior analyst pointed out in a note to client released Monday, saying a long-lasting conflict will impact economy and finance broadly and that will worsen the business operation and financing situation. We know that in 2019, affected by trade protectionism and many other factors, global economy declined, most of international institutions hope that can claw back gains in the first half of this year, however, if the current conflict continues to worse, then it will bring uncertainties to the expected economy recovery.
This impact is not limited in countries that are involved in conflict but also many other countries worldwide, meanwhile, tourism in the Middle East and other business and economy aspects get negative influenced, not just the finance and crude oil industries get impacted. The latest news we got shows
US oil company Chevron has called back petroleum workers from Iraq, so business in the Middle East has been influenced obviously, financing becomes hard under uncertainties.
Currently, Iran threated to revenge, but it is not clear what kind of steps it will take, people guess it will close down the Strait of Hormuz, that will boost oil price directly.
Once that happened, economists predict that oil price will rise to 150 dollar per barrel, driving inflation rate in OECD countries up to 3.5%/4%, that means consumers will pay another consumption tax.
former United States Secretary of Energy
If disruptions are relatively modest, you know, a couple of millions of barrels a day through the international energy agency and our own strategic petroleum reserve, we still only could fill such a gap for fair amount of time, however, if there is really a major stock change of oil flow out of the gulf. that would clearly send oil prices very very high in a short time
Iran's economy development in recent years is influenced by U.S. and international sanctions a lot, some are trying to coordinate the contradiction between the U.S. and Iran.
If the current situation goes out of control, U.S. launches a full-scale military attack to Iran, then it may make Iran's economy totally collapsed and drag down 3% in global economy growth. Under this circumstance, the U.S. is not immune from that, it is evitable to increase military expenditure and military presence in the Middle East, what's more, it has to face counterattack from Iran.
Now, the U.S. congress, especially the Democratic is trying to constrain Trump's power in military, so market believes expanding conflict is an all-too-rare event but given uncertainties will last for a while and driving by risk-averse sentiment, gold will get boosted further recently.
UBS Private Wealth Management Managing Director
we always believe you should have a part of your portfolio in gold, some private clients do that, physical ownership, some do it through gold bugs, but at this point, especially, with a year that we think it is going to be dominated by geopolitical tension, US election, even when we have these behind us, gold has a lot of room to move up.
We will keep an eye on the follow-ups in the Middle East.