[Click eStock] "Oil Price Uncertainty Rises Due to Middle East Risk... Downward Pressure on Stock Market"

Possibility of Negative Impact Higher Than Actual Threat
Focus More on Factors Influencing Oil Prices Than the War Itself
"Domestic Stock Market with High Crude Oil Import Ratio May Suffer Greater Damage"

On the 16th, IBK Investment & Securities analyzed that the financial market's negative sensitivity to Middle East risks could be greater than the actual severity of the situation. They also focused on the impact of oil price movements on the stock market.

[Image source=Reuters Yonhap News]

Junho Byun and Eunmyung Park, researchers at IBK Investment & Securities, stated, "We believe the possibility of an expansion of Middle East risks is low, but as these risks persist, market uncertainty is expected to continue," adding, "There is a high likelihood that the financial market will once again move in tandem with oil prices."

In particular, with U.S. inflation showing signs of rising again and concerns about a second wave increasing, attention inevitably turns more closely to oil prices. The Ukraine-Russia war at the end of February 2022 occurred during the peak oil season, leading to rising oil prices accompanied by a stock market decline. In contrast, the Israel-Hamas war in early October 2023 took place during the off-season for oil, resulting in limited oil price increases while the stock market quickly stabilized.

The two researchers noted, "The fact that oil prices have fallen temporarily after the Iranian airstrike is a positive sign," and added, "Given that the current period is the entry phase into the peak oil season ahead of the driving season, we cannot rule out the possibility of oil prices rising again from a timing perspective." Ultimately, the key issue is whether the Middle East conflict will escalate into an oil shock phase.

"From the perspective of market participants, the more important issue than the movements themselves, such as airstrikes and clashes, is whether these events will affect crude oil supply and the oil market," they explained. It is necessary to respond according to scenarios including statements and actions by Middle Eastern oil-producing countries, potential disruptions in Middle East oil production, possible closure of the Strait of Hormuz, and Western countries' involvement following Israel's retaliations. If the situation escalates to an extreme, international oil prices could rise sharply, and if inflation concerns intensify due to an oil shock, expectations for Federal Reserve rate cuts will diminish further, accelerating downward pressure on the stock market.

Researchers Junho Byun and Eunmyung Park added, "Especially, the domestic stock market, which has a high proportion of Middle East oil imports, may suffer greater damage compared to other countries," and concluded, "In summary, given the high uncertainty surrounding oil prices, it is necessary to develop response strategies while monitoring the oil price stabilization process."