Investors have warned that the conflict in the Middle East will leave “scar tissue” in global markets with commodity prices and bond yields unlikely to quickly return to pre-conflict levels — even if a peace deal is reached.
Energy prices remain far above prewar levels even after the US and Iran announced a two-week ceasefire on Tuesday, with investors saying that damage to Gulf infrastructure and the loss of confidence after Tehran’s de facto closure of the Strait of Hormuz will weigh on a recovery.
“It goes beyond the [reopening of the] Strait of Hormuz. I think there would be longer-lasting scar tissue that would need a higher risk premium” in markets, even if a permanent ceasefire was agreed, said James Vokins, head of core income and investment grade credit at Aviva Investors.