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How Will the Crisis in Iraq affect U.S. Financial Markets?

Conflict in the Middle East has been a virtually constant source of uncertainty for investors, yet it has rarely, if ever, had a lasting impact on U.S. financial markets. Consider that markets have performed well over the past decade despite two U.S.-led wars in the region.

Uncertainty in the Middle East could temporarily affect markets, however, should it cause oil prices to spike. Iraq is presently the second largest crude oil producer among OPEC nations, with output today exceeding pre-invasion levels. Compromised Iraqi production would have a much greater effect on global markets than, for example, the 75% decline in Libyan oil production following that countrys 2012 upheaval. There are also questions surrounding OPECs ability and willingness to boost supplies in the event that Iraqi production is curtailed.

6.26.14On the other hand, the renaissance in U.S. energy markets could help to cushion the economic blow to the U.S. from an oil shock overseas. Increased domestic oil production (growing by 25% per year) and the ongoing ban on crude oil exports have created a disconnect between U.S. and overseas oil prices (chart). This spread could widen if overseas turmoil pushes overseas oil prices higher.

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.

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