Market wobble is a taster of bigger oil shock
09/03/2026 17:43
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. By Neil Unmack LONDON, March 9 (Reuters Breakingviews) - Equity and credit markets are giving a taste of what's to come if an Iran-induced energy shock persists. The STOXX Europe 600 .STOXX and S&P 500 Index .SPX fell less than 1% on Monday, even as a deepening Gulf conflict sent oil to $100 a barrel. Cyclically vulnerable sectors, like European carmakers and luxury groups, are not cheap, and credit derivatives are pricing in relatively few defaults. It suggests more severe losses ahead as the risk of a growth and inflation shock rises. Investors are only very gradually waking up to what the Iran conflict could mean for energy prices and the economy. Over a week after the war's beginning, traffic through the Strait of Hormuz seems unlikely to be restored soon. Iran's Assembly of Experts chose Ayatollah Ali Khamenei's son Mojtaba as the new supreme leader, days after U.S. President Donald Trump said the 56-year-old was an "unacceptable" pick. Gulf producers like Saudi Arabia are curtailing production. Brent crude LCOc1 was trading at roughly $100 a barrel by late afternoon London time — down from about $120 earlier in the day but still higher than Friday's closing level of around $93. Other market prices, however, suggest investors are calm. The STOXX Europe 600 Index is still up slightly this year, despite a wobble on Monday. Economically sensitive sectors, too, suggest only a modest hit from higher energy prices. Luxury titans Kering PRTP.PA and LVMH LVMH.PA are on average worth 26 times forward earnings, which is above their five-year average of 22. Carmakers, which would take a hit if cash-strapped citizens hold off making discretionary purchases, tell a similarly reassuring story. Volkswagen VOWG.DE, Stellantis STLAM.MI, BMW BMWG.DE and Mercedes-Benz MBGn.DE on average trade above 6 times forward earnings, which is in line with their level at the start of the year. Back in the depths of the 2022 Ukraine crisis, their valuation multiples fell below 5. Credit markets, meanwhile, are a long way from pricing in an avalanche of defaults. The Markit iTraxx Crossover index of swaps tied to junk-rated companies, which reflects expectations of future corporate bankruptcies or restructurings, is still below 300 basis points despite a recent jump. Its current level is less than half the peak in 2022. Investors arguably have some justification for this apparent complacency. After all, oil traders seem to be expecting a short-lived crisis, with futures contracts LCOc12 for oil delivered in 12 months' time still trading close to $70 a barrel. A de-escalation in the Gulf, however, is getting harder to imagine. There's little evidence that key shipping routes are opening, and a longer conflict risks greater damage to Middle Eastern energy infrastructure. Capital Economics estimates that oil could stay above $100 for the year even with just a three-month conflict, if that leads to more outages and damage. That would be worse than in 2022, when crude fell below the same threshold by the end of the year. In other words, more trouble could be in store for markets. Follow @Unmack1 on X CONTEXT NEWS The price of oil rose and stocks fell on March 9, as investors began to price in the risk of higher inflation and low growth. Markets were reacting to the appointment of Mojtaba Khamenei to succeed his father Ali Khamenei as Iran's supreme leader, signalling that hardliners remain in charge in Tehran over a week into its conflict with the U.S. and Israel. Brent crude rose as high as $119 per barrel, a roughly 28% jump since the previous close on March 6, and the highest level since 2022. By 1610 GMT, the price had fallen below $100. The STOXX Europe 600 Index was down 0.7% as of 1700 GMT on March 9, while the S&P 500 Index was down just 0.3%. Brent crude oil prices suggest a fleeting price impact from Iran war https://www.reuters.com/graphics/BRV-BRV/akpeyqyyrpr/chart.png (Editing by Liam Proud; Production by Pranav Kiran) ((For previous columns by the author, Reuters customers can click on UNMACK/neil.unmack@thomsonreuters.com))