Gilles Moëc, AXA Group Chief Economist and Head of AXA IM Research, discusses the consequences of Israel’s strike on Iran, focusing on the potential impact on oil prices as well as broader geopolitical and financial dynamics.
“The equity market reaction last Friday (the S&500 fell by 1.1% on the day) to Israel’s strike on Iranian nuclear facilities contrasted with the stability seen after the previous Iran-Israel air confrontation (Iranian ballistic missiles launched on Israel on 1 October 2024, Israel striking back on 26 October). This was a rational response to the immediate spike in oil prices (+8.4% for Brent on Friday, to USD74.2 per barrel), which also contrasted with the October 2024 episode. The magnitude of the attack is of course different (focus was squarely on air defence last year), the strikes and counterstrikes are continuing and trust in sources of moderation – Joe Biden was still in charge then – has diminished. But the reaction of other asset prices also illustrates how market dynamics have changed over the last few months under Trump 2.0 policies. Indeed, there was no safe-haven effect boosting the US Treasury market: the US 10-year yield even rose by 5 bps on the day to 4.41%. (there was a 7-bps decline on 1 October 2024). The dollar exchange rate did not benefit much from the shock: the euro lost only 0.3% on the day, correcting in the afternoon most of the knee-jerk decline of the early morning, to still stand above 1.150 (it had lost 0.8% on 1 October 2024). This is providing a natural experiment in the erosion of the status of dollar-denominated assets”
“The military situation remains fluid as we write, but we will look at two parameters to assess the magnitude of the economic shock. One, how OPEC members, and prominently the Gulf States, position themselves in this conflict. Second, what are the risks oil flows to the rest of the world gets disrupted.
Initially, Israel had spared Iranian oil-exporting capacity, focusing on domestic storage and distribution centres but this has seemingly changed in the latest wave. The Wall Street Journal reported on Sunday night that some Iranian oil exports from Kharg island, the country’s main terminal, have been delayed. Iran supplies roughly 4% of total oil in the world. Saudi Arabia holds the key to the oil market given its unique capacity to modulate its production swiftly in a way which has an immediate impact on the overall market balance. Riyadh condemned the Israeli strike. It is however unlikely Saudi Arabia would display any sign of active solidarity with Tehran. True, over the last few years a détente between the two usually rival regional powers has occurred – materialised in the visit of the Saudi Defence Minister to Iran in April 2025 – but Riyadh’s main objective in this détente is to foster stability in the region to advance its own economic development agenda, which continues to be based on its capacity to protect its market share in oil production. We would thus not expect Saudi Arabia to reconsider its current positive stance on oil supply, while working in favour of a de-escalation.”
“Again, it is an extraordinarily fluid situation, but on balance there are still many elements which could “cap” the geopolitical consequences, and hence the macro-financial consequences of this new bout of tension in the Middle East. If oil stabilises close to the levels seen as of Friday night – which would be consistent with such “cap” – then the boost to Russia’s position in its conflict with Ukraine would be relatively small. The fate of that war probably still lies more squarely in the outcome of the current Russian offensive on the field, rather than in the Iranian airspace.”
