The financial market impact of the Iranian missile attack on Israel should "remain limited", JP Morgan said, while other investment banks said it was a case of continued "brinksmanship" in the region.
JP Morgan's regional strategists said the impact should remain limited as long as the conflict does not broaden to include countries like Saudi Arabia or UAE directly, other countries outside the region, nor block the Straits of Hormuz.
Iran's missiles plus the incursion of Israeli troops into Lebanon "indicate to us a greater risk of a wider regional conflict than any point we have seen since the 7 October attacks by Hamas", strategists at the investment bank said in a note written last night.
"MENA stock markets, oil and more generally global equities have been little impacted by the growing conflict in Israel and its neighbors, even the April missile attacks by Iran on Israel had little lasting market impact."
However, they said the intensification of the conflict "adds uncertainty to other key geopolitical issues" such as US elections, OPEC+ cooperation, NATO defence cooperation over Ukraine to name a few.
Looking at data from the previous spikes in geopolitical risk around the 7 October attacks and the 14 April bombing of Israel by Iran, the JP Morgan team noted that Brent crude rose a little more than $5 per barrel last October, while in April, the Saudi market was sliding before the Iranian attacks when "the higher geopolitical risk was, in our view, a small factor in the market decline", with Brent crude also sliding through April and May.
Looking at the potential for impact on oil and other escalation risks, Helima Croft, head of global commodity strategy at RBC Capital Markets, said Iran's second barrage of ballistic missiles at Israel was in retaliation for the string of airstrikes and covert attacks that killed Hezbollah leader Hassan Nasrallah, as well as high-ranking Hamas and other officials.
"We suspect that Supreme Leader Khamenei was coming under increasing pressure from the Revolutionary Guard to come off the sidelines to respond to Israel in a manner that would reestablish a measure of deterrence, while stopping short of provoking a regional war," she added.
Senior diplomats on the sidelines of the UN General Assembly have reportedly suggested that Israel may indeed look to “run the table” and potentially target Iranian military and economic assets, including its oil facilities.
Since the conflict began roughly a year ago, many market participants have "faded the risk" of physical disruptions to oil supply, Croft said, while Iranian exports have climbed to 1.7 million barrels per day, nearly at six-year highs.
Iran's Kharg Island oil export facilities, which handle around 90% of the country’s crude exports, has been highlighted as a key risk to oil markets, but the RBC strategist noted that the Iranian navy maintains a base on the island to protect this vital economic asset and has avoided a repeat of the 2019 attacks on regional energy infrastructure.
Iran and its proxies "could potentially target energy operations in other parts of the region in order to internationalize the cost if the current crisis devolves into an all-out war", Croft added.
"We also continue to highlight the risk that Iranian-backed militias could further target US troops in the region, including over 3,000 currently in Iraq and Syria."
In short, economist Kallum Pickering at Peel Hunt said investors "need to watch carefully two risks: (1) a shock to global energy supplies, and (2) disruptions to the major global shipping routes through the region".
"We also need to keep an eye on the ongoing dockworkers’ strike on the US East Coast and Gulf Coast, which could lead to material dislocations not just to US economic activity but global supply as ships are re-routed, if it goes on for too long," he said.