Attack on Iran Risks Sharp Drop in Stock Prices

Israel’s massive attack on Iran caused a significant drop in stock prices before the market opened. Futures were down as much as 2%. Many analysts believe that if this incident leads to a wider war that includes Iraq and other nations in the Middle East, the S&P 500 could drop sharply, much as it did when Russia invaded Ukraine in February of 2022. During the early stages of that conflict, some stocks declined by nearly 10%.

Israeli Prime Minister Benjamin Netanyahu said, “We targeted Iran’s leading nuclear scientists working on the Iranian bomb. We also struck at the heart of Iran’s ballistic missile program.”  Iran has early nuclear capability but not a fully functional nuclear weapon. Negotiations to stop the friction between the two nations have been slow.

Netanyahu said the attack could go on for days, and Iran will certainly retaliate.

Stocks often pull back when global military actions begin, although this is more likely to occur during short-lived events, such as the 2019 Saudi Aramco bombing. The market fell 4%.

What is far too early to tell is what will happen if the conflict draws in a large number of nations. While it is a guess, Iran has several allies. Iraq and part of Yemen might give it support. Iran also has alliances with China and Russia, although they are unlikely to be drawn into direct conflict. China could supply Iran weapons, as it has in the war in Ukraine.

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