The U.S. attack on Iran, which degraded and possibly destroyed Iran’s nuclear weapons program, is the news which could impact the markets next week.
The Three Unknowns After the U.S. Strike on Iran
by Nicholas Kristof, The New York Times, June 22, 2025
The first uncertainty is how Iran will strike back at the United States. …
Another option would be to seek to close the Strait of Hormuz, fully or partly, by attacking shipping or by laying mines. That could be a blow to the world economy, for one-quarter of the world’s oil passes through the strait… [end quote]
Will Iran Attempt to Block the Strait of Hormuz?
By Costas Paris, The Wall Street Journal, 6/21/2025
The strait is shared between Iran in the north and Oman in the south handles around a quarter of the world’s oil trade with dozens of giant tankers that can move two million barrels in a single shipment crossing through every day after loading up at oil terminals in Iran, Saudi Arabia and Kuwait…
Any disruption at the strait will send oil prices soaring. The waterway at the mouth of the Persian Gulf connects it to the Indian Ocean. It’s 100 miles long and 21 miles wide, making it an easy target for Iranian missiles, helicopters and Revolutionary Guard patrol boats.
Big tanker operators told the Journal they are following developments closely and have no immediate plans to pull their ships from the region. [end quote]
The question for investors today is: will the Macroeconomic and investing sequelae resemble the 1973 OPEC oil embargo? Or will the current degradation of Iran’s military due to recent Israeli strikes, coupled with U.S. energy independence, make the current surgical removal of Iran’s nuclear threat a relative non-issue?
For those who don’t remember…
The embargo was triggered by the Yom Kippur War in October 1973, where Egypt and Syria surprise-attacked Israel followed by Israel’s successful defense. The U.S. provided military aid to Israel, prompting the Arab oil-producing nations to retaliate.
The embargo involved both ceasing oil exports to targeted nations and implementing production cuts. Oil prices quadrupled in a matter of weeks, leading to a global energy crisis. The embargo contributed to high inflation and economic stagnation in the U.S. and other affected countries.
The effect on the stock market is most clearly seen in the Inflation Adjusted S&P 500.
The SPX didn’t fully recover until after 1990.
The U.S. energy situation today, in June 2025, is dramatically different from 1973 when the OPEC oil embargo began, particularly in terms of domestic production, import reliance, and the diversification of energy sources.
In 1973, the U.S. had grown increasingly dependent on foreign oil, with imports reaching about 34% of its total oil consumption. This made the nation highly vulnerable to supply disruptions.
The U.S. has transformed from a highly vulnerable, import-dependent nation in 1973 to an energy-abundant, net-exporting country with a more diversified energy portfolio today. Since 2019, the U.S. has been a net exporter of energy, meaning it produces more energy than it consumes. Oil imports are diversified, with Canada being a major source. Renewable energy sources have seen significant growth. The creation of the Strategic Petroleum Reserve after 1973 provides a crucial buffer against future supply disruptions.
Iran is under sanction so the U.S. doesn’t buy any Iranian oil. The primary destination for Iranian oil is China, which imports the vast majority of Iran’s crude.
I’m no expert on the global energy market but clearly there will be a lot of uncertainty. Oil futures already began to spike on Friday, 6/20/25.
OPEC will be in a difficult position. While some members, particularly Saudi Arabia and the UAE, would likely step up to try and stabilize the market by increasing production, the extent of their ability to do so would depend on the severity of the conflict and whether the Strait of Hormuz is significantly impacted. The overarching goal for OPEC would be to prevent a complete collapse of oil flows and avoid a global economic crisis, while navigating the complex geopolitical landscape within the cartel itself.
Last week (before the attack) the markets have been stable. The Fear & Greed Index is neutral. The trade is neutral, neither risk-on nor risk-off.
The Chicago Fed’s National Financial Conditions Index (NFCI), which provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems, is loose.
The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2025 was 3.4 percent on June 18, a strong reading.
The Federal Reserve held the fed funds rate constant as expected by the futures market.
The METAR for next week is impossible to predict. The stock market is still in a bubble which may be vulnerable to the “black swan” event of the attack on Iran. Or the markets may decide that Iran can’t do anything to significantly disrupt the economy and shrug it off.
The METAR is a short-term forecast. The impact of the attack will probably take months, if not years, to become evident.
Wendy
