New Delhi, March 4: Rising tensions in the Middle East, fueled by conflict among the United States, Israel, and Iran, are expected to drive up safe-haven assets, including gold and various currencies like the dollar and yen. This information was highlighted in a report released on Wednesday.
According to DBS Bank’s report, the spreads on sovereign and corporate bonds may widen for investors, while monetary policy is likely to remain unchanged in the near term.
Taimur Beg, the chief economist at DBS Bank, warned that despite minimal threats from Iranian naval vessels, the potential for mine-laying in the Strait of Hormuz could slow shipments and increase insurance, shipping costs, and energy prices.
Beg noted, “With Kurds in the north and Baluchis in the south, regime change could align with conditions for the end of wars, potentially drawing many countries in the region, from Turkey to Iraq, into the fray.”
The bank stated that prolonged closure of the Strait of Hormuz would severely disrupt global oil trade, as most oil from Gulf-producing countries passes through this route.
In a full-blown crisis, the strategic reserves in the U.S. would be insufficient to offset the losses. The bank projected that in an extreme scenario of complete blockage of the strait, crude oil prices could soar to $100-150 per barrel, raising inflation expectations, limiting the Federal Reserve’s ability to cut rates, and increasing the risk of a global recession.
The report concluded, “We disagree with the notion that silver can serve as an alternative to gold for portfolio risk diversification, as nearly 60 percent of silver demand comes from industrial applications and a smaller market size.”
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