Gulf War Escalation and Energy Prices

Attacks on Gulf energy infrastructure impacted financial markets. Investors have partially looked through short-term increases in energy prices, assuming consumers and businesses will find the means to adapt. Damaging infrastructure raises the risk of prices staying higher for longer, extending the damage beyond the ability of economies to adapt. US President Trump’s urgent social media posting on the attacks suggests some awareness of domestic economic and political costs, perhaps reinforcing investors’ probability of an early US withdrawal.